The future of Social Security and Medicare is a topic of significant concern as these programs face substantial financial challenges. Learn about the financial outlook for Social Security and Medicare.
Each year, the Trustees of the Social Security and Medicare trust funds provide detailed reports to Congress that track their current financial condition and projected outlook. The most recent reports, released on May 6, 2024, emphasize the urgency for Congress to address these financial shortfalls to ensure the sustainability of these essential programs.
In a recent survey, 87% of Americans said that Congress should act now to shore up the Social Security program, rather than waiting 10 years to find a solution. Source: National Institute on Retirement Security, 2024
Based on past changes to these programs, it’s likely that any future changes would primarily affect future beneficiaries and have a relatively small effect on those already receiving benefits.
While neither Social Security nor Medicare is in danger of disappearing, it would be wise to maintain a strong retirement savings strategy to prepare for potential changes that may affect you in the future.
Americans’ Views of Social Security
Americans overwhelmingly support Social Security.
Some 87% of Americans agree that Social Security should remain a priority for the nation no matter the state of budget deficits. This support is strong across the board regardless of gender, age, employer, income, or party affiliation.
Americans also support increasing employer and employee contributions to ensure the long term sustainability of Social Security.
Most Americans understand when they can start receiving Social Security benefits but are less sure of their own benefit levels.
Among those who are not retired, most provided accurate responses about when they can start claiming Social Security income and the full retirement age.
However, Americans are not clear on their own benefits levels even though this information is readily available from the Social Security Administration.
Americans have mixed views on adjusting Social Security benefit levels, but most say their retirement security depends on sustained Social Security benefit levels.
When it comes to expanding Social Security, slightly more than half of Americans (52%) agree with this concept.
Some 47% disagree with raising the retirement age, which is a benefit cut. Nearly three-fourths of those who aren’t retired indicate that a financially secure retirement is contingent upon future benefits at least equal to those provided to current retirees.
But more than half of those who aren’t retired (53%) aren’t confident they’ll have the same Social Security benefits as current retirees, with women and Gen Xers the least confident.
Americans want action now on Social Security.
When asked about when Congress should act to address Social Security’s funding shortfall, Americans don’t want leaders to kick the can down the road. 87% say Congress should act now rather than waiting another ten years to find a solution. This sentiment holds strong across gender, age, and party affiliation.
The 2024 Social Security And Medicare Trustees Reports
These reports have warned for years that the trust funds would be depleted in the not-too-distant future, and the most recent reports, released on May 6, 2024, show that Social Security and Medicare continue to face significant financial challenges.
You can view a combined summary of the 2024 Social Security and Medicare Trustees Reports and a full copy of the Social Security report at ssa.gov. You can find the full Medicare report at cms.gov.
The Trustees of both programs continue to urge Congress to address these financial shortfalls soon, so that solutions will be less drastic and may be implemented gradually.
Despite the challenges, it’s important to keep in mind that neither of these programs is in danger of collapsing completely.
The question is what type of changes will be required to rescue them.
The Fundamental Problem: More Retirees and Fewer Workers
The fundamental problem facing both programs is the aging of the American population. Today’s workers pay taxes to fund benefits received by today’s retirees, and with lower birth rates and longer life spans, there are fewer workers paying into the programs and more retirees receiving benefits for a longer period of time.
In 1960, there were 5.1 workers for each Social Security beneficiary; in 2024 there are 2.7, projected to drop steadily to 2.3 by 2040.
Social Security and Medicare: Dwindling Trust Funds
Payroll taxes from today’s workers, along with income taxes on Social Security benefits, go into interest-bearing trust funds.
During times when payroll taxes and other income exceeded benefit payments, these funds built up reserve assets. But now the reserves are being depleted as they supplement payroll taxes and other income to meet scheduled benefit payments.
Social Security And Medicare Outlook
Social Security Outlook
Social Security consists of two programs, each with its own trust fund.
Retired workers and their families and survivors receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program.
The Old-Age and Survivors Insurance Trust Fund reserves are projected to be depleted in 2033, unchanged from last year’s report, at which time incoming revenue would pay only 79% of scheduled benefits.
Reserves in the much smaller Disability Insurance Trust Fund, which is on stronger footing, are not projected to be depleted during the 75-year period ending 2098.
Under current law, these two trust funds cannot be combined, but the Trustees also provide an estimate for the hypothetical combined program, referred to as OASDI.
This would extend full benefits to 2035, a year later than last year’s report, at which time, incoming revenue would pay only 83% of scheduled benefits.
Medicare Outlook
Medicare also has two trust funds.
The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care under Medicare Part A.
The Supplementary Medical Insurance (SMI) Trust Fund comprises two accounts: one for Medicare Part B physician and outpatient costs and the other for Medicare Part D prescription drug costs.
The Hospital Insurance Trust Fund will contain surplus income through 2029, but is projected to be depleted in 2036, five years later than in last year’s report.
At that time, revenue would pay only 89% of the program’s costs. Overall, projections of Medicare costs are highly uncertain.
The Supplementary Medical Insurance Trust Fund accounts for Medicare Parts B and D are expected to have sufficient funding because they are automatically balanced through premiums and revenue from the federal government’s general fund, but financing will need to increase faster than the economy to cover expected expenditure growth.
Possible Fixes To Social Security
If Congress does not take action, Social Security beneficiaries might face a benefit cut after the trust funds are depleted, based on this year’s report.
Any permanent fix to Social Security would likely require a combination of changes, including some of these.
- Raise the Social Security payroll tax rate
Currently 12.4%, half paid by the employee and half by the employer.
An immediate and permanent payroll tax increase to 15.73% would be necessary to address the long-range revenue shortfall (or to 16.42% if the increase started in 2035)
- Raise the ceiling on wages subject to Social Security payroll taxes
Currently $168,600 in 2024
- Raise the full retirement age
Currently 67 for anyone born in 1960 or later
- Change the benefit calculation formula
- Use a different index to calculate the annual cost-of-living adjustment
- Tax a higher percentage of benefits for higher-income beneficiaries
Possible Fixes To Medicare
Addressing the Medicare shortfall might necessitate a combination of spending cuts, tax increases, and cost-cutting through program modifications.
Based on past changes to these programs, it’s likely that any future changes would primarily affect future beneficiaries and have a relatively small effect on those already receiving benefits. While neither Social Security nor Medicare is in danger of disappearing, it would be wise to maintain a strong retirement savings strategy to prepare for potential changes that may affect you in the future.
Contact your tax and financial advisors to determine the best moves for your situation.