WASHINGTON — Social Security is dwindling faster than expected, driven by retiring baby boomers, a weak economy and reluctance to take action to fix the retirement and disability program, the government said Monday.
The trust funds that support Social Security will be unable to pay full benefits in 2033 — three years earlier than previously projected — the government said.
There was no change in the year that Medicare’s hospital insurance fund is projected to be unable to pay full benefits; 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 in 2011, 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’ spending power, 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, payments to millions of Americans could be reduced.
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, … 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 not by a lot. They project a cost-of-living adjustment of 1.8 percent for 2013, although 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 age to receive full retirement benefits, which is being gradually increased to 67, reducing annual benefit increases and limiting benefits for wealthier citizens.
Policymakers also might raise 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 annual 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, and is 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 be unable to pay full benefits in 2035 while the disability fund is projected to do the same in 2016. Combined, the two funds will last until 2033.
Without 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.
Social Security’s trust funds contain $2.7 trillion. The money is invested in 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.
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.
President Barack Obama’s health care law aims to trim Medicare expenses by $500 billion, extending the life of the program. If Republicans repeal the law, they will have to find cuts of their own.