In July, the trustees who oversee the Social Security program released their 2018 projections in regards to Social Security and Medicare. Millions of Americans are projected to receive their biggest increase in Social Security in January of 2018. Payments are expected to increase 2.2%, about $28 a month for the average recipient. This increase comes after years of minimal increases for those receiving benefits. In 2017, the benefit increased by 0.3%. In 2016, there was no increase at all. The trustees are also projecting that Medicare Part B premiums should remain unchanged next year. Why are Social Security payments increasing? What is causing the increase in these payments?
The Social Security Administration determines increases in Social Security payments (cost-of-living adjustments or COLA’s) based on a percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is calculated by the Bureau of Labor Statistics. When there is an increase in the CPI-W, the Social Security Administration reflects this increase through a COLA for Social Security payments. This analysis is done yearly to try and maintain the purchasing power of Social Security and protect it against inflation.
Along with their 2018 projections, the trustees also released their long-term financial outlook on Social Security and Medicare. Currently, more than 65 million Americans, including retirees, disabled workers, spouses, and surviving children receive Social Security. The average monthly payment is $1,253. Medicare provides health insurance to about 58 million people, most of which are over the age of 65. Assuming no future changes are made, the most recent projections state that the trust funds supporting Social Security are estimated to be depleted by 2034. The trust fund for Medicare is projected to be depleted by 2029.
As the baby boomer generation is growing older and has started to exit the work force, these two programs have come under increased pressure. Federal spending on Social Security and Medicare was about 16% of the total federal budget in the 1960’s. In 2016, federal spending on these two programs made up roughly 40% of the total $3.54 trillion federal budget. There were 5.1 workers for each person getting Social Security benefits in 1960. Today, there are about 2.8 workers for each person claiming benefits. More people are collecting Social Security for longer periods of time while the number of current workers supporting each person claiming benefits is shrinking. Our aging population is putting an increased financial squeeze on these two retirement programs.
Social Security and Medicare currently both have surpluses so there is no immediate crisis. However, the trustees have warned Congress that the longer they wait to address the long-term fiscal viability and sustainability and survival of Social Security and Medicare, the harder it will be maintain these two retirement programs in their current form. If the issues are not addressed in due time, potential fallouts could include tax increases, cuts in benefits or both.
Sources: Yahoo; Associated Press
