Medicare faces insolvency by 2026, and Social Security by 2035- and no one seems to care. How long can we act like this isn't a problem?
After watching the Democratic Debates on Wednesday night, one thing is certain: No one cares about the National Debt, and no one cares about the budget deficit. In fact, even though our major programs are nearly out of money, everyone seems dead-set on expanding them. To be fair, Republican's don't seem to care either. We're running Obama-era deficits while working in a "healthy" economy, and even plans like Rand Paul's 2% cut to the budget were dead-on-arrival.
According to Reason Magazine:
At the end of 2018, Social Security was providing income to about 67 million Americans. About 47 million of them were over age 65, and the majority of the rest were disabled. If nothing changes, the Social Security Trust Fund will be fully depleted by 2035 and the program would impose across-the-board cuts of 20 percent to all beneficiaries. That may sound like it's a long way off, but 51-year-old workers today will be just hitting retirement age when the cuts kick in. Some current retirees will still be younger than 80.
The trustees' report released Monday shows that the trust fund for Medicare Part A, which covers hospital and nursing home costs, will be gone by 2026.
A blessing, and a curse
The biggest problem facing both Social Security and Medicare is one of our own doing. We’re living longer- Victims of our own progress, and terrible economic ideas. When Social Security was enacted, the average lifespan was 61. Yes, that means the average person died before they qualified for Social Security benefits.
That's a hard pill to swallow for most retirees, but Social Security was in fact, never meant to be a retirement plan for all senior citizens. It was meant to cover only those that were lucky enough to live past the average life expectancy.
Today, the Social Security Administration’s own website informs seniors that are currently 65 that they can expect to live to the age of 85. Yet, benefits still start at the same age as they did back in the 40’s. No one wants to hear this, but for Social Security to match its original intent, benefits would have to start at the age of 90. Now that’s an unpopular statement.
The same problem exists in Medicare. Longer lifespans mean more medical expenses. New treatments for ailments are a blessing, but of course those also equal more expense. The rapidly rising cost of healthcare isn’t helping the matter.
Worker VS Retiree Ratio
Longer life expectancy is not the only problem, but it’s a big one. Another major problem is the size of the “Baby Boomer” generation Vs. the size of the working class. In the 40’s you had 42 workers supporting one retiree. Today, it’s three workers supporting one retiree.
This is only going to get worse. According to Census Bureau projections, by 2030 each 100 working-age Americans will be supporting 35 retirees, and this could rise to 42 by 2060. Another way to think of this is to calculate the number of retirees each worker must support. In 1946, the burden of one retiree was shared between 42 workers. Today, according to the SSA, roughly three workers cover each retiree’s Social Security and Medicare benefits. By 2030, however, there will be only two workers supporting each retiree.
In other words, a working couple will have to support not only themselves and their family but also someone outside the family thanks to Social Security and Medicare.
To make Social Security solvent again, the payroll tax rate would need to be hiked immediately from 12.4 percent to 15.2 percent, or Social Security benefits would need to be cut on a permanent basis by about 17 percent.
As it stands, Medicare and Social Security make up 45% of our federal budget. Social Security costs about $1 trillion, and Medicare close to $800 billion. With both of these programs running in the negative, we’re left with only a couple option. Raise taxes, or cut benefits. More than likely it will take a combination. My personal favorite plan involves maintaining obligations for anyone over the age of 45, but allowing those starting at the age of 45 the opportunity to “opt-out.” In this way, you would pay the taxes until the age of 45, and then opt out of SS all together. This would be a great deal by the way, considering the fact that the average return from Social Security is .3% above inflation.
Enter the "Left"
If you’re a Democrat, you see a third option: Take those programs that are already running in the negative, and expand them to the entire country, citizen or not. Take Medicare as an example. Already heading for insolvency in 7 years. What’s the answer? Of course, expand it to the entire country and call it “Medicare For All.”
For two programs that are already running out of money at the current benefits, a massive expanse hardly seems like the answer. But of course, the government has never met a government-created problem that could be fixed by more government.