Social Security and Medicare, the government’s two largest benefit programs, continue under intense financial pressure with the withdrawal of millions of baby boomers and a devastating pandemic. The Social Security will not be able to pay the full benefits from 2034, one year earlier than previously planned, due to the impact of the crisis.
According to a new report from the administrators of the programs published on Tuesday, which increased, by one year, the date of exhaustion of Social Security reserves. Medicare is expected to deplete its reserves in 2026, the same date it was estimated last year.
The success of the pandemic for the economy, when unemployment soared to nearly 15%, has swept the nation, prompting some older workers to take early retirement, while millions of women with children they have left the workforce due to remote school or lack of daycare. At the same time, there are fewer adults who choose to have children, depressing the birth rate. A downsizing can also pose long-term problems for the Social Security program, as it relies on payroll tax to fund benefits.
“The finances of both programs have been significantly affected by the 2020 pandemic and recession,” administrators said in the report.
Employment, earnings, interest rates and economic growth plummeted in the second quarter of 2020 after the pandemic hit the United States, according to the report.
However, the report added that “given the unprecedented level of uncertainty” there was no consensus on what the lasting effects of the pandemic will be on the two benefit programs.
Pandemic baby bust
Fewer people have children in the midst of the pandemic, a trend that will continue until 2023, according to the report. The birth rate is projected to drop to 1.54 children per woman this year and rise to 1.62 in 2022. In 2023, the rate should recover to 1.71 children per woman, the rate that would have been without the pandemic, according to administrators.
Of course, the U.S. birth rate has been declining for decades, reaching a minimum of 42 years in 2020. This has long-term implications for the labor market and retirement programs, and some demographers describe it as a “crisis.”
Meanwhile, mortality rates for people over the age of 15 rose more than 16% last year due to the pandemic and will remain high until 2023, according to the report.
78 cents for every $ 1
When the Social Security trust fund runs out, the government will be able to pay 78% of the scheduled benefits, according to the report.
Because a reduction in benefits of this magnitude would cause a political uproar, Congress is likely to find ways to recoup lost profits, either by increasing payroll taxes paid by current workers or by increasing government debt to cover the deficit.
Government economic experts who prepared the Social Security report said recent inflation increases mean the cost-of-living adjustment (COLA) for 2022 will approach 6%, a huge jump of 1.3% COLA awarded for this year. But recipients will have to wait this time because the Social Security Administration only adjusts payments once a year. This means that the elderly and other Social Security beneficiaries will not receive the increase until January 2022.
Medicare’s “Part B” premium for outpatient coverage is projected to increase $ 10 a month in 2022, to $ 158.50 according to the report’s interim assumptions.
The new report, which has been delayed for several months, represents the government’s effort to assess the impact of last year’s pandemic and recession on the financial health of the two major benefit programs.
The U.S. economy lost 22.4 million staggering jobs in March and April 2020, as the pandemic forced companies to close or reduce hours and the economy went into recession.
But the recession turned out to be brief and recruitment has recovered as economic growth has resumed. Employers have recovered 16.7 million jobs since April 2020, but that gain still leaves the workforce 5.7 million jobs below what it was before the pandemic hit.