Social Security has two funds: one for “old age and survivors” and the other for disability insurance.
The retirement fund is going strong and is funded through 2033, according to the recently released annual report of the U.S. Treasury.
But the disability insurance fund is depleting quickly. By 2016, there are projected to be enough funds to cover only 80 percent of scheduled payments. Legislation will be needed to address the imbalance, the report said.
The disability insurance fund provides income support for workers who have become disabled and cannot work to support themselves and their families. Nearly 9 million Americans receive disability insurance. The average monthly benefit is $1,129.
When the disability insurance program began in 1966, about 1 percent of the population received disability insurance benefits.
Today, nearly 5 percent of the working-age population receives benefits, in part due to such demographic factors as the aging of the Baby Boom generation, the increase in women’s long-term employment, which qualifies more of them for disability, and the declining job opportunities for older workers during recent years.
The fund has also become the target of widespread abuse as some workers are suspected of exaggerating the extent and length of their injuries to collect disability payments.
Social Security is funded through payroll taxes collected by the Federal Insurance Contributions Act (FICA) and the Self Employment Contributions Act (SECA).
The money is placed into two trust funds:
1. The Old-Age and Survivors Insurance (OASI) Trust Fund
2. The Disability Insurance (DI) Trust Fund
These funds hold the accumulated assets and disburse benefit checks. The trust funds hold securities issued by the federal government, including marketable Treasury bonds and special issues.
The 2033 projection for depletion of the old-age and survivors fund is the same this year as it was last year.
After 2033, the dedicated payroll tax will be sufficient to fund three-quarters of scheduled payments until 2088 with annual income coming into the fund. Legislation would need to be enacted by that time to restore long-term solvency.
In 1982, the OASI trust fund was nearly depleted. Congress enacted emergency legislation that allowed borrowing from other federal trust funds, and no beneficiary was shortchanged. Legislation was later enacted to strengthen the OASI fund.
The borrowed amounts were repaid with interest within four years, the Social Security Administration reported.
Medicare also has enough funds through 2030, the report said.
The Medicare Insurance Trust Fund will have sufficient funds to cover its obligations until 2030, 13 years later than was projected prior to the Affordable Care Act. After 2030, 85 percent will be covered, declining slowly to about 75 percent by 2050, the report said.
Part B of Supplementary Medical Insurance, which pays doctors’ bills and other outpatient expenses, and Part D, which covers prescription drug coverage, are both projected to be financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs, according to the Treasury.
But as the population ages and healthcare costs rise, costs are projected to grow steadily from 1.9 percent of GDP in 2013 to 3.3 percent in 2035 to 4.5 percent by 2088. Roughly three-fourths of these costs will be financed from general revenues, and about one-quarter from premiums paid by beneficiaries, the Treasury report said.
©2014 CPAmerica International