WASHINGTON (Reuters) - Aging baby boomers got some jolting news on Monday when the U.S. government said the Social Security retirement program is on track to go bankrupt three years earlier than expected if reforms are not made.
Unless Washington politicians, who have been at war with each other over government spending priorities and federal budget deficits, can decide how to put Social Security on a sound footing, retirees’ pension checks would start running out in 2033, according to an annual report.
The baby boomers - those 78 million Americans born between 1946 and 1964 - started retiring last year. With 10,000 of them expected to retire every day for the next 19 years, according to the Pew Research Center, they will increasingly strain Social Security.
“Never since the 1983 reforms have we come as close to the point of trust-fund depletion as we are right now,” trustee Charles Blahous told reporters. “Our window for dealing with it without substantially disruptive consequences is closing very rapidly,” he said.
Meanwhile, the Medicare healthcare fund for the elderly is still is headed for exhaustion in 2024, the same date estimated last year. But it was uncertain whether the assumptions used in arriving at the estimate were overly optimistic.
Blahous and fellow trustee Robert Reischauer said lawmakers should be aware that it will become increasingly difficult to “avoid adverse effects” on retirees or those close to retirement if legislative changes are delayed much longer.
For example, Americans’ average real earnings are forecast to grow more slowly than previously thought, crimping revenue from the taxes that pay for the benefits, the report noted.
Even when the fund starts to run out of money in 2033, it would be able to pay 75 percent of benefits. An alternative, in order to keep payments at 100 percent, would be to raise the payroll tax on employers and employees to 16.7 percent from its regular 12.4 percent rate.
Members of Congress also have mulled raising the retirement age or cutting some benefits to the wealthy. But no action is expected before the November elections.
Trustees for the fund said a disability insurance program, which is generally lumped in with Social Security, faces the most immediate financing shortfall. It said that fund will likely be depleted in 2016, two years earlier than projected last year.
Even as Republicans, including Republican presidential candidate Mitt Romney, push to repeal the Obama administration’s signature healthcare law, Secretary of Health Kathleen Sebelius, claimed that without it, the Medicare fund would in fact have been depleted by 2016 instead of 2024.
“As a result of the law, we have added another eight years to its life, putting Medicare on much more solid ground,” Sebelius told reporters. But the fund’s longevity rests on shifting ground because of the possibility of changes in law and in the economy’s direction.
For example, President Barack Obama’s healthcare law enacted in 2010 may be overturned by the Supreme Court. And some assumptions used to estimate the depletion of the trust funds - such as hefty cuts in pay rates for physician services - might never occur.
Trustees warned that costs for Medicare were on the rise, and likely to leap from about 3.7 percent of gross domestic product in 2011 to 5.7 percent by 2035.
The declining condition of the Medicare and Social Security funds - blamed on the aging population and rising healthcare costs - fueled fresh calls from Republicans to overhaul the costly benefits programs.
“As this report shows, leaving Medicare and Social Security on autopilot and allowing them to continue to grow beyond their means is no longer an option,” said Senator Orrin Hatch of Utah, the senior Republican on the committee that oversees these huge programs.
Obama and his Democrats accuse Republicans of proposing Medicare changes that would dangerously raise healthcare costs for seniors, while Republicans claim the administration’s free-wheeling spending has pushed the nation’s debt to perilous levels.
Republicans in the House of Representatives have proposed giving seniors the option of having traditional Medicare or a competing plan through a government-run exchange. A previous Republican proposal from House Budget Chairman Paul Ryan sought to privatize Medicare, unleashing a storm of criticism from seniors and Democrats.
“Young people have come to wonder what would be their lot when they came to old age.” That quote could have come from this latest trustees’ report, given Americans’ worries about the future of Social Security and Medicare.
But it actually was part of President Franklin Roosevelt’s statement when he signed Social Security into law on August 14, 1935 with the aim of permanently protecting “against poverty-ridden old age.”
Reporting By Glenn Somerville and Rachelle Younglai; Editing by Richard Cowan and Eric Walsh