At their current pace of spending, Medicare officials said the trust fund will be depleted by 2026, three years sooner than previously forecast.
Similarly, Social Security officials said the program’s expenses have already exceeded annual revenue, and for the first time since 1982, it has had to dip into a $3 trillion reserve fund to make payments. The Social Security Administration had previously forecast that it would not have to tap reserves until 2021.
At its current pace of spending, the Social Security fund will be out of money by 2034, according to the report.
The shortfalls alarmed experts, and highlight the need for individuals to save for their own retirements.
“The current trajectories in health spending are both unsustainable and unmatched by increases in quality,” Alex M. Azar II, the Secretary of Health and Human services and a trustee of Medicare and Social Security, told the New York Times on Tuesday.
What are Social Security and Medicare?
Medicare is the government-run health insurance program that covers 58.4 million people, primarily retired, for care ranging from hospitalization to prescription drugs. It’s financed through a payroll tax and premiums paid by recipients.
Social Security is a federal program that provides monthly income during retirement. The program sends checks to 62 million people each month. It’s funded primarily through payroll taxes. It currently has a reserve fund of about $3 trillion.
At its current pace of spending, the Social Security fund will be out of money by 2034
Why are the trust funds running out money?
Expenses for the programs are rising slightly, and tax revenues are lower than forecasts, according to reports.
A Savings Crisis
It’s important to start saving for your own retirement now.
If you’re making about $40,000 a year now, you’d need to save about $1.18 million to have the same standard of living in retirement, according to AARP.
The average payout from Social Security is $16,464 annually, or about $1,372 per month, according to reports. For most people, that’s not nearly enough to fund a retirement. In fact, the average retired family, defined as a household headed by someone 65 year old and over, spends about $45,756 annually.
Meanwhile, the rising cost of healthcare is likely to take up half of Social Security income by 2030, according to a report from the Kaiser Family Foundation.
- Learn more about retirement planning here.
Here’s what you can do
People can save for their own retirements via a variety of accounts, including workplace plans such as 401(k)s, self-directed individual retirement accounts, or IRAs and Roth IRAs.
Ready to start thinking about your retirement? Get Stash Retire.