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Social Security Exhaustion

Updated on August 30, 2014

Social Security Exhaustion

Social Security dates back to the 19th century to the time following the Great Depression, characterized by high unemployment and economic stress. In this era, Franklin D. Roosevelt proposed a Social Security program in 1934, and in 1935 the Social Security Act went into effect (Hall). Nearly 54 million Americans receive Social Security benefits, including 38 million retirees and their family members, 10 million Americans with disabilities and their dependents, and 6 million survivors of deceased workers. Social Security paid $702 billion in benefits to the 54 million Americans in 2010.[1] Social Security is one of the largest anti-poverty programs for children.[2] Our children, our future generations would be affected if an exhaustion of these funds were to happen in the years from 2036-2039, approximately 105 years since it first began. President Barack Obama in the State of the Union Address on January 25, 2011[3] says:

"To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. We must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market."

The Social Security Board of Trustees released an annual report on May 15, 2011 on the financial health of the trust fund. The combined assets of Old-Age and Survivors Insurance as well as Disability Insurance (OASDI) trust funds will be exhausted by 2036. The Disability Insurance trust fund will be exhausted by 2018. At that time, there will be non-interest income coming in to pay about 77% of benefits. Over the next 75 years, the trust funds would need $6.5 trillion to pay all scheduled benefits. [4]

Due to the weakened economy and downward income adjustments in 2010, a $49 billion deficit took place and a $46 billion deficit is projected for 2011. This will lessen to $20 billion in the years of 2012-2014, but cash deficits are expected to grow substantially as beneficiaries continues to grow at a faster rate. Through the mid-2030s, the baby-boom generation will be entering retirement and lower-birth-rate generations entering employment. The aging population is the single largest factor contributing to cost growth, as is the rapid growth is the rapid growth of health care costs.

The Medicare HI trust fund is expected to pay out more in hospital benefits and other expenditures that it receives in income for all future years, projecting the exhaustion of this fund to be in 2024. [5] For six consecutive years, a Medicare funding warning has been issued, which projects non-dedicated (general) sources of revenues, that will account for more than 45% of Medicare’s outlays. A response to this warning requires by law a presidential proposal, as well as legislative modifications[6] if consequences for beneficiaries and taxpayers are to be avoided. If action is taken soon enough, more options and more time will be available for those affected, giving adequate time to prepare, or to improve the financial status overall.

Once the year 2022 comes, as projected, these annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the U.S. Treasury.[7] These redemptions will be less than interest earnings and trust fund balances will continue to grow. After 2022, the trust fund assets redeemed will exceed interest earnings until the fund is exhausted in 2036. About three-quarters of the scheduled benefits up to 2085 would be supplemented by tax income.

On July 6th, 2011 President Obama proposed significant reductions in Medicare spending and is offering to tackle the rising cost of Social Security. This proposal would cut more than $4 trillion from annual budget deficits over the next 12 years, as well as stabilize borrowing and resolve the expected rise in health care costs due to the aging population. Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that will force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.[8] If and when the Republicans agree to raise taxes, tax breaks for the nation’s wealthiest households would expire on schedule at the end of next year although, the Republicans are vehemently against this. Once both parties come to a final agreement on this decision by August 2nd, the future outlook for the younger generations and the baby-boomers will gain way, hopefully for the best.


[1] http://www.ssa.gov/pressoffice/pr/trustee11-pr.htm

[2] http://www.whitehouse.gov/issues/seniors-and-social-security

[3] http://www.whitehouse.gov/issues/seniors-and-social-security

[4] http://www.ssa.gov/pressoffice/pr/trustee11-pr.htm

[5] http://www.ssa.gov/OACT/TRSUM/index.html

[6] http://www.ssa.gov/OACT/TRSUM/index.html

[7] <http://www.ssa.gov/OACT/TRSUM/index.html>

[8] Obama offers Social Security cuts

Discussion of health care reform between the President and Senate Democrats, 2009.
Discussion of health care reform between the President and Senate Democrats, 2009. | Source

Works Cited

Hall, Shane. “Why Was Social Security Created?” Demand Media, Inc. (1999-2011). Retrieved from <http:http://www.ehow.com/facts_4896851_why-was-social-security-created.htm.>

Blahous III, C., Reischauer, R. “Status of the Social Security and Medicare Programs – A Summary of the 2011 Annual Reports.” USA.gov. (May, 2011). Retrieved from

<http://www.ssa.gov/OACT/TRSUM/index.html.>

Montgomery, L. “In debt talks, Obama offers Social Security cuts.” The Washington Post. (July, 2011). Retrieved from< http://www.washingtonpost.com/business/economy/in-debt-talks-obama-offers-social-security-cuts/2011/07/06/gIQA2sFO1H_story.html.>

“Seniors and Social Security.” <www.WhiteHouse.gov. >

Lassiter, M. “Social Security Board of Trustees: Projected Trust Fund Exhaustion One Year Sooner.” USA.gov. (May, 2011). Retrieved from <http://www.ssa.gov/pressoffice/pr/trustee11-pr.htm.>

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