Social Security isn’t bankrupt: What we know about future benefits, based on the latest Trustee report – CNBC | Vette Leader

A Social Security Administration office in San Francisco.

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A new report from the Social Security Trustees indicates a slightly longer time horizon for the program’s trust funds.

But even with a new exhaustion date of 2035 — a year later than last year’s forecast — the program still faces a 75-year deficit.

A year-long increase represents a small change for a huge program that Alicia Munnell, director of the Center for Retirement Research at Boston College, likens to a large ocean liner. And Congress is running out of time to take action to reverse it from the direction it is currently taking.

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In 2035 only 80% of benefits will be paid out if nothing is done.

“We’re getting into the area where immediate action is needed,” Munnell said.

In a new report, the Center for Retirement Research outlines some key findings from the program based on this year’s Trustee Report.

Social Security is not bankrupt

Much of the shortcoming facing social security today can be explained by demographic change, which has created a gap between income and expense ratios.

In 1964, women had an average of 3.2 children. By 1974, this had fallen to 1.8.

This has resulted in a lower worker-to-retiree ratio, particularly given the size of the baby boomer population, which is estimated at around 73 million people. About 10,000 baby boomers turn 65 every day; By 2030, all Boomers will be at least that age.

Also, people are living longer. Collectively, this has contributed to the program’s 75-year deficit.

The Social Security trust funds are helping to mitigate this deficit. Your assets currently have around two years of utility.

After the 1983 Social Security law changes, these assets had excess cash flows.

But that began to change in 2010, when the program’s expense rate began to exceed its income rate. At this point, the program began tapping interest on the trust funds to pay benefits.

In 2021, the government began drawing on the trust funds to make benefit payments, citing tax and interest shortfalls.

These declines will continue until the current projected depletion date of 2035.

In the 1980s it was projected that the program would last up to 65 years before the trust funds would be exhausted. It’s 13 years today. For each year that passes, a new year is added with a large negative balance.

Despite this, the program is not bankrupt.

Payroll tax receipts will continue to cover a significant portion of benefits even after the projected depletion dates, although replacement rates are expected to fall.

Some Congressional proposals aim to eliminate the 75-year deficit, including a bill recently tabled by Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass for the 2100 Act, proposed by Rep. John Larson, D-Conn., who would extend the program’s solvency into the next century.

Disability prospects are improving, but questions remain

A notable change in this year’s Trustees’ Report was the projections for the Social Security Disability Insurance Fund, which will now no longer be exhausted within 75 years. In contrast, last year’s Trustee Report predicted an exhaustion date of 2057 for this fund.

Participation in disability programs has skyrocketed over the past 35 years due to a combination of factors. Legislation passed in 1984 made these benefits more accessible by broadening the definition of disability and giving claimants and healthcare providers more say in the decision-making process. The baby boomer generation and women later had higher incidence rates after these changes.

However, fewer people are receiving disability benefits today than in 2014.

This may be due to several factors, including the economic expansion of the Great Recession, easier access to medical care under the Affordable Care Act, a shift to less physical jobs, and the closure of some Social Security field offices, according to the Center for Retirement Research.

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In addition, new policies and procedures may have contributed to the decline, particularly changes in the way administrative judges who decide disability insurance applications handle cases from 2009, including fewer cases per judge.

The percentage of approved applications fell from 57% in 2009 to 49% in 2019.

This lower approval rating could be further complicated during the Covid-19 pandemic, when Social Security was forced to close its offices largely for in-person appointments in 2020. The offices reopened earlier this year.

“People who need benefits may not get them,” Munnell said.

The updated forecasts for the disability fund should help quell complaints that the program is overcrowded with beneficiaries, she said.

“The debate has been really out of sync with the facts for a while now,” Munnell said.

Annual adjustments provide protection against inflation

Retirees are often described as “living on a fixed income”.

That description is largely incorrect, however, because Social Security is a major source of income for retirees, and these benefits experience annual cost-of-living adjustments for inflation each year, according to Munnell.

A record 5.9% increase in benefits went into effect in January. Of course, that has been well below the consumer price index since then. This includes a 9.3% increase in May from the previous 12 months for a subset of the data used each year to calculate the Social Security COLA, known as the Consumer Price Index for Urban Wage Earners and Office Workers, or CPI-W.

The COLA for 2023 could be more than 8% due to the backward-looking method of calculating the annual adjustment, which compares the third quarter of the current year to the third quarter of the previous year.

“Throughout the cycle, it will fully offset inflation,” Munnell said.

While there is debate as to whether another measure — the Consumer Price Index for the Elderly, or CPI-E — would better reflect the costs faced by retirees, the two indices have virtually identical average annual increases from 2002 to 2021, according to the Center records retirement research.

Medicare Part B premiums are subject to change in 2023

Medicare Part B premiums, which cover medical and outpatient hospital services, increased 14.5% in 2022 to a standard monthly premium of $170.10.

Much of this increase was triggered by the Alzheimer’s drug Aduhelm. However, the price of this drug was halved to around $28,200 in December. The use of Aduhelm was also later restricted to patients enrolled in clinical trials.

However, the Centers for Medicare and Medicaid Services noted that it was too late to adjust premiums for 2022.

As a result, Part B premium increases for 2023 could be “fairly low,” according to the Center for Retirement Research.

Notably, even with higher-than-average premiums in 2022, beneficiaries would still have had to see a rise from the higher-than-average COLA. For example, a beneficiary receiving $1,600 per month would have received a COLA of $94. After paying $22 for her Medicare premiums, her net increase would be $72, or 4.5%.

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