Will Your Social Security Benefits Last As Long As You Do?

Will Your Social Security Benefits Last As Long As You Do?

TSCL Believes Benefits At Stake

The amount of money that the federal government owes to its creditors — including the Social Security and Medicare Trust Funds — is now estimated to be as big as the entire U.S. economy. Economists warn that the situation can’t continue without causing more economic crisis.

Social Security and Medicare remain the targets of plans to reduce federal spending. Over the past 12 months, both Members of Congress and President Obama came close to agreeing on cuts to Social Security benefits, including cost-of-living adjustments (COLAs) and making seniors pay more for their Medicare. How much are Social Security benefits worth over a lifetime and what can you count on? A baby boomer retiring with an "average" benefit of $1,100 in 2011 can expect to receive $170,225 over ten years, and $513,641 if he or she lives twenty-five years, due to the compounding effect of the cost-of-living adjustments.

The system, however, isn’t estimated to be able to pay scheduled benefits in full for that long. The Social Security Trustees estimate that the Trust Funds will become fully insolvent by the end of 2035. When Trustees use the term insolvent that means the point at which all the extra revenues that were borrowed, now totaling more than $2.6 trillion, have run out, and there are no more IOUs held by the Trust Fund. Some people believe that, when the Trust Funds are exhausted, Social Security will be completely unable to pay benefits. But that’s not the case.

The program is projected to have enough tax income to pay about 23% less than currently scheduled, according to the Congressional Research Service. But economists warn that without changes to reduce the deficit, the Social Security Trust Fund will get into trouble long before the program is scheduled to become insolvent. Indeed, beneficiaries got a glimpse of what may lay ahead during last summer’s battle over the debt limit. According to estimates from the Bi-partisan Policy Center, the federal government did not have sufficient revenues to cover Social Security benefits last August. Congress came within hours of a default on what it owed to the Trust Fund, and thus falling short on money needed to pay benefits before enacting legislation.

TSCL believes that Social Security and Medicare remain at high risk of major changes that would cut benefits and continues to meet with Members of Congress and their staffs. The COLA is particularly vulnerable due to the size of the reduction in the deficit it would have — both by cutting federal spending and boosting tax revenue. The next election will be one of the most critical in years for both retirees and older Americans within ten years of retirement. TSCL urges you to ensure that you and your family are registered and ready to vote this November!

Sources: “Social Security: What Would Happen If The Trust Funds Ran Out?” Christine Scott, Congressional Research Service, August 2, 2011. Debt Limit Analysis, Bipartisan Policy Center, July 2011.