Social Security must reduce benefits in 2034 if reforms aren’t made
In 16 years, Social Security will have to cut benefits by 21% if lawmakers do nothing to cure the program’s long-term funding shortfall.
That’s what the Social Security and Medicare trustees projected in their 2018 annual report released Tuesday.
The trustees estimate that by 2034 the combined trust funds for Social Security — which help fund the old age and disability programs — will run dry. At that point Social Security will be able to pay only 79% in promised benefits to retirees and disabled beneficiaries.
So if you were expecting to get $2,000 a month, your payout would shrink to $1,580.
The forecast for Medicare is a bit worse than last year’s.
The trust fund for Medicare Part A, which covers hospital and nursing home costs for seniors, would run dry by 2026, three years earlier than last year’s projection. At that point the program would only be able to pay out 91% of promised benefits.
Before the Affordable Care Act was passed, the trustees had projected the Part A trust fund would run dry this year.
Meanwhile, Medicare Part B, which helps seniors pay for doctor’s bills and outpatient expenses, is funded by a combination of premium payments and money from general federal revenue. The same is true of Part D, which offers prescription drug coverage. Both will be financed in full indefinitely, but only because the law requires automatic financing of them. Their costs, however, are scheduled to grow from 2.1% of GDP in 2017 to 3.6% in 2037.
Congress has punted on the issue of shoring up the solvency for both entitlement programs for years. And this year likely won’t be any different, with lawmakers focused on navigating the Trump era and planning for the mid-terms in November.
To ensure both Social Security and Medicare remain solvent for decades to come, they have three basic choices: they can raise the payroll taxes paid into the programs by both employees and employers, they can cut benefits for some or all beneficiaries, or they can do some combination of the two.