(MoneyWatch) The Social Security Trustees' annual report on the state of the government retirement and Medicare trust funds is out, and the news is worrying: A challenging economy and higher energy prices have hurt the entitlement programs.
The combined Social Security trust funds are expected to be exhausted in 2033, three years earlier than projected in last year's annual report. Medicare's finances have stabilized, but the hospital insurance fund is still projected to run out of money in 2024. The most problematic program is the Social Security disability insurance program, which "faces the most immediate financing shortfall of any of the separate trust funds," according to the trustees. It is forecast to exhaust its trust fund in 2016, two years earlier than projected in last year's report.
The trustees urged Congress to take steps to shore up the programs, noting that projected long-run costs for Medicare and Social Security "are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided." Yet few, if any, political observers expect any significant legislative action until after the November election.
When Socal Security's expenditures exceeded the program's non-interest income in 2010 for the first time since 1983, many talked about it "going broke." That's not exactly what would happen. Social Security is a "pay-as-you-go" system. That means that a current worker's Social Security taxes pay a current retiree's monthly benefit.
For a long time, there were more workers than retirees, so a large surplus built up. But as more baby-boomers retire and the number of retirees increase relative to the number of workers paying into the system, the trust funds will be exhausted. Still, all is not lost. Even if the trust fund runs dry, tax income would be sufficient to pay about three-quarters of scheduled benefits for another 50 years or so.
Social Security facts:
-- More than 56 million retirees, disabled workers, spouses, and surviving children of deceased workers receive benefits
-- The program is financed by employers and employees, who each pay a 6.2 percent tax on the first $110,000 of a worker's wages
-- Congress temporarily reduced the worker portion of the tax to 4.2 percent for 2011 and 2012, using borrowed money to make Social Security whole
-- Average monthly benefit: $1,232 for retirees; $1,111 for disabled workers. Benefits are indexed annually for inflation
-- About 50 million beneficiaries, including retirees 65 and older and people under 65 with permanent disabilities are covered
-- Medicare is financed by employers and employees, who each pay a 1.45 percent tax on all wages; Medicare beneficiaries also pay monthly premiums for outpatient and prescription coverage
-- Medicare average spending: About $12,500 a year per beneficiary, with the highest-cost 10 percent of beneficiaries accounting for about 60 percent of total spending