Social Security's in bigger trouble than you think

Right now, we spend more money on Social Security than on Medicare, and that will remain the case for a while. The programs’ trustees project that by 2035 Social Security will consume 6.4 percent of the economy and Medicare 5.7 percent. The Medicare projection may be optimistic about recent attempts to impose cost controls, but we shouldn’t expect Medicare to become vastly larger than Social Security in the next two decades. After that point, Social Security costs start going down as demographics play out while Medicare becomes a vastly larger problem.

But our finances will be in what’s technically called a world of hurt before Social Security costs peak. Under current projections by the Congressional Budget Office, by 2025 public debt will have reached 106 percent of gross domestic product. By 2035, it will have reached 181 percent. What would happen after that point is an academic question: We can’t allow ourselves to get there.

We need to fix both programs. If anything, it’s Social Security that ought to be saved first because it’s the more urgent near-term problem. Some of the steps we can take to make the program solvent, moreover, would improve Medicare’s finances, too. Raising the retirement age, for example, would encourage people to work longer and thus pay more taxes into both programs.