Pensions: Even in normal years, the annual Social Security and Medicare trustees' reports typically get overlooked. This year is far from normal. But the reports should be top of mind for anyone who cares about retirement security.
The Social Security report finds that the "trust fund" will run out of money in just 17 years. The news only gets worse from there.
The program's unfunded liability over the next 75 years is now $12.5 trillion, which is up from $11.4 trillion last year and $4.7 trillion a decade ago. In other words, Social Security's long-term unfunded liability has increased by 166% in the span of 10 years.
And on a cash flow basis, Social Security is now losing money every year. Last year it was $54 billion in the red. In a decade the annual shortfall will reach $215 billion — after adjusting for inflation.
It's only by spending "interest" earned in the program's "trust fund" that Social Security can cover its current obligations. But remember, the trust fund is comprised entirely of Treasury debt. The federal government still has to borrow or raise taxes when the trust fund cashes in those bonds.
The trustees' report makes it clear that keeping Social Security solvent over the long term will require painful trade-offs. Even if Congress acted immediately, it would have to boost the payroll tax rate by almost 3 percentage points, or cut benefits to all current and future retirees by 17% — or some combination.
Waiting only makes the problem worse. Putting off fixes would require a payroll tax hike of nearly 4 percentage points or across-the-board benefit cuts of 23%.Read the rest of this Investor's Business Daily editorial HERE.
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