After years of alarming headlines about the impending Social Security insolvency, Americans have just received some good news. The agency’s funds are now expected to run out of money in 2035 – a year later than expected.
The update came in the latest annual report from the group of trustees overseeing the financial condition of the federal Social Security and Medicare safety net programs. In the report, released Thursday, the administrators predict the government will be able to pay full Social Security benefits for longer because of the way the U.S. economy has rebounded from the pandemic.
“The economic recovery has been stronger than expected in last year’s reports with faster than expected increases in employment, income and GDP [gross domestic product]“, wrote the administrators.
Social Security benefits, which help more than 65 million Americans through monthly payments, are divided into two key components: retirement benefits and disability benefits. Pension funds are expected to run out by 2034, a one-year improvement since the last report. Disability benefits are faring much better. They are expected to pay in full for at least the next 75 years.
Together, the Social Security funds would last until 2035.
The report also showed that hospital benefits through Medicare — aka Part A — are expected to pay through 2028, two years later than the previous estimate. (The medical insurance portion of Medicare is funded indefinitely because its funding comes from premiums and other tax revenue.)
Social Security Isn’t Going Away – But That Could Change
Overall, the report represents a marked improvement over last year’s dismal projections. Administrators attributed much of the gains to the rapidly improving labor market. The idea is that when more people work and see wage gains, it translates into more tax revenue to fund these vital programs.
However, many of them are still in a precarious financial situation. In the years to come, these programs will face major challenges as more baby boomers retire, dramatically changing the worker-beneficiary ratio. At the same time, lower birth rates mean there will be a smaller supply of workers and therefore less tax revenue to fund programs.
When the funds run out, benefits will be cut. In 2034, the year retirement funds are expected to run out, the Social Security Administration will only be able to pay 77% of benefits to retirees.
Already, it’s reshaping how retired savers feel about their golden years. According to a recent survey by the investment firm Principal, 64% of workers fear that social security benefits will not be available to them throughout retirement, and some 80% expect to have to continue working to join the two ends.
Current retirees are also being hammered by inflation. The Senior Citizens League, a nonprofit advocacy group, predicts that Social Security recipients will receive an 8.6% cost-of-living adjustment in 2023, but even that won’t offset the spike in prices at which retirees face. Despite nominal increases each year, the purchasing power of Social Security checks has declined 40% since 2000, TSCL found.
Congress could act to address these funding shortfalls before the programs become insolvent. Still, experts say retirees can’t and probably shouldn’t rely solely on the prospect of receiving Social Security benefits. Instead, Americans should start saving as soon as possible through employee-sponsored 401(k) plans and/or individual retirement accounts.
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