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The Social Security Trust Fund, which most Americans rely on for their retirement, will run out of money in 12 years, a year earlier than previously expected, according to an annual government report released Tuesday.
The exacerbation of the Covid pandemic threatens earlier than expected to shrink pension payments and increase healthcare costs for Americans as they age.
The Ministry of Finance oversees two social security funds: Old Age and Survivors’ Insurance and the Disability Trust Fund. These programs are designed to provide a source of income for former employees who have retired at the end of their careers or are unable to work due to a disability.
Officials said the Old Age and Survivor Trust Fund is now able to pay scheduled benefits through 2033, a year earlier than reported last year. The Disability Insurance Fund is estimated to be adequately funded by 2057, eight years ahead of the 2020 report.
Although the two funds are legally separate, the Treasury Department said the hypothetical combined funds would be able to pay scheduled benefits in a timely manner by 2034.
Senior administrative officials said in a press conference Tuesday afternoon that an increase in deaths among retired Americans in 2020 helped keep the costs of the programs lower than previously projected and that the ultimate, long-term effects of the coronavirus were less clear.
The Treasury Department said it appreciates the level of worker productivity and therefore GDP is expected to decline by 1% permanently, even if they are expected to resume their pre-pandemic.
Still, the financial outlook for Social Security and Medicare, two of the country’s standout safety net programs, has worsened over the past year as Covid accelerated retirement and the U.S. workforce shrank.
Medicare’s Hospital Insurance Fund is projected to be depleted in 2026, the same date forecast a year ago. At that point, doctors, hospitals, and nursing homes would not receive their full compensation from Medicare, and patients would likely be responsible for any cuts in coverage.
Taken together, the funds function as the pillars that sustain the retirement plans of tens of millions of Americans, now and in the future. Americans have believed for decades that the programs to which they spent years contributing to payroll taxes would in turn take care of them.
The programs have become so popular that they are often referred to as the “third rail” of US policy – simply too dangerous to touch. That is the tone that Treasury Secretary Janet Yellen used in a statement published on Tuesday.
“Strong Social Security and Medicare programs are essential to ensure a safe retirement for all Americans, especially our most vulnerable populations,” she said in a press release. “The Biden-Harris administration is committed to protecting these programs and ensuring that they continue to provide economic security and health care to older Americans.”
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But the future of this model is in the midst of a slow crisis: within the last two years, the program has begun to siphon off its assets in order to pay retirees all of the promised benefits.
In other words, the cost of Social Security in the form of monthly payments to retirees now exceeds the income it receives from US workers. It is expected that the program’s reserve fund will soon be consistently in the red and will be used up by 2033.
If Congress does not act by then, the Social Security Act would cut benefit checks for retirees by about 20%. For a population that has planned these payments and typically has few other sources of income, a 20% reduction could prove disastrous and plunge many Americans into poverty.
Social Security has long known that it faces a simple math problem: with thousands of baby boomers retiring every day, there aren’t enough younger people entering the labor market to make up for the cost.
To make matters worse, the life expectancy of Americans is increasing and birth rates are falling.
Social Security estimates the number of Americans aged 65 and over will rise to over 79 million by 2035, down from 54 million currently per census data. Meanwhile, the number of births in the US declined 4% last year from 2019, double the average annual decrease of 2% since 2014, the CDC said in May.
The US birthrate is now so low that the nation is “below replacement levels,” meaning more people die than are born every day, the CDC said.