Money Matters
presented by: Vision Financial
In the news from time to time we see a report that states that Social Security is “going broke.” However, these reports are often based on projections by the Trustees of these programs. And projections are just that, projections… like pre-season football or election polls, they are trying to predict what will happen in the future. Each year, the Trustees of the Social Security and Medicare Trust Funds release lengthy annual reports to Congress that assess the health of these important programs. The newest reports, released on June 5, 2018, discuss the current financial condition and ongoing financial challenges that both programs face.
Each program has a financial account (a trust fund) that holds the Social Security payroll taxes that are collected to pay Social Security benefits. Money that is not needed in the current year to pay benefits and administrative costs is invested (by law) in special Treasury bonds that are guaranteed by the U.S. government and earn interest. As a result, the Social Security Trust Funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits.
Highlights of the 2018 Social Security Trustees Report
- For the first time since 1982, Social Security’s total cost is projected to exceed its total income (including interest) and remain higher for the next 75 years. Consequently, the U.S. Treasury will start withdrawing from trust fund reserves to help pay benefits in 2018. The Trustees project that the combined trust fund reserves (OASDI) will be depleted in 2034, the same year projected in last year’s report, unless Congress acts.
- Once the combined trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 79% of scheduled benefits for 2034, with the percentage falling gradually to 74% by 2092.
- The DI Trust Fund is expected to be depleted in 2032, four years later than projected in last year’s report. Both benefit applications and the total number of disabled workers currently receiving benefits have been declining. Once the DI Trust Fund is depleted, payroll tax revenue alone would be sufficient to pay 96% of scheduled benefits.
Why are Social Security and Medicare facing financial challenges? Social Security and Medicare are funded primarily through the collection of payroll taxes. Because of demographic and economic factors including higher retirement rates and lower birth rates, there will be fewer workers per beneficiary over the long term, worsening the strain on the trust funds.
What is being done to address these challenges? Both reports urge Congress to address the financial challenges facing these programs soon, so that solutions will be less drastic and may be implemented gradually, lessening the impact on the public. Combining some of these solutions may also lessen the impact of any one solution.
There are no current projections that call for a complete end to these benefits. However, the situation is a sober one and should cause all of us to think about how we are saving and preparing for the security of our own financial future. View a combined summary of the 2018 Social Security and Medicare Trustees Reports and a full copy of the Social Security Report at ssa.gov.
R. Heath Morris, CFP®
Vision Financial Group
4505 Pine Tree Circle, Birmingham, AL 35243
205-970-4909, www.vision-financialgroup.com
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