Economy Gives Social Security a Reprieve --- Latest Forecast Extends Trust Fund's Solvency By Three Years, to 2032
WASHINGTON -- The robust economy has postponed the day of reckoning for Social Security's solvency by three years, until 2032, according to new estimates from the program's trustees.</br></br>And, at least in the near term, last year's balanced-budget law has greatly improved the outlook for Medicare, the federal health program for 38 million elderly and disabled people. It should stay solvent until 2008, seven years longer than the trustees projected last April, largely because the balanced-budget law lowers Medicare spending by $115 billion in the next five years.</br></br>The Social Security trust fund, which pays retirement and other benefits to 44 million Americans each month, had been expected to go broke in 2029 as Americans live longer and the baby boom retires. But the "strength in the U.S. economy" has almost single-handedly bought the system another three years, said Treasury Secretary Robert Rubin, a trustee. The six trustees -- two private citizens and four government officials -- oversee the financial operations of the Social Security and Medicare trust funds and report on them to Congress each year. The trustees expect lower inflation and unemployment rates, higher productivity and inflation-adjusted wage gains and a smaller decline in average hours worked in the next 10 years than they had projected in last year's report. The rosier outlook reflects both the economy's recent superlative performance and expectations about the near future. With more Americans working, payroll taxes paid to support Social Security are expected to rise more than previously thought. And with lower price inflation, yearly cost-of-living raises to retirees will likely be smaller.</br></br>As a result, the size of Social Security's projected 75-year deficit declined slightly to 2.19% of taxable payroll from the 2.23% projected last year. And the balanced-budget agreement halved Medicare's projected 75-year deficit to about 2% of taxable payroll.</br></br>The trustees' updated projections still are more conservative than the most optimistic observers: They expect the U.S. economy to grow about 2% a year on average in the next decade, about fourtenths of a percentage point slower than in the past decade.