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Social Security heading for insolvency even faster

By Ricardo Alonso-Zaldivar and Stephen Ohlemacher

Associated Press

POSTED:
LAST UPDATED: 11:58 a.m. HST, Apr 23, 2012


WASHINGTON >> Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians' reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033 — three years earlier than previously projected — the government said Monday.

There was no change in the year that Medicare's hospital insurance fund is projected to run out of money. It's still 2024. The program's trustees, however, said the pace of Medicare spending continues to accelerate. Congress enacted a 2 percent cut for Medicare last year, and that is the main reason the trust fund exhaustion date did not advance.

The trustees who oversee both programs say high energy prices are suppressing workers' wages, a trend they see continuing. They also expect people to work fewer hours than previously projected, even after the economy recovers. Both trends would lead to lower payroll tax receipts, which support both programs.

Unless Congress acts — and forcefully — payments to millions of Americans could be cut.

If the Social Security and Medicare funds ever become exhausted, the nation's two biggest benefit programs would collect only enough money in payroll taxes to pay partial benefits. Social Security could cover about 75 percent of benefits, the trustees said in their annual report. Medicare's giant hospital fund could pay 87 percent of costs.

"Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare," the trustees wrote. "If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare."

The trustees project that Social Security benefits will increase next year, though the increase could be small. They project a cost-of-living-adjustment, or COLA, of 1.8 percent for 2013; the actual amount won't be known until October.

Beneficiaries got a 3.6 percent increase this year, the first after two years without one.

More than 56 million retirees, disabled workers, spouses and children receive Social Security. The average retirement benefit is $1,232 a month; the average monthly benefit for disabled workers is $1,111.

About 50 million people are covered by Medicare, the medical insurance program for older Americans.

America's aging population — increased by millions of retiring baby boomers — is straining both Social Security and Medicare. Potential options to reduce Social Security costs include raising the full retirement age, which already is being gradually increased to 67, reducing annual benefit increases and limiting benefits for wealthier Americans.

Policymakers could also increase the amount of wages that are subject to Social Security taxes. Social Security is financed by a 6.2 percent tax on the first $110,100 in workers' wages. It is paid by both employers and workers. Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program's finances are being made whole through increased government borrowing.

The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers.

Social Security is split into two funds — one for retirement and survivor benefits and one for disability. The retirement fund is projected to run out of money in 2035 while the disability fund is projected to run dry in 2016. Combined, the two funds will last until 2033.

In the absence of a long-term solution, the trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994.

Social Security's trust funds contain a total of $2.7 trillion. The money is invested in U.S. Treasury bonds. The government has used the cash to pay for other programs.

The trust funds have been paying out more in benefits than they have collected in payroll taxes since 2010. The funds, however, will continue to grow until 2021 because they will earn interest on the Treasury bonds, the trustees said.

Many advocates for seniors worry that Washington is too focused on benefit cuts as a way to shore up Social Security. They argue that the program's finances are not as dire as some policymakers contend.

"After 77 years and 13 recessions, Social Security continues to prove itself time and again as the most effective public program in our nation's history, keeping its promise to our seniors, disabled workers, widows and children," said Rep. Xavier Becerra, the top Democrat on the House Social Security Subcommittee.

Medicare is trickier to address because it has to contend with health care inflation, not just an aging population. Options include raising the eligibility age, cutting payments to service providers, shifting more costs to beneficiaries or even privatizing the program.

On Monday, Treasury Secretary Timothy Geithner called Social Security and Medicare the "twin pillars of retirement security in this country," and he declared, "It is critical that reforms are slowly phased in over time so current beneficiaries are not affected and future beneficiaries do not experience precipitous changes."

President Barack Obama's health care law is supposed to trim Medicare expenses by $500 billion, extending the life of the program. But some independent experts doubt the full savings will materialize, and even the administration concedes more cuts are needed. If Republicans succeed in repealing the law, they will have to come up with similar cuts of their own.

"The Affordable Care Act began this process with the most significant entitlement reform in decades," Geithner said, referring to the new health law.

Alternative cost projections prepared by the trustees' technical experts suggest the Medicare cuts in the health care law would be unsustainable, driving payment rates so low that 15 percent of hospitals, nursing homes and home health providers would be in the red by 2019.

The trustees conceded that their own Medicare projections could be too rosy. Based on current law, they assume cuts in payments to doctors that Congress routinely waives will actually take place. They also assume the health care law will squeeze the full amount of its cuts from the program.

"Medicare's actual future costs are highly uncertain and are likely to exceed those shown ...in this report," the trustees said.

Republicans, including presidential candidate Mitt Romney, are proposing to overhaul Medicare by converting it into a system that mainly relies on private health insurance plans to cover future retirees. Beneficiaries would get a fixed payment from the government, with low-income seniors in poor health receiving more.

Obama says he wants to preserve the existing program and its federally guaranteed benefits. But in negotiations with congressional Republicans last year, he went further than most Democrats by signaling he was willing to raise the eligibility age by two years to 67. He's also willing to limit future increases in Medicare spending, a policy that prompts serious misgivings from groups such as AARP.

"Today's report reminds us that Medicare must be reformed and strengthened or it will soon collapse," said Lanhee Chen, Romney's policy director.

The trustees who oversee the programs are Geithner, Social Security Commissioner Michael J. Astrue, Labor Secretary Hilda Solis and Health and Human Services Secretary Kathleen Sebelius. There are also two public trustees, Charles Blahous and Robert Reischauer.







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Graham wrote:
This can't be. The President and the Democracts keep telling us that the economy is fine.
on April 23,2012 | 09:45AM
frontman wrote:
When the tax break obama is giving working America is the money that is suspose to be going to social security, it's no wonder it will go broke sooner.
on April 23,2012 | 02:41PM
Highinthesierras wrote:
Not true, raising taxes will fund day to day increased government expenditures and will not fix social security or Medicare.
on April 24,2012 | 05:48AM
roadsterred wrote:
frontman is referring to Obama's payroll tax cuts, not the proposed raising of taxes on the rich.
on April 24,2012 | 06:28AM
saveparadise wrote:
We pay a lifetime of social security taxes and the government is telling us that the funds will run out? This giant ponzi was a good idea till we started living longer. Now will they decide to pay us later to make up the difference in life span? Keep working until you develop health problems and are too old to really enjoy your vacations and then on top of that you die within your first year of retirement. I know quite a few people that go that route. Auwe.
on April 23,2012 | 09:46AM
OldDiver wrote:
The article is poorly written. Social Security will not run dry in 2033. It will still pay between 70 to 80% of benefit if nothing is done. Also the 2033 date assumes we will still be in Bush's "Second Great Depression" till 2033. Simple answer is to vote out the Tea Party Republicans in the House who have not introduced a single job stimulating bill since they took control of congress just to keep the economy in the dumps to defeat President Obama in November.
on April 23,2012 | 10:04AM
what wrote:
Tea party Republicans are still a better choice than Obama, who is making all the same mistakes that Bush did: he's trying to fix a debt problem with more debt. That is why he is prolonging this recession. Obama's track record is worse than the tea party: the failed 1Trillion dollar stimulus bill, giving away money to green companies like Solyndra, Cash for clunkers, Housing Loan programs, etc.
on April 23,2012 | 12:24PM
serious wrote:
Let's check the facts---as OD always says --look it up on Google. Clinton "balanced" the budget by giving IOU's to Social Security!! "I didn't have relations with the SS!!!" Pure and simple. Surprised Obama didn't send him to Colombia to "check on things"!!! I think $840 is price gouging!!!
on April 23,2012 | 12:32PM
OldDiver wrote:
serious...........Not true.
on April 23,2012 | 03:32PM
OldDiver wrote:
The Tea Party wants to destroy Social Security and Medicare. How is that a good thing?
on April 23,2012 | 03:31PM
false wrote:
Seems counterproductive to try to destroy something(s) that are going bankrupt all by themselves.
on April 23,2012 | 04:40PM
false wrote:
Did you work for Pravda in a previous life??? Social Security is in the red NOW-- paid over $45 billion out of non-SS tax revenues last year due to an insufficient amount of SS payroll taxes coming in to pay current beneficiaries. Social Security is now, most likely, permanently in the red, contributing to our national debt every single year until 2033, at which time beneficiaries get a 25% reduction. This projection has nothing to do with the current recession which has been extended and deepened by Mr. Obama's failed stimulus, the year wasted on Obamacare rather than the economy, and the administration's constant yammering about raising taxes and about the evil capital/risk investors who fire economic growth. No, this SS projection is based on the rosiest of recovery scenarios. Meanwhile, the House republicans have passed more than 35 jobs related bills, all of which have been denied consideration by the democrat senate. So, to sum up. Everything you say be wrong.
on April 23,2012 | 02:34PM
OldDiver wrote:
Social Security has a $2.5 trillion trust fund. It is not broke and can be easily fixed by increasing the taxable ceiling.
on April 23,2012 | 03:33PM
false wrote:
Stop it! You're killing me. LOL LOL. Maybe I was wrong about Pravda? Disney? Why, because only in Fantasy Land would we find actual money in the SS trust fund. There is no money, no assets, no moola, no scratch, no benjamins in the SS trust fund. Zip. Nada. No mas. There is PAPER in the SS trust fund, paper IOUs because the contributions from employers and hard working Americans went in the trust fund front door and right out the back door to be spent by our brilliant government. So, now, as payroll taxes are no longer enough to cover the SS benefits, those PAPER IOUs have to be paid off. Where does this money come from??? It comes from income and corporate tax receipts and from loans on the government debt from whoever's crazy enough to buy our bonds. (Thank goodness from those wacky Chinese). (Same thing's going on with Medicare, only worse)----- And oh, sure all we have to do is raise the ceiling on taxable income. Great idea in Fantasy land where unicorn flatulence is a perfume like fragrance, but in the real world actions have consequences such as raising taxes LOWERS GDP growth which has a funny way of LOWERING future tax revenue and putting downward pressure on the economy (bigger tax on employers=less investment and job growth. Higher tax on employees= less disposable income=less consumer spending resulting in lower economic activity/slowdown). Great solution--- For Disney Land.
on April 23,2012 | 04:25PM
OldDiver wrote:
Too much Republican TV (Fox News) is bad for the brain.
on April 23,2012 | 05:24PM
false wrote:
The predictable Fox News slur = the tank empty light.
on April 24,2012 | 10:54AM
lee1957 wrote:
The trust fund will be depleted, the 70-80% of benefits will be paid directly from incoming contributions. Removing the canard of Bush's "Second Great Depression" delays the pain by three years. The article doesn't fit your narrative, but its true.
on April 23,2012 | 05:36PM
akuman808 wrote:
The republicans who took the social security fund surpluses during the Bush terms, have amnesia on their actions and have yet to replenish the billions they "took" to fund their wars and other unfunded programs they initiated. Issuing worthless bonds with no value is the republican style of claiming they did not increase spending or taxes.
on April 23,2012 | 10:42AM
what wrote:
Unlike Obama, Republicans understand that you can't spend more money than you bring in.
on April 23,2012 | 12:25PM
OldDiver wrote:
Republican Presidents are responsible for the majority of the national debt. Republicans are the real spend thrifts.
on April 23,2012 | 03:39PM
HD36 wrote:
Why has Obama spent more than all the other presidents combined? Democrat and Republican?
on April 23,2012 | 07:41PM
primowarrior wrote:
So, you're saying that no Republican President has ever spent more money than was taken in? You have a very short memory.
on April 23,2012 | 03:58PM
false wrote:
There was no SS trust fund surplus during the Bush term. The Republicans didn't "take" anything. And here's a reminder: Obama's added more debt in three years than Bush did in eight.
on April 23,2012 | 02:37PM
OldDiver wrote:
Bush took the two wars he started off the books and didn't add their cost to the national debt. President Obama who inherited the wars put them back on the books to better reflect the true budget.
on April 23,2012 | 03:38PM
false wrote:
Oh yeah. Obama has done a fine job--- of exceeding the debt created by Bush's eight years in just three years. But I'm sure he's working on a solution, right? Oh, forgot. No budget in three years. No proposed solution for Social Security. No solution for Medicare insolvency. No explanation of rising cost of Obamacare. I'm beginning to think he may not actually have a plan/clue for dealing with these problems. Maybe he is planning to be more "flexible" after he wins reelection sort of like he implied to the Russian president in his unfortunate "open mike" moment a couple of weeks ago.
on April 23,2012 | 04:33PM
WesleySMori wrote:
Amen OLDDIVER!! "AMEN"!!!!!!!!!! "GOD BLESS HAWAII & AMERICA"!!!!!!!!!!!!!
on April 23,2012 | 05:35PM
lee1957 wrote:
Time to adjust your meds again.
on April 23,2012 | 05:42PM
false wrote:
"... didn't add their costs to the national debt."???? So, what did Bush do? Launder the money through the Mexican drug cartels? Hide the war bills in his sock drawer? No. On or off budget, all moneys spent above revenues goes onto the national debt. ".... to better reflect the true budget."?? Wow. Obama has a budget? No one has a national budget. It's on autopilot with the senate democrats not producing a budget resolution in three years.
on April 23,2012 | 08:45PM
lee1957 wrote:
The Social Security surplus is invested in special treasury instruments, was before Bush, and will be in the future until depleted, independent of myopia from the left or right of the political spectrum.
on April 23,2012 | 05:39PM
false wrote:
So true, but beside the point. These are callable notes, in a sense. Whenever SS benefits exceed a given year's payroll tax receipts, these notes have to be paid off. Where do the greenbacks come from to do this? Federal tax receipts, corporate or income or from funds borrowed by selling US debt. The SS notes are being depleted as we speak. Meaning, every year, SS payments will add to the national debt. The impact, growing over the years, begins now and ends in 2033 when there's no more obligation for the federal gov't to pay off trust fund notes.
on April 23,2012 | 07:25PM
stanislous wrote:
No worry, the Dems will just have to print more "Obama Bucks".
on April 23,2012 | 11:44AM
loquaciousone wrote:
Since the end of the world will come on December 21, 2012, there is no need to worry about Social Security checks only about building an ark that can carry my 60 inch HD plasma TV.
on April 23,2012 | 12:20PM
Graham wrote:
Hope your Ark is solar powered.
on April 23,2012 | 12:46PM
loquaciousone wrote:
Yup got Pancho Solar
on April 23,2012 | 02:03PM
primowarrior wrote:
There won't be anything left to watch on it.
on April 23,2012 | 03:59PM
false wrote:
Given the resilience of government funded programs, PBS will probably be the lone entertainment survivor.
on April 23,2012 | 04:39PM
false wrote:
Maybe the Feds and the State will give us "Ark" tax credits.
on April 23,2012 | 04:34PM
stanmanley wrote:
When the baby boomers start collecting, we are really going to be in deeper trouble than we are now.
on April 23,2012 | 12:20PM
primowarrior wrote:
I think they've already accounted for that. Too bad they didn't plan for it better.
on April 23,2012 | 04:01PM
hawaiikone wrote:
Obama is going to use 8 billion of the 500 billion he stole from medicare to subsidize the medicare advantage program just so seniors won't see the huge reduction in benefits this fall, just before election. Next year in October those on medicare will then be notified of the changes, but by then it'll be too late. At least that's his plan...
on April 23,2012 | 06:03PM
false wrote:
Seems like there should be something criminal about this move, no?
on April 23,2012 | 07:27PM
bwaikiki wrote:
I thought it was Johnson's (a Democrat) War on Poverty that first raided SS and transferred so many $$ into the General Fund/pork barrel. It was raided because there was so much money in the trust fund that "it was too big to fail". (Sound familiar?) Not really a failed Ponzi scheme before Congress used it as their slush fund.
on April 24,2012 | 09:14AM
nigelUV001 wrote:
My solution to social security. I save as much as I can in my 401 K account.
on April 24,2012 | 09:35AM
saveparadise wrote:
That 401K money is just a number on paper. If the financial system collapses all of us will get nothing. Even cash will be worth nothing. Make sure you have horses, cows, and pigs to barter. Maybe even sell your daughters. Better have guns to protect yourself and whatever property you own as well. This nightmare scenario is possible. It would be worse than the Great Depression with the population being so dense. No pun intended.
on April 24,2012 | 02:41PM
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