2011 Social Security and Medicare Trustees Report

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On Friday the 2011 Social Security and Medicare Trustees Report was issued and as you can imagine, the report is not positive. This report summarizes the financial results of the 2010 fiscal year. The second and third sentences of the report pretty much sum up the entire report. 

“The financial conditions of the Social Security and Medicare programs remain challenging. Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided. “
 
Last year’s report was bad, but this report shows the programs are getting worse. The Social Security trust fund is expected to run out of funds in 2036, which is one year sooner. Medicare is expected to be exhausted in 2024, five years earlier than expected.
 
Once those dates pass, there will only be sufficient resources coming in to pay out about 77 percent of scheduled Social Security benefits and 90 percent of retiree’s hospital insurance costs, unless changes are made to the program.
 
The Heritage Foundation did an analysis that, in net present value terms, shows Social Security owes $9.1 trillion more in benefits than it will receive in taxes. Net present value measures the amount of money that would have to be invested today in order to have enough money on hand to pay deficits in the future. In other words, Congress would have to invest $9.1 trillion today in order to have enough money to pay all of Social Security’s promised benefits through 2085.
 
This money would be in addition to what Social Security receives during those years from payroll taxes. It should be noted this $9.1 trillion is not part of the current $14 trillion federal deficit. This trust fund is off balance sheet (something the government disallows as part of the Sarbanes-Oxley Act, which was passed in order to prevent rogue companies like Enron from doing).
 
Social Security spending started to exceed projected tax collections in 2010. These deficits will quickly balloon to alarming levels. After adjusting for inflation, annual deficits will reach $81.5 billion in 2020, $288.4 billion in 2030, and $343.6 billion in 2035.
 
One month ago, our elected officials celebrated a late inning rally to pass a balanced budget and reduce spending by $40 billion (about a 1% cut). I wonder if any of them took time this weekend (like I did) to read the trustees report, because if they did they would realize a $40 billion cut is simply a drop of water in the ocean. All I can say is pray for our elected officials because they clearly need wisdom and courage to address this coming tidal wave!

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