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Social Security and Medicare are commonly referred to as America’s safety net. They provide vital monthly income to retirees and disabled workers and their families. But it’s no secret that things are changing. With an aging American population and increasing healthcare cost, there are many challenges. Payroll taxes fund both programs from the paychecks are current US workers. This money is placed into specific trust funds that each program draws on to pay out benefits.

Social Security has 2 trust funds.

Namely, Old-Age and Survivor’s Insurance (OASI) and Disability Insurance (DI). OASI provides income to retired and deceased workers and their families. DI provides income to disabled workers and their families.

trustee reports 2016

Medicare also has 2 trust funds.

Namely, Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). HI provides inpatient hospital care under Medicaid Part A. SMI provides physician and outpatient benefits under Medicare Part B. It also provides prescription drug benefits under Medicare Part D.

trustee reports 2016

Every year, the trustees of the Social Security and Medicare trust funds release detailed trustee reports to Congress. These trustee reports anticipate the financial health of these programs.

Here’s the trustee reports for 2016:

OASI trust fund reports that their fund will empty by 2035. After that time, payroll taxes alone will cover only 77% of scheduled benefits.

DI trust fund for disability payments will exhaust by 2023. After that time, payroll taxes alone will cover only 89% of scheduled benefits.

HI trust fund, using it’s current rate of usage, will deplete by 2028. After that time, payroll taxes alone would cover 87% of benefits and only 79% of benefits by 2040.

SMI trust fund differs from the other trust funds. It’s funds originate from the US treasury and the general fund rather that payroll taxes. Therefore, under current law, the trust fund remains in balance.

What do all these trustee reports mean?

Social Security and Medicare are not going away anytime soon. However, time is running out on their ability to continue paying out full benefits. There have been a variety of potential solutions, but there has been no political agreements or actions. Ultimately, we will wait to see if the next congress will take steps to strengthen America’s safety net.

Source: Social Security & Medical Boards of Trustees 2016 Annual Reports

Freeman Owen, Jr -Retirement Specialist

If you are concerned about how your retirement plans will be affected by these projections, let’s talk “retirement strategies”.

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