Social Security and Medicare: Highlights from 2016 Trustees Report

August 30, 2016

The 2016 Annual Reports for Social Security and Medicare reveal that the outlook for the trust funds remains similar to previous years.

Although reserves will be sufficient in the short term, changes to currently scheduled benefits and financing will be needed to ensure the programs' long-term success.

There was no change to the projected depletion year of 2034 for the combined Social Security Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI). The Disability Insurance trust fund, if not combined with OASI, is expected to be depleted in 2023. And, the Medicare Hospital Insurance trust fund is expected to be depleted in 2028, which is two years earlier than expected in the 2015 Report. The Supplementary Medical Insurance (SMI) trust fund is adequately financed over the next 10 years and beyond because of premium income and general revenue income.

  Trust Fund How Program is Financed Projected Depletion Year (per 2016 Annual Report)
Social Security

Old-Age and Survivors Insurance (OASI)

  • Provides SS retirement and survivors benefits
6.20% payroll tax (employers and employees
  • OASI and DI trusts combined: 2034 (tax income sufficient to pay 77% of OASI scheduled benefits)
  • DI trust not combined with OASI: 2023 (tax income sufficient to pay 89% of DI scheduled benefits)

Disability Insurance (DI)

  • Provides SS disability benefits

Hospital Insurance (HI)

  • Provides for Part A (inpatient hospital-related care)
1.45% payroll tax (employers and employees
2028 (tax and premium income sufficient to pay 87% of estimated HI cost)

Supplementary Medical Insurance (SMI)

  • Provides for Part B (physician and outpatient services)
  • Provides for Part D (prescription drug benefits)
Monthly premiums
Adequately financed based on premium income and general revenue income

Due to the aging of the baby boomers, increased longevity, and lower-birth-rate generations entering the workforce, absent any change, both the Social Security and Medicare programs will experience funding pressures.  

Given this, it's reasonable to expect that Social Security and Medicare changes are coming. Proposed changes include changing Social Security's benefit indexing method, delaying its full retirement age beyond age 67, raising payroll taxes, performing means testing, and raising income taxes.

Social Security and Medicare benefits are major parts of a retirement plan. Both clients and advisors will want to be aware of pending and actual changes and incorporate them into the plans.

The Pacific Life Retirement Strategies Group is here to help. We'll follow and relay information regarding any changes to the programs to help educate you and your clients. Feel free to contact us at (800) 722-7333, ext. 3939. We're glad to do what we can for you.


Source: "A Summary of the 2016 Annual Reports." Status of the Social Security and Medicare Programs. Social Security and Medicare Boards of Trustees, June 2016.


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