Social Security Matters

Association of Mature American Citizens

Ask Rusty – Are Social Security and Medicare Running Out of Money?

Dear Rusty: I have been hearing reports that Social Security and Medicare will run out of money by 2035 and will only pay approximately 75% of benefits. First, is that true about Social Security? And second, will they reduce benefits to people who are already on it or just the new people signing up? Signed: Worried about the Future

Dear Worried: The financial difficulties facing both Social Security and Medicare are well known by those of us who work with these programs every day, and Congress is equally and acutely aware of the issues. But Social Security and Medicare are two entirely separate programs which require two entirely separate answers.

Let’s discuss Social Security (SS) first. The SS Trust Fund now has about $2.9 trillion dollars in assets. These are reserves accumulated from past revenues which exceeded the cost of providing past benefits to recipients of Social Security. That seems like a lot of money but starting this year (2020) Social Security will need to use some of those reserves to pay full benefits. That’s because benefits paid out to recipients in 2020 will be more than the money coming in (this was expected even before the pandemic exacerbated the problem). And that trend will continue, and worsen, as we go forward in time. Without Congressional action, the SS Trust Fund reserves will be exhausted in 2035. And unless Congress acts before then to increase SS revenue and/or reduce SS expenses, when the Trust Fund is dry an across-the-board cut in benefits will affect everyone. That’s because with the Trust Fund empty, Social Security can only pay out as much money as it receives in revenue and it’s currently estimated that, in 2035, that will result in a cut of 21% for everyone. Sadly, the actions needed to correct Social Security’s financial issues are well known; what’s missing is bipartisan cooperation in Congress to implement the changes needed.

There is no doubt that Social Security needs reform to be able to sustain full benefits for future generations and, hopefully, Congress will step forward soon to make those changes. Historically, any changes made to Social Security do not affect those who are already collecting benefits (it would be political suicide to do that), but rather will apply to future beneficiaries (much more palatable politically). Of course, that cannot be guaranteed but, if history is our guide, changes will eventually be made which shore up Social Security’s finances, and those changes will affect only those who are not yet eligible to collect benefits.

As for Medicare, part of the FICA payroll taxes paid by every American worker includes an amount (1.45%) to pay for Medicare Part A (hospitalization) coverage for Medicare beneficiaries. Any excess collected goes into an “HI Trust Fund” reserved for paying Medicare Part A expenses. According to latest reports the HI Trust Fund is projected to run dry in about 2026 at which point, theoretically, only hospital expenses equal to revenue could be paid.

Medicare Part B coverage (for doctors and other outpatient services) is paid for from two sources – one source is the monthly premiums which are paid by every Part B beneficiary, and the other source is the Government’s General Treasury (which picks up the difference between what is collected in Part B premiums and what is needed to pay healthcare expenses). Similarly, it’s expected that the Government will shore up Medicare Part A as needed when the time comes (which it has in the past). So, while Medicare is clearly under a lot of financial stress from the ever-increasing cost of healthcare, it’s highly doubtful that the program is in any danger going away. More probably, Congress will look to cut the program’s expense structure, which would affect medical service providers more than individuals.

(This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit amacfoundation.org/programs/social-security-advisory, or email ssadvisor@amacfoundation.org.