NCPA - National Center for Policy Analysis


May 2, 2006

The trustees for the government's two biggest benefit programs said Monday that the trust fund for Social Security will be depleted in 2040, a year earlier than expected, while Medicare will exhaust its trust fund just 12 years from now.

While the depletion of the reserves built up over past years is projected to occur in just 12 years for Medicare and 34 years for Social Security, both programs will face financing issues much sooner at the point that the amount paid out each year exceeds the amount the government collects to fund them.

  • For Medicare, that occurred for the year of 2004. However, the program is projected to be in the black again this year before crossing over to paying out more than it takes in permanently in 2006 and the years following that.
  • For Social Security, the point at which the program will pay out more in benefits than it takes in will occur in 2017, the trustees projected, the same as in last year's report.

In the case of Social Security, the trust funds are projected to be exhausted one year faster than last year because the government estimated a slightly lower average, inflation-adjusted return on the trust fund's government bonds of 2.9 percent rather than 3 percent for the.

  • For Medicare, the faster exhaustion of the trust fund occurred because of rising prices for hospital care and greater utilization by sick people of the program.
  • The trustees estimated that in 2040 when the Social Security trust fund is depleted, it will be able to pay 74 percent of benefits from the taxes imposed on current workers.

Source: Associated Press, "Social Security, Medicare trust funds sink," USA Today, May 2, 2006; based upon: "Status of the Social Security and Medicare Programs," Social Security and Medicare Boards of Trustees, May 1, 2006.

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