How Will the Recession Affect Your Social Security and Medicare Benefits?

Economy causing Social Security and Medicare shortages to happen sooner

Like the banking and auto industries, and nearly every household in the United States, Social Security and Medicare are feeling the effects of the recession.

According to the 2009 Social Security and Medicare Trustees Report, which was released in May 2009, two new projections show how the recession is affecting Social Security and Medicare:

1. The Medicare fund that pays hospital bills for older Americans (Part A) is now expected to run out of money in 2017—two years sooner than projected in 2008.
2. The Social Security trust fund will be depleted in 2037, four years earlier than previously projected.

Fewer People Pay In, More People Collect Benefits
The reason for these accelerated shortfalls is easy to see. Both Social Security and Medicare are pay-as-you-go systems, funded to a large extent by payroll taxes that come out of the paychecks of current U.S. workers.

Between December 2007 when the recession began and May 2009 when the report was released, 5.7 American jobs were lost. With fewer people working, the government collects less money in payroll taxes, which reduces funding for both Social Security and Medicare.

Social Security and Medicare have been on a collision course with reality for years, as lawmakers have struggled to find some way to keep the programs viable for current and future beneficiaries. In 2008, spending on Social Security and Medicare totaled more than $1 trillion, accounting for more than one-third of the federal budget.

And as more baby boomers retire, there will be too few tax-paying younger workers per retiree to sustain Social Security and Medicare at their current levels.

So how will these new recession-era projections affect your Social Security and Medicare benefits? Here are a few key points for current and future Social Security and Medicare beneficiaries to keep in mind, based on the 2009 Social Security and Medicare Trustees Report:

• How Will the Recession Affect Your Social Security Benefits?
  Belt-tightening is predicted for everyone, including current and future retirees, as the economy affects the future of Social Security benefits.
• How Will the Recession Affect Your Medicare Benefits?
  Reductions in Social Security benefits may mean no Medicare premium increases for some...but not for everyone. And the number of Medicare enrollments and cost per beneficiary is expected to skyrocket.