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June 8, 2009
By David Wyss
Business Week / Standard & Poors RatingsDirect

Federal entitlement programs are critical toretirement security, but these programs are rapidly moving into the red. New projections by the trustees of the Social Security and Medicare trust funds released May 11 indicate that both funds will run out of money even sooner than estimated in last year's report.

The Social Security trust fund is in better shape than Medicare. Revenues still exceed benefits by a comfortable amount. Unfortunately, the wave of baby boomer retirements will change that picture. The new trustees report still expects the surplus to continue until 2015 but move into deficit thereafter. This report projects that by 2037, revenues will be only 75% of benefit payments.

An increase in average retirement age could help extend the period of surplus, but probably not by much. If workers delay retirement, they will continue to pay taxes into the system and not take money out, but when they do retire they will also get higher benefits. A net improvement in the trust fund results, but the change mostly delays the problem rather than reduces it.

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