May 10, 2019 3 min read

Social Security and Medicare trustees have issued their annual report, as required. They did so on April 22, and along with the report, they submitted their annual 75-year projection of the financial condition of both programs. Social Security has two funds: one for retirement benefits, one for disability benefits.

The retirement trust fund is the most troubling. SS has always been a program in which current workers pay in to fund retired workers. Baby boomers help build the fund balance during their working years.

Today, about 8,900 people a day are turning 65. Starting this year and every year after, SS will have to dip into the surplus to pay required benefits. Projecting ahead, by 2035 the trust fund will be exhausted. At that time, cash contributions will be only enough to pay 80 percent of scheduled benefits.

A situation similar to this was ahead back in 1985, when President Ronald Regan and House Speaker Tip O’Neal worked together on a solution. Among the changes made, the tax rate was increased and the full retirement age was extended to 67 for people born after 1960. Those changes have kept Social Security solvent.

While both parties say they want to preserve SS, doing nothing will not fix the problem. They need to work together for the good of the country, and there are only a few variables they can change. If a tax increase is the only action taken, the change would require an estimated 2.78 percent increase if done today.

Remember, half of this amount is paid by the worker and half is paid by the employer. If this action is delayed, it will take a bigger tax hike. Making adjustments to some of the other elements would require a smaller tax hike. They changes will occur, but the sooner the better for everyone. Any changes will be phased in over a number of years, just like the last time.

There actually was some improvement in the disability trust fund, which is now projected to last until 2052, an increase of 20 years over earlier projections. This has been the result of fewer disability claims as the economy has improved and the unemployment rate has dropped.

Unfortunately, the retirement trust fund will not be able to have the same kind of improvement as the population ages and retires.

The Medicare Trust Fund is in much worse shape. There are differing financing methods for Parts A, B,and D. Total Medicare expenses were $741 billion in 2018. Part A gets its funding from the 1.45 percent Medicare tax we pay with SS. Higher income tax payers pay an extra 0.9 percent.

Parts B and D come from general government revenue and Part B premiums, currently $135.50 per month subtracted from a recipient’s SS checks. Early projections anticipate that next year it may have to increase to $144.30, a 6.4 percent hike.

Medical costs are increasing much faster than overall inflation. These problems are going to be much harder to solve. Most people require more health care as they age. It is impossible to expand Medicare to cover everyone in the country.

It is time for Washington to work together and fix these two important programs that are the foundation of retirement in this country. The sooner the better.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

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