A report released Tuesday says Social Security benefits will have to be cut by 2034 if Congress does not act now to fix the program’s long-standing funding shortfall.
The annual report, released by the Social Security and Medicare trustees, says the Social Security fund will be unable to pay full benefits earlier than predicted last year due to economic issues caused by the COVID-19 pandemic.
According to the report, by 2034, the trust fund that pays for Social Security will be able to pay only 78% of its promised benefits.
The Old-Age and Survivors Insurance and the Disability Fund, which provides a monthly check to former workers who have retired or those who can’t work due to a disability, has enough combined funds to pay full benefits through the end of 2033.
“At that time, the combined funds’ reserves will become depleted and continuing tax income will be sufficient to pay 78% of scheduled benefits,” the report stated.
If nothing changes in the program, 2034 would see the amount of benefits due exceed the program’s total income from payroll tax collections and interest during that year. It would be the first time in 39 years that that would be the case.
According to the report, employment, earnings, interest rates and economic growth all fell drastically in the second quarter of 2020 after the pandemic was declared in March.
“The finances of both programs have been significantly affected by the pandemic and the recession of 2020,” the trustees said in the report. But “given the unprecedented level of uncertainty,” the trustees could not come to a consensus on what the long-lasting effects of the COVID-19 pandemic could bring.
As the country’s older population has increased, the strain on the program has grown. At the end of 2020, about 65 million people were receiving Social Security benefits.
“Having strong Social Security and Medicare programs is essential in order to ensure a secure retirement for all Americans, especially for our most vulnerable populations,” Treasury Secretary Janet L. Yellen said in a statement. “The Biden-Harris Administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans.”
The program has faced the threat of funding shortfalls in the past.
As the Associated Press reports, in 1983, President Ronald Reagan worked with a bipartisan Congressional commission to pass a plan to reform the program’s funding and structure when it was believed the program would go under.
The potential funding crisis for Medicare is more immediate.
The trust fund for Medicare Part A, the part of the program that covers hospital and nursing home costs for seniors, will be depleted in five years, by 2026, without any action to save it, the trustee said. At that point, the program would only be able to pay out 91% of the benefits it now pays.
Medicare Part B, which helps seniors pay for doctor visits and other health care, as well as Part D, which covers prescription drug benefits, are “adequately financed into the indefinite future,” the report said.
Automatic financing for those programs is prescribed by law.
At the end of 2020, nearly 63 million people were covered under Medicare.
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