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Why Do Social Security and Medicare Pose Problems for the Federal Government Budget?

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Why do Social Security and Medicare pose problems for the federal government budget? Because of demographic changes, the United States Social Security system is going to face financial problems in the upcoming years. With life expectancy increasing and health care improvements, the U.S. population is simply living longer. Right now, 12% of the U.S. total population is 65 years old or older. However, by 2080, the percentage will increase to 23%.

There are 3 main reasons why these two programs are problematic to our government:

  1. The worker-to-retiree ratio is decreasing.
  2. The life expectancy of people retiring is increasing.
  3. The total number of retirees is increasing annually.

Decreasing worker-to-retiree ratio

The worker to retiree ratio is measured by the number of people employed in Social Security covered jobs and divided by the total number of people receiving Social Security benefits.

The United States worker-to-beneficiary ratio has decreased from 5.1 in 1960 to 3.3 in 2005. Some of this decline is attributed to the pay-as-you-go maturation of a social insurance program. However, the aging population will be responsible for the future projected decline. 

The ratio is extremely important to our country’s Social Security program and its financial health. Our system requires a 2.8 worker to beneficiary ratio in order to operate as a “pay as you go” system. This ratio is projected to decrease by 2014 to 2.1 by the Social Security Trustees.

Rising Life Expectancy

As Americans have grown older, we have constructed a situation that future workers will have the burden of supporting an expanding retiree population. This has sparked debate on increasing retirement ages. The changing of the “normal” retirement age from age 65 to age 67 by 2025 may not go far enough to offset the projected increase in life expectancies.

In 2018, the U.S. Social Security trustees and Medicare trust funds have projected that, under the current law, Social Security expenses will start to exceed payroll tax revenue. It is also projected that that the S.S. trust fund will be exhausted by the year 2042.

Why Do Social Security and Medicare Pose Problems for the Federal Government Budget?

Retirees are increasing in numbers

The total number of retirees getting Social Security benefits has risen over the past decade. It has increased from:

  • 33.5 million in 2009
  • 45.1 million in 2019

This number has risen annually at this rate over the last decade. It is projected to continue at this rate into the future.

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