Living Well in Retirement
Medicare, Social Security Projected to Become Insolvent Sooner
Kiplinger News
May 18, 2010
The recent meeting of the boards of trustees for Medicare and Social Security had an unhappy conclusion: The programs' funding shortfall is worse than had been anticipated.
Last year, Social Security's trustees projected that the program's trust fund would run out by 2041. In their latest analysis, though, the trustees say the fund will be exhausted by 2037. When that occurs, the program won't be bankrupt - it will still be taking in payroll tax revenues - but it will only be able to pay out about three-quarters of its funding obligations.
The reasons for the four-year bump are manifold. The recession lowered tax revenue and curtailed the returns of Social Security's investment portfolio, gross domestic product growth was revised downward and people are living longer.
But Social Security's problems may be overshadowed by Medicare's. The former program is more expensive in GDP terms today, but the latter will surpass it by 2028. By 2083, fully 11.4 percent of GDP will be spent on Medicare - nearly twice the amount spent on Social Security.
Treasury Secretary Timothy Geithner, in reviewing the trustees' findings, said "there is no more important long-term fiscal policy measure than gaining control of the growth of Medicare costs."
"The longer we wait to address the long-term solvency of Medicare and Social Security," he added, "the sooner those challenges will be upon us and the harder the options will be."
