Office of the Social Security Administration in San Francisco.
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The new Social Security commissioners’ report points to a slightly longer period for the program’s trusts.
But even with a new depletion date of 2035 – a year later than expected last year – the program still faces a 75-year deficit.
The year-long push represents a small change to a major program that Alicia Munnell, director of the Center for Retirement Studies at Boston University, compares to a large ocean liner. And there is not much time left for Congress to take action to turn the situation from the direction it is going.
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By 2035, only 80% of benefits will be paid, if no action is taken.
“We are entering an area where immediate action is required,” Munnell said.
In a new report, the Center for Retirement Research outlines some of the program’s key takeaways based on this year’s trustees’ reports.
Social Security is not bankrupt
Much of the shortfall that Social Security faces today can be explained by demographic changes that lead to disparities between income and expense ratios.
In 1964, the average woman had 3.2 children. By 1974, this number had dropped to 1.8.
That has led to a reduction in the ratio of workers to retirees, especially due to the size of the booming young population, which is is estimated to include about 73 million people. About 10,000 baby boomers turn 65 every day; by 2030, all boomers will be at least that age.
Moreover, people are living longer. Combined, that contributed to the program’s 75-year deficit.
Social Security trusts help reduce that deficit. Their assets now have about two years of benefits.
After the law changes to Social Security in 1983, those assets ran a cash flow surplus.
But that started to change in 2010, when the program’s expense ratio began to exceed its income ratio. At that point, the program began to mine the interest on the trusts to pay the benefits.
In 2021, the government begins to draw down the trust fund to make welfare payments, caused by tax and interest shortfalls.
These reductions will continue until the current projected depletion date of 2035.
In the 1980s, it was predicted that the program would last up to 65 years before the trust ran out. Today, it’s been 13 years. With each passing year, a new year with a large negative balance is added.
However, the program did not go bankrupt.
Revenue from payroll taxes will continue to cover a significant portion of the benefit even after the expected depletion days, although the replacement rate is expected to decline.
Several Congressional proposals to eliminate the 75-year shortfall include a recently introduced bill by Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass. However, Munnell was part of an earlier version of Social Security Act 2100 by Rep. John Larson, D-Conn. proposed, will expand the program’s solvency over the next century.
Disability outlook improves, but questions remain
A striking change in this year’s trustees’ report was the forecast for the Social Security disability insurance fund, which is no longer forecast to run out within 75 years. By contrast, last year’s trustee report predicted that fund’s due date to be 2057.
The number of people participating in disability programs has skyrocketed over the past 35 years due to a combination of factors. Laws passed in 1984 made these benefits more accessible by expanding the definition of disability and giving applicants and healthcare providers more influence in the decision-making process. determined. The baby boomer generation and later women had higher rates of disease following those changes.
However, there are fewer people receiving disability benefits now than in 2014.
This could be due to a number of factors, according to the Center for Retirement Research, including the economic expansion of the Great Recession, easier access to medical care after the Affordable Care Act, and more. affordability, the transition to less physical jobs, and the closure of some Social Security. field offices.
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In addition, new policies and procedures may have contributed to the decline, particularly changes to the way administrative law judges who decide disability insurance policies handle cases beginning with 2009 included fewer cases per judge.
The percentage of applications approved fell to 49% in 2019 from 57% in 2009.
That lower approval rate could complicate things further during the Covid-19 pandemic, when Social Security was forced to close most of its offices in 2020 for in-person appointments. Offices reopened earlier this year.
“Maybe people who need benefits don’t get them,” Munnell said.
Updated projections for the disability fund, she said, will help quell complaints that the program is being overdone with beneficiaries.
“The debate hasn’t really been in sync with reality for a while,” Munnell said.
Annual adjustment provides inflation protection
Retirees are often described as “living on a fixed income”.
However, that description is largely misleading, given the fact that Social Security is the primary source of income for retirees and those benefits see an adjustment to the cost of living annually due to inflation. distributed annually, according to Munnell.
A record 5.9% increase in benefits went into effect in January. Admittedly, this is much lower than the Consumer Price Index in the months since. That includes a Up 9.3% in May for the preceding 12 months for a subset of the data used to calculate the annual Social Security COLA, known as the Consumer Price Index for Sage Workers and Urban Clerks, or CPI-W.
The COLA for 2023 could be 8% higher, as the yearly adjusted calculation method seems outdated, comparing the third quarter of the current year with the third quarter of last year.
“Over the entire cycle, it will fully offset inflation,” Munnell said.
While there is debate over whether another measure – the Consumer Price Index for the Elderly or CPI-E – may better reflect the costs faced by retirees, two indicators have had almost identical average annual gains from 2002 to 2021, according to the Center for Retirement Research.
Medicare Part B premiums may change in 2023
Medicare Part B premiums, which include outpatient physician and hospital services, increased 14.5% in 2022 to bring the standard monthly premium to $170.10.
Much of that increase was driven by the Alzheimer’s drug Aduhelm. However, the price of that drug halved in December, to only about $28,200. Subsequent use of Aduhelm was also limited to patients enrolled in clinical trials.
However, the Centers for Medicare and Medicaid Services determined that it was too late to adjust the 2022 premium.
As a result, Part B premium increases for 2023 could be “quite low,” according to the Center for Retirement Research.
Notably, even if premiums are higher than normal in 2022, beneficiaries should still see an increase over the average COLA above. For example, a beneficiary receiving $1,600 per month would have a COLA of $94. After paying $22 for their Medicare premium, their net gain would be $72, or 4.5%.
