13friday.jpgCasting superstition to the winds, the trustees of the Social Security and Medicare Trust Funds Friday, May 13th reported scary news.

Social Security will become insolvent in 2036, one year earlier than estimated last year, while Medicare’s Hospital Insurance Trust Fund will be exhausted in 2024—5 years earlier than previously estimated. Trustees blamed the weak economy for the change.

Put another way, Social Security and Medicare will run out of money sooner—and payroll tax revenues will not be sufficient to pay promised benefits.

The two trust funds face the same problem: demographics. Baby boomers are retiring and entitled to more benefits under present law than payroll taxes generate. In 1960 there were about 8 workers for every Social Security beneficiary; by 2000 the ratio was about 3.4:1; right now it’s about 3:1. By 2040 it’s forecast that only two workers will support every beneficiary. Read more.

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Friday the 13th: Bad Day for Social Security and Medicare

Mon May 23, 2011

13friday.jpgCasting superstition to the winds, the trustees of the Social Security and Medicare Trust Funds Friday, May 13th reported scary news.

Social Security will become insolvent in 2036, one year earlier than estimated last year, while Medicare’s Hospital Insurance Trust Fund will be exhausted in 2024—5 years earlier than previously estimated. Trustees blamed the weak economy for the change.

Put another way, Social Security and Medicare will run out of money sooner—and payroll tax revenues will not be sufficient to pay promised benefits.

The two trust funds face the same problem: demographics. Baby boomers are retiring and entitled to more benefits under present law than payroll taxes generate. In 1960 there were about 8 workers for every Social Security beneficiary; by 2000 the ratio was about 3.4:1; right now it’s about 3:1. By 2040 it’s forecast that only two workers will support every beneficiary.

The trustees explain that, “Through the mid-2030s, due to the large baby-boom generation entering retirement and lower-birth-rate generations entering employment, population aging is the largest single factor contributing to cost growth in the two programs.”

In a hint of things to come, last year, for the first time in over 25 years, Social Security spending exceeded payroll tax revenue—by some $49 billion—necessitating a redeeming of trust fund assets. It’s pretty clear where all this is headed if something isn’t done soon to shore up the finances of Social Security and Medicare.

“Projected long-run program costs for both Medicare and Social Security are not sustainable,” say the trustees, “and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided.”

No legislative recommendations were made, but it’s obvious that to save Social Security and Medicare it may be necessary to change eligibility rules; slow benefits growth; or raise taxes. Maybe all three.

Friday the 13th good news was that Social Security and Medicare will not be allowed to go broke. Draconian benefit cuts will surely be averted. But the programs need to be changed—and the sooner the better.