You’ve spent a lifetime paying into Social Security, but there’s no guarantee that you’ll get out of it what you’ve put in.
In fact, the way things are looking today, the odds aren’t looking too good.
The federal government this week admitted that for the first time since 1982, it needs to dip into Social Security’s trust fund to pay for the program this year. You can interpret this as a warning that—absent action from lawmakers and this or the next few presidents to prop up the system—things could soon get worse—perhaps a lot worse.
Read: Social Security to tap into trust fund for the first time in 36 years
Here’s how bad: Unless something’s done to shore up Social Security, monthly checks could get cut 23% by 2034.
Heres’s the part where you snicker “2034? Who cares?” But that date’s closer than it sounds, and besides, isn’t it easier to address problems while there’s still time—before they become even messier? Fact is, we’re now on a slope that’s only going to get more slippery.
The bad news doesn’t end there. This week’s report by the Social Security trustees—the head trustee is Treasury Secretary Steven Mnuchin—had even tighter time frames for other pieces of the social safety net. It said that Medicare’s hospital insurance fund will be depleted in 2026, three years earlier than it forecast a year ago. That means come 2026, unless changes are made, the program will only be able to pay about 91% of costs.
What’s going on here? Both of these gargantuan federal programs are being pinched in three ways.
First is simple demographics: the nation is aging, and there aren’t enough younger taxpayers to keep the system going like in the past. Last year, there were 2.8 workers for every Social Security recipient; in 2007 that ratio was 3.3.
Second: the new tax cut law has lowered projected revenue from the taxation of Social Security benefits.
Third: the trustees also say that President Trump’s decision to stop offering young undocumented immigrants reprieve from deportation while allowing them to work is also cutting into anticipated tax revenue into the Social Security program.
Read: Senior dads like Donald Trump can get this Social Security bonus
The news isn’t all bad. Trustees say another part of Social Security is actually getting better—the program that pays out disability benefits. This won’t run out of money until 2032, four years better than forecast a year ago. But that’s only because the growth rate in disability applications has fallen—a trend that might not continue.
That one brighter spot aside, there’s no doubt that these massive programs—some 61.5 million people receive retirement or disability benefits from Social Security and 58.4 million receive Medicare—are in increasingly perilous shape, and there’s little desire among politicians—from either party—to do much of anything about it. They simply lack the guts to tell citizens—i.e. voters—that sacrifices will likely have to be made. What politician wants to do that?
“The truth is as long as you have politicians telling people they can have everything they want, nothing will happen and it’ll only get worse,” says Maya McGuinness,president of the Committee for a Responsible Federal Budget. She accuses lawmakers of “spinning myths” to voters because no one has the backbone to tell the truth.
Read: To fix Social Security, Congress would not have to raise taxes or cut spending by a single penny
Of course, these programs can be shored up through tax hikes, benefit cuts, or a higher Social Security retirement age—or some combination of all three. But the Trump administration has a different idea: faster economic growth. Mnuchin says tax cuts, fewer regulations, and better trade deals will boost growth and thus enough revenues to keep the programs going as they are—and avoiding the need for painful cuts or tax hikes.
None of that has panned out yet. The White House is now fighting a four-front trade war with America’s biggest trading partners—Canada, Mexico, China and the European Union—but so far, no new trade deals. As for economic growth, Trump’s own Commerce Department says the U.S. grew at a 2.2% annual pace in the first quarter of 2018, down from 2.9% in the fourth quarter of 2017.
Do you have questions about retirement? What’s keeping you up at night? Let us know at RetireBetterMarketWatch@gmail.com.
