Rescuing America’s Safety Net

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the current fiscal outlook for the Social Security and Medicare programs and presents some potential changes that might help to strengthen them:

A March 2023 survey found that more than 90% of Americans worry about the Social Security program, and about half of those said they worry a great deal.

A separate survey the same month found that more than 80% of Americans worry Medicare will not be able to provide the same level of benefits in the future.

These concerns are well-founded, because both of these programs — the cornerstones of “America’s Safety Net” — face serious fiscal challenges that require Congressional action. And the longer Congress waits to act, the more extreme the solutions will have to be.

Even so, it’s important to keep in mind that neither of these programs is in danger of collapsing completely.

The question is what type of changes will be required to rescue them.

Demographic Dilemma

The fundamental problem facing both programs is the aging of the American population. Today’s workers pay taxes to fund benefits received by today’s retirees, and with lower birth rates and longer life spans, there are fewer workers paying into the programs and more retirees receiving benefits for a longer period of time. In 1960, there were 5.1 workers for each Social Security beneficiary; in 2023 there are 2.7, dropping steadily to 2.2 by 2045.

Dwindling Trust Funds

Payroll taxes from today’s workers, along with income taxes on Social Security benefits, go into interest-bearing trust funds. During times when payroll taxes and other income exceeded benefit payments, these funds built up reserve assets. But now the reserves are being depleted as they supplement payroll taxes and other income to meet scheduled benefit payments.

Each year, the Trustees of the Social Security and Medicare Trust Funds provide detailed reports to Congress that track the programs’ current financial condition and projected financial outlook. These reports have warned for years that the trust funds would be depleted in…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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