Q. Inflation seems to be having a huge effect on everything. From the price of food in grocery stores to the amount we are spending to fill our cars with gasoline, we’re all being affected in many ways. I’m concerned and afraid to ask about senior programs, since it seems like everything else is being affected, and there is no end in sight. Does the current situation have any impact on Social Security or Medicare now or in the future? I’m hoping by some miracle that the projections for both programs are better than last year, but I’m afraid to be optimistic.
A. It’s okay to be optimistic about Social Security and Medicare! The Social Security Board of Trustees released its annual report on the financial status of the Social Security Trust Funds last month. The 2022 trustee report includes extensive information about the current operations of Social Security and provides careful analysis of its outlook.
Several positive things came out of the Social Security report:
- The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035, if Congress does not act before then – one year later than last year’s projection. At that time, there will be sufficient program income coming in to pay 80% of scheduled benefits.
- The OASI Trust Fund is projected to become depleted in 2034, one year later than last year’s estimate, with 77 percent of benefits payable at that time.
- The total annual expenditures of the program are projected to exceed total annual income in 2022 and remain higher throughout the 75-year projection period. The DI Trust Fund asset reserves are not projected to become depleted during that 75-year projection period.
Other highlights of the Trustees Report include:
- Total income, including interest, to the combined OASI and DI Trust Funds amounted to $1.088 trillion in 2021 ($980.6 billion from net payroll tax contributions, $37.6 billion from taxation of benefits, and $70.1 billion in interest).
- Total expenditures from the combined OASI and DI Trust Funds amounted to nearly $1.145 trillion in 2021.
- Social Security paid benefits of $1.133 trillion in calendar year 2021. There were about 65 million beneficiaries at the end of the calendar year.
- The projected actuarial deficit over the 75-year long-range period is 3.42 percent of taxable payroll – lower than the 3.54 percent projected in last year’s report.
- During 2021, an estimated 179 million people had earnings covered by Social Security and paid payroll taxes.
- The cost of $6.5 billion to administer the Social Security program in 2021 was a very low 0.6 percent of total expenditures.
- The combined trust fund asset reserves earned interest at an effective annual rate of 2.5 percent in 2021.
Kilolo Kijakazi, acting commissioner of the Social Security Administration, said that “(i)t is important to strengthen Social Security for future generations. The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually.”
View the 2022 Social Security Trustees Report at www.socialsecurity.gov/OACT/TR/2022/.
Highlights from the Medicare Trustees Report Also Reflect Positive Findings
The Medicare Trustees also released their 2022 annual report.
According to the findings, the Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028, two years later than reported last year. At that time, the fund’s reserves will become depleted and continuing total program income will be sufficient to pay 90 percent of total scheduled benefits.
Here are additional findings:
- The HI Trust Fund Faces a Large Shortfall. The Trustees project that the HI trust fund will run deficits of $530 billion over the next decade. Over 75 years, they project a shortfall of 0.7 percent of payroll, or 0.3 percent of Gross Domestic Product (GDP). This means that it would take about a 24 percent (0.7 percentage point) increase in the payroll tax rate or a 15 percent spending cut to ensure solvency.
- Total Medicare Spending Is Projected to Grow Rapidly. The Trustees project that gross Medicare spending will grow from 3.9 percent of GDP in 2022 to 6.0 percent by 2040 and stay at roughly 6.5 percent each year from 2070 onward.
- Medicare’s Financial Outlook Is Slightly Better than Last Year’s. The Trustees project a later insolvency date and slight improvement in long-term solvency largely due to higher payroll tax revenue. However, the structural imbalances remain substantial, and ultimate costs are similar to last year.
Another Reason to Be Optimistic: Part B Premiums Are Also Being Rolled Back
For those with Medicare Part B, you’re already paying significantly increased Part B premiums for 2022. On a positive note, these premiums may be decreased sometime next year. Click here for more details on this!
Future Projections for Both Programs
Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing. Costs of both programs will grow faster than gross domestic product (GDP) through the mid-2030s, primarily due to the rapid aging of the U.S. population. Medicare costs will continue to grow faster than GDP through the late 2070s due to projected increases in the volume and intensity of services provided.
For Social Security, many well-known options to fix the program’s finances exist and could be enacted and implemented with political will, according to the Committee for a Responsible Federal Budget. Policymakers will hopefully also be considering pursuing new, innovative solutions to promote economic growth and improve retirement security while addressing the program’s finances sooner rather than later.
What You Can Do
Regardless of what is happening or projected to happen with Social Security, the system was never intended to cover all of your retirement needs. The typical payment to retirees is just a bit above $1,500 a month.
People have many options to shore up their personal finances to make them less reliant on Social Security. The whole field of retirement planning is tied, at least partly, to generating enough income to support a standard of living beyond what Social Security provides. For tips on retirement and living on Social Security during inflation, please read today’s Critter Corner.
Plan Ahead for Retirement and Long-Term Care
Even though Social Security and Medicare should continue to be viable into the future, it’s still important to plan ahead — and there is no time like now to do so.
Here at the Farr Law Firm, we stay on top of the strategies you need to put in place to keep yourself and your family protected. If you’ve not done Retirement Planning, Estate Planning, or Long-Term Care Planning (or had your documents reviewed in the past five years – or last three years if you’re over 65), or if you have a loved one who is nearing the need for long-term care or already receiving long-term care, please call us to make an appointment for an initial consultation:
Retirement Planning Fairfax: 703-691-1888
Retirement Planning Fredericksburg: 540-479-1435
Retirement Planning Rockville: 301-519-8041
Retirement Planning DC: 202-587-2797
About Renee Eder
