Skip to Content

Recession erodes Social Security and Medicare trust funds

Text SizeAAA

Filed under: Retirement

More

The trust funds for both Medicare and Social Security will run out of money earlier than expected because of the recession, the trustees reported today. The Medicare Trust Fund will run out of money by 2017 two years earlier than forecast last year. The Social Security Trust Fund's life has been shortened by four years and is expected to run out by 2037.

Analysts were expecting the bad news because fewer people are paying into both programs. Approximately 5.7 million jobs have been lost since December 2007 reducing payroll tax collections dramatically. In fact in March the Congressional Budget Office projected Social Security's surplus would be just about gone in 2010 with only $3 billion more collected in taxes than benefits paid out.


Social Security is a pay as you go system. The payroll taxes of current employees are used to pay benefits to retirees. In the 1980s President Reagan appointed a commission led by Alan Greenspan to fix the system and increase the Social Security Trust Fund to help pay for the Baby Boomer retirement wave. Since that time about 85 percent of Social Security taxes were used to pay benefits and 15 percent were supposed to be put aside in a Trust Fund to help pay Baby Boomer Social Security benefits.

Congress has been using that Trust Fund as its personal piggy bank, taking IOUs from the Trust Fund to pay for their pet projects. Well the party's over. Now that the surplus is gone thanks to the recession, Congress will have to look elsewhere for extra funds. Also, once the taxes collected are not enough to cover benefits and its time to withdraw funds from the Trust Funds, the situation will get even worse. Congress will have to start repaying those IOUs. That's now expected to happen two years earlier in 2017 thanks the to the recession.

Medicare is in even worse shape. It's Trust fund will run out of money in 2017. That's why President Obama has set his priority on fixing health care before Social Security. If the industry can hold down health costs that will help but much more needs to be done or the promises of Medicare and Medicaid will overtake a much larger share of the federal budget. Some type of comprehensive health care bill has just become an even greater priority.

With people's retirement savings also devastated by the bursting of the bubble, now is not the time for the retirement safety net to collapse. Congress has put off fixing the problem long enough. It's time for them to start looking for a bipartisan solution to both Medicare and Social Security.

Lita Epstein has written more than 25 books, including the Complete Idiot's Guide to Social Security and Medicare.

Reader Comments (Page 1 of 40)

Interest Rates

5/1 ARM+4.06%APR: +3.75%
30 Yr.
Fixed Mort.
+5.03%APR: +5.16%
$30K
HELOC
+8.00%APR: 0.00%
30 Mo
New Car Loan
+6.77%APR: 0.00%
1 Yr. CD+1.57%APR: +1.58%

Featured Sponsor

Will you spend as wisely as you save?

If a 65-year old couple retires today, how much savings may they need now to cover future health care costs?


Ask Me About Retirement

Dan Solin

Do you have a question about retirement? Ask our retirement expert Dan Solin.

DailyFinance Writers
Melly Alazraki Melly Alazraki Financial writer and analyst
James Altucher James Altucher Financial columnist
Jeff Bercovici Jeff Bercovici Media columnist
Jonathan Berr Jonathan Berr Financial writer and media columnist
Mercedes Cardona Mercedes Cardona Retail reporter
Tim Catts Tim Catts Financial writer
Peter Cohan Peter Cohan Author, venture capitalist and financial writer
Carrie Coolidge Carrie Coolidge Financial writer
Lita Epstein Lita Epstein Financial writer
Sam Gustin Sam Gustin Technology Writer
Nikhil Hutheesing Nikhil Hutheesing Tech and investing editor
Joseph Lazzaro Joseph Lazzaro Markets and economics writer
Latif Lewis Michelle Leder Financial Columnist
Latif Lewis Latif Lewis Business news editor and management columnist
Anthony Massucci Anthony Massucci Senior writer and tech columnist
Doug McIntyre Doug McIntyre Business and investing news writer and editor
Michael Mercurio Michael Mercurio Managing Editor
Todd Pruzan Todd Pruzan Features editor
Michael Rainey Michael Rainey Editor and economics writer
Alex Salkever Alex Salkever Senior technology writer
David Schepp David Schepp Business News reporter
Matthew Scott Matthew Scott Investing reporter and editor
Dan Solin Daniel R. Solin Author, investment advisor and retirement expert
Amey Stone Amey Stone Executive editor
Bruce Watson Mark Svenvold Columnist, renewable energy
Russel Turk, M.D. Russell Turk, M.D. Healthcare policy columnist
Bruce Watson Bruce Watson Features Writer

Retirement Basics

my portfolios

Find out why more people track their portfolios on AOL Money & Finance than anywhere else.

Create a New Portfolio My Portfolios

Daily Finance Partners

More from the Weblogs Network