The impact of the recession continues to claim other victims, and this time it's the government programs Social Security and Medicare. According to program regulators, Social Security is set to run out in 2037, which is four years earlier than expected. In all, $2.4 trillion was taken in by the government to be invested and repaid to the people. At this point, only 76% of the fund will be paid out due to early exhaustion of the money. Younger workers should get their 401k plan and IRA fully funded in case entitlement programs run dry.
The End of Social Security
The main reasons Social Security will not last are due to lower contribution rates because of rising unemployment, and a higher number of Social Security benefits claims. In essence, there's more money leaving than coming in. It is expected that by 2016, the amount of money being paid out through benefits claims will be greater than the tax revenues being received. While some believe that the total amount can be paid back to citizens in full, others are citing 2016 as an important date because that's when the government will be responsible for paying back the funds with interest. In order to do so, the government will have to print money or borrow from other sources.
How Does It Affect You?
While lawmakers have not decided how to tackle the looming Social Security deficit problem, they have several ideas. Here are some possible solutions:
- Cut Social Security benefits by 13%
- A payroll tax increase
- Increasing the age that people are able to collect benefits
- Less benefits claimed for higher income workers promised higher benefits - the payout would be adjusted to inflation
Medicare in Far Worse Shape
Medicare is expected to be exhausted by around 2017, or about two years earlier than previously expected. The system would only be receiving enough payroll taxes to cover 81% of hospital bills. In 2008 the system had already begun to suffer; it took in less tax revenue than it was paying out for Medicare services, including hospital stays and related care. Medicare officials believe that worker's wages dedicated to Medicare would have to rise to 6.78% to cover the shortfall, up from today's 2.9% estimate. That, or the costs associated with the program would have to be cut by 53%.
While there are many things wrong with the health care system in the US and the Medicare system in general, lawmakers are working hard to come up with a solution. The fix however, will require a sharing of the burden between taxpayers, Medicare beneficiaries and the health care industry.
With the state of the economy and public programs in dismal shape, younger workers will have to look to their own investments and savings in order to retire comfortably. Are you trusting the government with your retirement, or are you planning ahead on your own?
