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Social Security: More Going Out Than Coming In

12:14 PM, Aug 9, 2010   |    comments
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WASHINGTON, DC (CNN)) -- It's official: Social Security will reach its tipping point this year.

For the first time in nearly 30 years, the system will pay out more benefits than it receives in payroll taxes both this year and next, the government officials who oversee Social Security said on Thursday.

And while Social Security cash flow will likely head back into the black for a few years after that, starting in 2015 it looks to stay in the red for the long haul, the trustees said in their annual report.

"The improving economy is expected to result in rough balance between Social Security taxes and expenditures for several years before the retirement of the baby boom generation swells the beneficiary population and causes deficits to grow rapidly," Treasury Secretary Tim Geithner said.

As for this year's dip into the red, Geithner said the recession is to blame.

With 9.5% unemployment, fewer Americans are paying taxes into the system and nearly 50% of baby boomers are taking a percentage of their Social Security benefits as early as age 62, instead of the full retirement age of 66.

Some 53 million Americans received Social Security benefits last year, while 156 million workers paid taxes that support it. The current withholding rate is 12.4% -- half of which is paid by workers, the other half by their employers. (The red-hot debate over raising the retirement age.)

Previous tipping points: This is not the first time that Social Security's pay-outs exceeded its revenue from payroll taxes. It reached this point for 13 consecutive years starting in the stagflation years of the 1970s and ending in 1983.

The trustees report also said the Social Security trust fund will be exhausted by 2037 -- its same prediction made last year.

The fund is a $2.5 trillion surplus that workers and employers started paying into the system after Social Security was reformed in 1983. Uncle Sam has since borrowed, spent and promised to pay that money back. It becomes "exhausted" when it reaches a point when only 76% of benefits can be paid out.

Medicare: Despite the report's grim outlook on Social Security, the trustees also presented a glimmer of hope when it comes to the massive Medicare program. The program will get another 12 years of financial health because of the health care reform law enacted by Congress in March, the trustees said.

The controversial Affordable Care Act extends the life of the Medicare Trust Fund to 2029, from 2017.

Cutting the deficit: The trustees report comes at a time when the country's long-term debt burden is a major talking point in Washington. In February, President Obama appointed a bipartisan debt commission that will deliver deficit-reduction proposals by Dec. 1.

Obama's aim is to bring the annual deficit to no more than 3% of the size of the economy, but current annual deficits are on track to be well above that level.

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