Social Security is partially sustained by the Social Security Trust Fund, where all surplus funds above what is taken in taxes go. However, the fund is being continually drained to the point that it is estimated to run dry by 2033.
Gaping holes in safety net
The twin aims of the Social Security Administration are to provide a “safety net” for those who are unable to work and a national retirement fund. Social Security relies on funds derived from Social Security payroll taxes assessed on employee wages and on employers, according to Bloomberg. Any funds left after expenditures go into two Social Security Trust Funds, one for Social Security’s disability program and one for its survivors and retirees program.
However, the Social Security Administration has slowly started to spend more than it takes in, meaning that the fund will eventually run dry unless expenditures are cut. A new report issued by the Social Security Trustees, the board that oversees the program, is warning that by 2033, those funds will have run dry, compared to the estimate of 2037 last year.
Disability to run out first
The trustees’ most recent report estimates that the trust fund for retirees and survivors, the children or spouse of a person receiving Social Security retirement benefits, will have run out by 2035, according to the New York Daily News. The fund for Social Security Disability Income or SSDI, will have run out by 2016. The trustees average between the two to arrive at their estimate; they arrive at 2033 for the program in total.
However, at that point, Social Security will be able to still function on what the agency brings in from tax revenues. The agency would have to reduce benefits to 75 percent of what it currently allocates, though it would only last, according to CBS, for another 50 years or so.
Medicare also in trouble
The Medicare trust fund, which operates in a similar manner, is slated to run dry by 2024. Medicare, according to CNN, maintains separate trusts for Medicare Part A, for hospital visits, and for Medicare Part B and D, which cover doctor’s visits and prescriptions, respectively. Part A is already running at a loss, but parts B and D are solvent.
However, Medicare will only be able to cover 87 percent of its costs by 2024 and 67 percent of its costs by 2050, based on current projections.
The trustees’ report estimates are based on projected wage growth and the number of people set to retire in the next several decades. Currently, according to New York Daily News, 56 million people receive Social Security disability or retirement income and 50 million people currently receive Medicare coverage. Social Security also happens to be one of the largest creditors to the rest of the federal government, which owes the Social Security trust fund $2.7 trillion, according to CNN.