Some Benefits May Disappear Within The Next 2 Years
The Congressional Budget Office (CBO) has issued its review of the United State’s Social Security programs and the report is nothing short of a “Doomsday Prophecy.” The so-called “trust fund,” which is basically just a federal line item, is consuming an ever-growing piece of the federal budget pie, while costing far more than the country can afford, according to J.D. Tuccille, the managing editor of Reason.com.
How Does Social Security Work?
The two entitlement branches of Social Security are Disability Insurance (DI) and Old Age and Survivors Insurance (OASI). These branches are funded through tax revenues. The CBO analysis projects that under current regulations, the DI trust fund will be exhausted in fiscal year 2017, and the OASI trust fund will run out by 2032. Once a trust fund’s balance reaches zero, if current tax revenues are insufficient to cover the amount of benefits owed to the citizens, the Social Security Administration has no legal authority to pay out full benefits when they come due.
The downward slide has already started. According to the Social Security and Medicare Board of Trustees, Social Security payments began exceeding tax revenues for the program in 2010. The CBO report also warned, “As more members of the baby-boom generation retire, outlays will increase relative to the size of the economy, whereas tax revenues will remain at an almost constant share of the economy. As a result, the gap will grow larger in the 2020s…”
Are These New Concerns?
This is not the first time Social Security has faced funding concerns. These programs have been in a dire condition for many years. According to the CBO, legislation was passed in 1994 to take revenues from the OASI trust fund and transfer them into the DI trust fund to keep the DI fund from going belly up. Since then, the DI and OASI trust funds are commonly considered a combined fund. As a result, the CBO analysis cautions that if future legislation shifts resources back from OASI to the DI fund, the combined OASDI trust funds will be exhausted in 2030.
How Does This Affect the National Debt?
Cato Institute senior fellow Michael Tanner, who heads research for Reason.com with a particular emphasis on Social Security, reports that earlier this year the national debt officially topped $18 trillion, which is roughly 101 percent of GDP. This means that we now have more debt than the combined value of all goods and services produced in this country in a year. The CBO predicts the debt will climb to almost $27.3 trillion within the next 10 years.
If you think these numbers sound bad, well brace yourself, they don’t even tell the whole story. These overall debt figures don’t include the unfunded liabilities of programs like Social Security and Medicare. Keep in mind that even though these liabilities don’t show up on the country’s official balance sheet, they are still legal obligations of the US government. If we include the expected shortfall from these programs in the nation debt, the true debt jumps to an astronomical $90.6 trillion.
How can we address these shortfalls?
Politicians either ignore the issue, or suggest it will go away if the wealthy pay more taxes. However, it is simply impossible to increase taxes enough to close the budget gap. More specifically, raising taxes on the wealthy falls far short of what would be required to pay for our current and future obligations.
“The simple truth is that there is no way to address America’s debt problem without reforming entitlements, notably Social Security, Medicare, Medicaid, and our newest entitlement program, Obamacare. Social Security, Medicare, and Medicaid alone account for 47 percent of federal spending today, a portion that will only grow larger in the future. And although the spending for Obamacare has just begun, it, too, will soon consume an ever larger portion of the federal budget,” according to Mr. Tanner.
Social Security is expected to run a $69 billion cash-flow deficit in 2015. That’s the good news. In every year after, that shortfall will worsen. Altogether, Social Security is facing future shortfalls of more than $24.9 trillion. The frustrating part is that Social Security and Medicare seem immune to reform, in large part because seniors, who tend to vote, receive the benefits, while young people, who don’t vote, get to pay the bill.
What Steps Should You Take Now?
Jason Pye of FreedomWorks.org summarizes, “Absent meaningful reforms that encourage economic growth and private ownership of retirement accounts, as more Americans retire and become eligible for Social Security benefits and Medicare (the other elephant in the room), there will be less for Congress to spend on other areas of the budget.”
Taxpayers who hope to retire someday can’t depend on governmental reforms, new legislation or some sort of miracle to occur. We need real answers. We need to take control of our own retirement through private ownership of retirement accounts by establishing self-directed IRAs, which give us the freedom to invest in a variety of options the government cannot destroy. Talk to one of our friendly experts at (whichever website this article is posted) today to learn how you can stop relying on the government and start realizing your true retirement potential.