The social security system in the United States is in desperate need of an overhaul and while researchers originally reported that the fund would last until 2036, that number has now been revised down to 2033. The government commissioned study also found that Medicare will run out of cash by 2024 as the funds spending continues to accelerate.
The study found that high energy prices are suppressing workers’ wages while the economic recovery is expected to keep payroll tax receipts low over the coming years, without payroll taxes increasing the programs which rely on those taxes burn through money at a faster rate.
Under the currently economic climate if reserves are depleted social security would only be able to afford approximately 75 percent of benefits while Medicare payments would only equal 87% of costs.
In the report one trustree wrote:
“Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare. If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare.”
In the meantime the “cost of living” increases for social security benefits continue to arrive but at a smaller rate. For example in 2013 the COLA will increase by just 1.8 percent (approximate), while in 2012 that rate increased by 3.6 percent but only after two years of no rate increases.
According to the report of the 56 million retired Americans the average monthly retirement benefit is just $1,232 while a disabled worker receives $1,111. In comparison 50 million Americans are covered by Medicare.
If social security continues to lose money it could end up pinching the pockets of higher earners. One possible solution is to increase the amount of money that is taxesd For example under current tax codes the first $110,100 of a persons wages are taxed at 6.2% for social security and that amount could increase. In the meantime the social security tax rate has decreased to 4.2% for 2011 and 2012 under an agreement reached by the US Congress.
Social Security also isn’t be helped along by the government’s inept ability to balance the budget. The fund has $2.7 trillion invested in U.S. Treasury bonds, funds the government has been using to pay for other programs. That misappropriation of funds comes at a time when the fund is already paying out more in benefits than it is currently bringing in.