Fri, June 08, 2012
The Board of Trustees for the Social Security and Medicare trust fund issued its 2012 annual report in April. Although the new wage base for Social Security will not be officially set until October of this year, it's expected to rise from $110,100 to $113,700 based on their current inflation estimates. The wage base is the maximum income on which Social Security taxes are paid.
Through the mid-2030’s, the Trustees project that “population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment will be the largest single factor causing costs to grow more rapidly than GDP. Thereafter, the primary factors will be population aging caused by increasing longevity and health care cost growth somewhat more rapid than GDP growth.”
The Trustees reported, as they have for several years, that both the Medicare and Social Security trusts are unsustainable: the Medicare trust is expected to run out by 2024, and Social Security by 2033 – three years earlier than last year’s estimate. After that point, benefits would have to be paid exclusively from taxes collected, which are projected to cover only 75% of currently-projected benefits. Last year, the trustees estimated that the disability fund would be exhausted in 2018; this year the projection has been pulled in to 2016.
The trustees called for lawmakers to “address the financial challenges facing Social Security and Medicare as soon as possible.” It seems inevitable that Social Security tax revenues must increase beyond current projections, or that benefits will need to be cut. Neither option will be politically attractive,and neither is likely to be addressed in the midst of a nervous economy. But at some point, the problems will have to be faced. Workers planning for retirement should make allowance for the fact that their net Social Security benefits probably will be lower than current projections suggest.