Unfunded Social Security and MedicareAn important policy aspect to remember about Social Security and Medicare is that they are unfunded and pay as we go systems. The Urban Institute tracks how much individuals pay in and get out in terms of benefits from social security and Medicare. A couple retiring now would have paid in about $750,000 and would get out about $1 million in benefits. 80% of the people are now living to full retirement age. Only some of those people are living long enough to get benefits beyond what they paid into the system. The solvency of the system in each year depends upon the workforce and taxes paid in versus the benefits that are paid out. The Social Security program is currently forecast to run out of reserves in 2034. Benefits would have to be reduced by about 25% to keep spending within available annual revenue. The alternative to benefit reduction would be to increase taxes. Restoring permanent solvency to the program would require raising the payroll tax rate immediately from today’s combined employer-employee rate of 12.4% of taxable payroll to 15.2%. Alternatively, Social Security benefits would need to be cut on a permanent basis by about 17%. Those figures assume continued trends in longevity and employment. If there was a massive increase in unemployment from automation or just a prolonged bad economy then the solvency of the systems could fail more quickly. There is a small Social Security trust fund. Social Security and Medicare are paid out of general tax revenue. In 1950, the average American lived for 68 years and retirees were supported by 16 active workers. In 2019, the average life expectancy is 78 and three workers support every retiree. In 15-20 years, it is projected that only two workers will support each retiree their benefits. If there was an immediate increase in longevity then this could happen a few years earlier, but only if the extra longevity was not good enough to make seniors healthy enough to work again. Canada’s government pension system has an automatic increase in the full retirement age to match increases in longevity. These are the conceptually simple adjustments around age and eligibility which enable benefit system solvency. Policymakers would have 10 years or more to adjust to radically longevity. Sudden and persistent reductions in employment could trigger the need for emergency policy fixes. SOURCES – Social Security, Medicare Written By Brian Wang
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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