Economic Forecasts

As America Ages, Hard Questions Loom

Census data show a decline in younger workers. That puts more pressure on Social Security and other programs that support seniors.

If it seems as if an assisted-living complex is going up on every other corner and half of the commercials on the evening news are for arthritis remedies, you’re not imagining things. The U.S. is rapidly aging, and businesses are responding. The percentage of people in the U.S. who are 65 and older has grown by nearly 35% in the past decade, and by 2040, about one in five Americans will be 65 or older, up from one in eight in 2000.

Although it’s comforting for seniors to be surrounded by people their age, the trend is troubling from an economic standpoint. Data released by the U.S. Census Bureau in April showed that the country’s population grew by 7.4% over the past decade, the slowest rate since the 1930s.

The national slowdown in growth reflects a decline in immigration and a drop in the birth rate, which fell 4% last year, the largest decline in nearly 50 years. That means fewer people are joining the workforce and paying into the programs that seniors rely on, which are already under financial stress. According to the 2020 annual report by the Social Security Board of Trustees, Social Security’s annual costs are expected to exceed income from payroll taxes and interest starting this year, forcing Social Security to draw down its trust fund.

If nothing is done to shore up the program, the board projected that the trust fund will be depleted by 2034, forcing Social Security to pay out only 75% to 80% of promised benefits. (The board hadn’t released its 2021 annual report at press time, so it’s not yet known how the pandemic has affected that timeline.)

Meanwhile, the Congressional Budget Office has projected that Medicare’s Hospital Insurance Trust Fund, which covers hospital, nursing home, and hospice services, could become insolvent as early as 2024, which means providers of those services wouldn’t be fully reimbursed.

The search for solutions. Advocates for seniors see some upside to these worrisome findings. As the population of seniors continues to grow, lawmakers will face more pressure to take actions—some of which are po­litically fraught—to shore up the programs that support older Americans. “There are going to be a lot more people on Social Security, and they’ve always had clout at the ballot box,” says Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare.

There’s no shortage of proposals to rescue Social Security (see Shoring Up Social Security), and one that’s likely to gain more support in the months to come would increase the limit on wages subject to the payroll tax. Each year, Social Security sets a limit on how much of each worker’s wages are taxed, based on average increases in wages. For 2021, the cap is $142,800. President Biden has proposed keeping the current structure for the taxable maximum but reapplying the 12.4% tax for wages above $400,000; the amount of earnings between the initial maximum and the $400,000 threshold would not be taxed. Some senior advocacy groups want to eliminate the cap entirely and subject all wages to the payroll tax.

Medicare is a more complex problem because it’s difficult to project how much money the program will need, particularly at a time when Americans are living longer and health care costs continue to rise. Although COVID-19 took a terrible toll on this country, and on seniors, in particular, it also offered some potential solutions to lowering health care costs, says Marcia Ory, professor of environmental and occupational health at Texas A&M University. For example, the pandemic led to an increase in the use of telehealth services, a money-saving option that’s likely to continue even after people are comfortable returning to their doctor’s office.

Meanwhile, expanding programs that pay family members to care for elderly relatives—which some state Medicaid programs offer—could lower nursing home costs and address the shortage of paid caregivers.

Focusing more attention on preventive care is also critical, Ory says, because that will ultimately lower costs covered by Medicare, Medicaid, and other government programs.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
How to Calculate the Break-Even Age for Taking Social Security
social security

How to Calculate the Break-Even Age for Taking Social Security

When it comes to maximizing your Social Security benefits, there are many elements to consider. One factor that can be especially enlightening is your…
August 30, 2021
Spend Without Worry in Retirement
Financial Planning

Spend Without Worry in Retirement

Fears of running out of money prevent many retirees from tapping the nest egg they’ve worked a lifetime to save. With these strategies, you can genera…
August 30, 2021

Recommended

What Is the Social Security COLA?
retirement

What Is the Social Security COLA?

This year especially, cost-of-living adjustments are late to the party, as consumers are feeling the effect of price spikes now.
September 16, 2021
Retirees Likely to Receive Significant Bump in Social Security Benefits in 2022
social security

Retirees Likely to Receive Significant Bump in Social Security Benefits in 2022

The cost-of-living adjustment for Social Security benefits for next year is expected to be the largest since 1982.
September 16, 2021
5 Key Points to Consider Before You Claim Social Security
social security

5 Key Points to Consider Before You Claim Social Security

The big decision every retiree has to make is when to start taking their Social Security benefits. Here are five things to think about as you weigh yo…
September 16, 2021
Kiplinger's Economic Outlooks
Economic Forecasts

Kiplinger's Economic Outlooks

Regularly updated insights on the economy’s next moves.
September 16, 2021