Social Security is fast running out of money, weighing down on the economy, and may have to start cutting benefits to some Americans as early as 2016.
That’s the determination of the Social Security and Medicare Boards of Trustees in their annual report.
“Neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers,” the introduction to the report states.
Each day 10,000 baby boomers reach retirement age and qualify for Social Security. There are 76 million baby boomers – all of whom are or will depend on money that may not be there.
The disruption of Social Security benefits could damage the entire economy, the trustees believe.
Additionally, the Social Security Disability Insurance trust fund, which provides income for disabled people who cannot work, could run out of money in less than two years. If Congress does not act by late 2016, disability payments could be cut by 20 percent.
Also, tax revenue through 2033 will only be able to cover about 75 percent of the Old Age and Survivors Trust Fund, which provides incomes for senior citizens. That means the Social Security Administration would be forced to cut benefits by one-fourth to stay in operation.
Effect on the Economy could be Catastrophic
The effect of the depletion of the Social Security trust funds on the economy could be catastrophic, and the devastation could extend far beyond those who receive benefits. A 2013 report from the American Association of Retired People (AARP) Public Policy Institute showed that the US economy is heavily dependent on Social Security.
The Institute reported:
- 57 million people, or one out of six Americans, received Social Security benefits in 2012.
- Social Security is the only source of income for 22 million Americans.
- Nine out of 10 people over 65 depend on Social Security benefits.
- AARP estimates that the $774.6 billion in Social Security benefits supports nine million jobs in the United States that generate $370 billion in wages. In other words, millions of Americans could be thrown out of work if there was a significant cut in Social Security benefits.
- Social Security payments are responsible for $1.4 trillion in economic output.
If AARP’s figures are correct, large scale cuts to Social Security could hit the economy much like the economic meltdown of 2008 – or worse. Billions of dollars in revenue and millions of jobs could disappear overnight.
“According to our analysis, reducing benefits by 25 percent across the board (about $190 billion), which the Social Security actuaries project will occur around the year 2033, could cost the U.S. economy about 2.3 million jobs, $349 billion in economic output, about $194 billion in GDP, and about $93 billion in employee compensation in 2012 terms,” the AARP estimate noted.
Depletion of Social Security could begin in 2019
The Social Security Administration will start raiding the Old Age and Survivors Insurance trust fund in order to keep benefits flowing to senior citizens in 2019, the Trustees’ report noted. This accounting trick will cover benefits until 2033, when the trust fund will be completely exhausted.
“After 2019, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of combined trust fund reserves in 2033, the same year projected in last year’s Trustees Report,” the report stated.
It looks like baby boomers and others might be forced to pay for their own retirement whether they want to or not – and that Social Security’s downfall could result in the demise of the American economy, too.
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