January 18, 2022

What the New Social Security Outlook Means for You?

By Chris Farrell, Next Avenue

Wow! The pandemic had a smaller impact on Social Security trust funds — that is, Social Security solvency — than many feared during the depths of the pandemic downturn.

According to the new Social Security Trustees Annual Report 2021, the exhaustion date for the combined trust funds – retirement and disability – is 2033 without any changes to program benefits. That would be when today’s 54-year-olds reach full retirement age. Yet that is a year earlier than last year’s 2034 estimate.

Expiration date or insolvency does not mean bankruptcy – far from it. Financing payroll tax receipts is enough to pay 78% of the promised benefits after the combined exhaustion date of the Social Security funds is reached.

“The trust fund report should be seen as a strong point,” said Eric Kingson, a professor of social work and public administration at Syracuse University and co-author with Nancy Altman of “Social Security Works for Everyone: Protecting and Expanding the Insurance Americans Love and Count on.”

What the Social Security Trustees Said

The report, Kingson said, “provides information for Congress and the public on what needs to be done to maintain the benefits.”

And Altman, chairman of Social Security Works, chairman of the Strengthen Social Security Coalition and reportedly a possible Biden appointee to head the Social Security Administration, said this when the Trustees report came out on Wednesday: “Today’s report shows that social security remains strong and works well despite a once-in-a-century pandemic.This year’s forecasts are so similar to last year’s shows once again that our social security system is built to withstand times of crisis and to provide a source of assurance in uncertain times.”

But Social Security administrators are remarkably cautious with their estimates regarding the impact of the pandemic on the Social Security Fund and its sister. trust fund for Medicare, the federal health insurance program primarily for people age 65 and older.

Despite the dry language of actuaries, the uncertainty is clear.

Employment, income, interest rates and gross domestic product (GDP) fell sharply in the second quarter of 2020, the worst economic period of the pandemic. As a result, the decline in payroll tax receipts that pay Social Security benefits eroded trust funds, although the decline in payroll taxes was somewhat offset by higher death rates.

“Given the unprecedented level of uncertainty, the trustees currently believe the pandemic will have no net effect on the individual. long distance ultimate assumptions,” they write.

The Pandemic and Social Security Solvency

But, they add, “At this point, there is no consensus on any lasting effects of the Covid-19 pandemic on the long-term experience.”

The Trustees say they will “continue to monitor developments and adjust projections in subsequent reports”.

Translation: The status quo remains and the forecast for the impact of the pandemic on Social Security solvency is murky.

There is a good chance that the coming Social Security funding gap will not receive continued attention from the Biden administration or Congress, despite the need to take action before 2034.

The trustees are not so happy about that.

Their report states: “The trustees recommend that lawmakers address projected trust fund deficits in a timely manner to phase in the necessary changes and give employees and beneficiaries time to adjust. By making changes sooner rather than later By implementing it, more generations would share in needed revenue increases or cuts in planned benefits… With informed discussion, creative thinking and timely legislative action, Social Security can continue to protect future generations.”

The political outlook for social security reforms

But the Biden administration and its Congressional allies are instead focused on pushing the political needle on an ambitious $3.5 trillion package in infrastructure spending, while also dealing with the fallout from the chaotic withdrawal from Afghanistan.

Leading Republican lawmakers have called for so-called rights reform (think Social Security cuts), but that’s a tough sell in the current Democratic-controlled Congress.

“Does the report call for real concrete action on the timetable? [addressing solvency issues of] Social Security? Probably not. Will it revive the rhetoric that the sky is falling? Of course,” said Robert Blancato, national coordinator of the advocacy group Elder Justice Coalition, president of Matz Blancato and Associates, and a 2016 Next Avenue Influencer in Aging.

The issue of how best to restore Social Security’s financial solvency is not going away. That’s because the program is fundamental to the economic security of retired Americans. Social Security currently pays benefits to 49 million retired workers and dependents of retired workers (as well as survivors’ benefits to six million younger people and 10 million disabled people).

However, the tenor of the longer-term solvency discussion has changed significantly in recent years.

To be sure, some leading Republicans still want to cut Social Security retirement benefits to reduce the looming deficit. Their latest maneuver is what is known as The TRUST Act, sponsored by Utah Sen. Mitt Romney.

It calls for closed-door meetings of Congress-appointed bipartisan committees to pass legislation to restore solvency by June 1 of the following year. The TRUST bill would also restrict Congress to voting yes or no to the proposals. No changes allowed.

What’s different about future changes in Social Security?

AARP, responding to the news of the Trustees report, strongly opposed the TRUST Act’s closed-door reform plan. “All members of Congress must be held accountable for any action on Social Security and health care,” said AARP chief executive Jo Ann Jenkins.

“The concern seems to be that they are looking at austerity first, rather than a more comprehensive approach,” Blancato says. A more comprehensive approach could include tax increases for the wealthy and technical changes to the social security system.

Another thing that’s different is that liberals are no longer just trying to stave off benefits and keep the program exactly as it is — the most important tactic since Republican Newt Gingrich was House Majority Leader in the mid-1990s. Who have bigger and bolder ideas.

Most Democratic members of Congress have either supported legislation to expand Social Security or voted for incremental increases in benefits, such as providing more for the oldest seniors and a new minimum Social Security benefit equal to ten. at least 125% of the poverty level (that translates to $16,100 for a household of one).

Addressing the Social Security deficit and paying for the new benefits, with the Democrats’ plans, would come from tax hikes ranging from gradually raising the payroll tax rate from 6.2% to raising or abolishing the cap. of $142,800 on annual income subject to Social Security taxes for some combination of these.

But social security benefit cuts are off the negotiating table for the Democrats.

“Biden is committed not to cut corners and to make modest improvements in benefits,” Kingson says. “He won’t reverse that.”

The president has pushed for the Social Security tax ceiling to be raised so that people with incomes over $400,000 should also pay taxes on that money. He also favors raising the minimum Social Security benefit to 125% of the poverty level.

The Good News for Social Security Beneficiaries

Another Social Security tidbit to keep in mind: Social Security recipients are likely to receive a significant cost of living (COLA) adjustment in 2022. The exact amount will be announced in October and estimates vary widely, ranging from 3% to as much as 6%. A 6% increase would be the highest in 40 years.

But there’s a catch: Medicare Part B premiums for physicians and outpatient services — a significant portion of Medicare’s funding — will also rise due to inflation. And those premium payments usually come straight from the monthly Social Security checks.

The Trustees report says the estimated standard monthly premium for Medicare Part B will be $158.50 in 2022, an increase of about 7% from $148.50 in 2021 and an overall increase of 9.6% since 2020 (However, monthly premiums are based on income and can exceed $500 for high earners.)

The Trustees report says Medicare’s Hospital Insurance Trust Fund (HITF) has enough money to pay its scheduled benefits through 2026, unchanged from last year. Medicare’s finances remained stable during the pandemic, with people over 65 largely avoiding elective care. The pandemic “is not expected to have a major effect on the financial status of the [Medicare] trust funds after 2024,” noted the Trustees report.

Like Social Security, the trust fund behind Medicare Part A (which pays for hospitals, nursing facilities, home care, and hospice care) is primarily funded through payroll taxes. Sufficient tax revenues will come in to cover an estimated 91% of total planned distributions once the trust fund is insolvent.

Medicare Part D, which covers prescription drugs, is largely funded by federal income taxes, premiums and state payments.

But the Medicare political narrative is less about the projected 2026 deficit and more about the momentum to expand the program. The Biden administration has proposed adding hearing, vision and dental care to Medicare benefits, which is also being urged by Senator Bernie Sanders (I-Vt.). At this point, it’s unclear how those new benefits would be paid for, although they would. t affect the trust fund.

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