The (Deplorable) State of Social Security

[JoeTheEconomist]

Originally Published On Tavern Keepers (The (deplorable) status of Social Security | Tavern Keepers)

It doesn’t take a lot of effort to find warnings about the impending collapse of Social Security. It does on the other hand take some research to find out that most of these warnings present a fairly optimistic view of the situation.

The Congressional Budget Office expects the Social Security Trust Fund to reach exhaustion in 2031. If so, everyone turning 67 today should expect to outlive full benefits in the system. This possibility is not even the worst case scenario. The Social Security Trustees project is using the less optimistic assumptions that the Trust Fund would be exhausted in 2027, which would mean that people as old as 75 should expect to outlive scheduled benefits.

These projections are not guaranteed. In fact, the history of these projections exhibits an optimistic bias. In 1983, the Trustees projected that Social Security would be solvent until 2058 or 75 years. By 2009, the projection was down to 2037. Following the financial crisis, the most current projection is down to 2031. All of these outcomes are based on a fairly sound economy.

The system contains an estimated $27 trillion of unfunded promises. The assets of the combined OASDI systems are roughly $2.8 trillion. Simple addition tells you that the system has roughly $23 trillion in empty promises which is roughly 1.5 times our entire GDP. That means that every man, woman, and child could work exclusively for the benefit of Social Security for a year and half without fixing Social Security.

In 2012, the level of unfunded promises grew by roughly $3 trillion dollars. That rise is a staggering amount for a system that collected less than $1 trillion dollars in revenue. This means that Social Security issued more than $3 of broken promises for every $1 dollar it collected. Another way to look at this dynamic: the country spent more not fixing Social Security in 2012 than it spent on the rest of our government combined.

The cause of the rise of unfunded promises is even more troubling. Social Security lost roughly $1 trillion “solely due to the change in the valuation date”. If Social Security had not paid a single penny in benefits in 2012, the $840 billion in revenue collected by the system would have been insufficient to offset the impact of simply moving the clock forward.

And the clock is moving forward as you read this article. All of this information comes from the 2013 Social Security Trustees Report which reflects data from 2012. It is now 2014. This means that all of the facts here is probably out of date by about $500 billion. The system’s finances have deteriorated by roughly a million dollars in the minute that you have spent reading this piece. This is what President Obama and candidate Romney called structurally sound.

You might consider our country and Social Security like a family struggling with credit card debt that seeks to preserve its 401K contributions. At some point, the family breaks down on the 401K contribution in order to pay down its debt. The longer we do nothing the harder that break will be.

 

[CalGun]

Saw an interesting icon the other day. Social security, which we pay into, will run out of money. Welfare which we don't pay into won't! Shocking


That said I think privatization for those who want it is long over due. The money paid in by an individual should in large part remain with the individual. Let them direct some to disability insurance and keep 20% of it all for the dead beats.

 

[ludin]

Saw an interesting icon the other day. Social security, which we pay into, will run out of money. Welfare which we don't pay into won't! Shocking


That said I think privatization for those who want it is long over due. The money paid in by an individual should in large part remain with the individual. Let them direct some to disability insurance and keep 20% of it all for the dead beats.

this is what happens when you inact a ponzi scheme. the only reason that SS has lasted this long is that it was so front loaded when it started that it isn't funny. that has changed. the ratio of people paying in vs taking out is basically 2:1 and some have it at 1.5:1.

had SS actually been a private retirement plan like the safe 401k option then the system wouldn't be broke. the government could make yearly contributions with no promise. what you put in you can pull out tax free.

instead we get a ponzi scheme that is about ready to explode.

 

[specklebang]

Saw an interesting icon the other day. Social security, which we pay into, will run out of money. Welfare which we don't pay into won't! Shocking

That said I think privatization for those who want it is long over due. The money paid in by an individual should in large part remain with the individual. Let them direct some to disability insurance and keep 20% of it all for the dead beats.

Think about that. How is (bolded) possible? Very simple - the USG will provide any money needed by "welfare" whereas (theoretically) Social Security can "run out of money".

If the USG can fund the welfare, they can fund the Social Security exactly the same way.

As for SS running out of money, I heard the same story in 1957 when I took my first job. Nobody ever believes SS will be around when they retire. But they live as if it will be, buying cars, homes and Rolex watches on credit. The truth is that I believed this and saved money never expecting to see a penny in return. Instead, to my (pleasant) surprise, I get $2177.00 put in my bank account every month for the last 43 month.

Now, I happen to agree that SS should be revised and combined with all the other plans. But it won't be - not a chance. But it won't "run out of money" either. Money is just paper produced by the Federal Reserve and if a 17T debt isn't proof that you can spend more than you make forever, I don't know what proof you could ask for.

 

[JoeTheEconomist]

Saw an interesting icon the other day. Social security, which we pay into, will run out of money. Welfare which we don't pay into won't! Shocking


That said I think privatization for those who want it is long over due. The money paid in by an individual should in large part remain with the individual. Let them direct some to disability insurance and keep 20% of it all for the dead beats.

Social Security is a financial system with defined inputs and outputs. Welfare is a government program which changes with the political climate. These aren't the same thing and can't be compared.

If you want to privatize Social Security, how will you pay the existing retirees?

 

[JoeTheEconomist]

this is what happens when you inact a ponzi scheme. the only reason that SS has lasted this long is that it was so front loaded when it started that it isn't funny. that has changed. the ratio of people paying in vs taking out is basically 2:1 and some have it at 1.5:1.

had SS actually been a private retirement plan like the safe 401k option then the system wouldn't be broke. the government could make yearly contributions with no promise. what you put in you can pull out tax free.

instead we get a ponzi scheme that is about ready to explode.

Demographics are A problem, they are not THE problem. Social Security reached insolvency in 1983 which was pretty much at the peak of the Boomers earning cycle. So the system has problems that are not demographic in nature.

The government wants you to believe that you are at fault. You are living too long and not having enough children. Politicians want you to think you are at fault so that you won't blame them. That is the nature of politics.

We had a discussion not more than a month ago about the impact of life expectancy on Social Security. Conventional wisdom is just wrong.

http://www.debatepolitics.com/government-spending-and-debt/187711-myths-social-security.html

 

[JoeTheEconomist]

Think about that. How is (bolded) possible? Very simple - the USG will provide any money needed by "welfare" whereas (theoretically) Social Security can "run out of money".

If the USG can fund the welfare, they can fund the Social Security exactly the same way.

No it can't or it wouldn't be Social Security. FDR set-up the system to collect contributions so that workers would have a moral, legal, and political right to benefits. Congress adjusted the process such that workers pay for the parents generation.

As for SS running out of money, I heard the same story in 1957 when I took my first job. Nobody ever believes SS will be around when they retire. But they live as if it will be, buying cars, homes and Rolex watches on credit. The truth is that I believed this and saved money never expecting to see a penny in return. Instead, to my (pleasant) surprise, I get $2177.00 put in my bank account every month for the last 43 month.

It ran out of money in 1983. It will have money provided that we convince our kids that spending a quarter to buy a dime is a good idea. Mind you they only get the dime provided that they convince their kids that spending a quarter to buy a nickel is a good idea. Here you are trying to convince someone that spending a quarter to buy a dime is a good idea so that you get your $2,177 every month.

The declining economic return of Social Security has been documented by multiple agencies. It was predicted by the man who ran Social Security in 1944. So you say that they are wrong, but you can't be surprised if people take the word of professionals over yours.

Now, I happen to agree that SS should be revised and combined with all the other plans. But it won't be - not a chance. But it won't "run out of money" either. Money is just paper produced by the Federal Reserve and if a 17T debt isn't proof that you can spend more than you make forever, I don't know what proof you could ask for.

Combined how? There is nothing "In" Social Security to combine. It has $2.8 trillion of assets to payoff $27 trillion in promises. You can't 'combine' or 'privatize' a negative asset.

 

[specklebang]

No it can't or it wouldn't be Social Security. FDR set-up the system to collect contributions so that workers would have a moral, legal, and political right to benefits. Congress adjusted the process such that workers pay for the parents generation.

It ran out of money in 1983. It will have money provided that we convince our kids that spending a quarter to buy a dime is a good idea. Mind you they only get the dime provided that they convince their kids that spending a quarter to buy a nickel is a good idea. Here you are trying to convince someone that spending a quarter to buy a dime is a good idea so that you get your $2,177 every month.

The declining economic return of Social Security has been documented by multiple agencies. It was predicted by the man who ran Social Security in 1944. So you say that they are wrong, but you can't be surprised if people take the word of professionals over yours.

Combined how? There is nothing "In" Social Security to combine. It has $2.8 trillion of assets to payoff $27 trillion in promises. You can't 'combine' or 'privatize' a negative asset.

Apparently, you say the are out of money since 1983. That it is a sham with the money provided by the USG. Then, in the next breath you say it can't be done. So, which is it? You seem to be arguing with yourself.

I'm not trying to convince anyone of anything. Furthermore, I take my word far more seriously than that of some "professional" who was around a year after my birth.

Had you read the earlier posts, there was a commment that SS would run out of money but welfare would not. So, I suggested combining the two. I'm not sure I was being 100% serious but I do feel there are some plausible alternatives to the current system.

I paid in $180K to get my $2177.00 a month. If I live long enough, I'll be even on the deal or better. Or I'll die and I'll lose money on the deal. I would have been just as happy to have paid $180K into my own account and bought T-Bills of duration to retirement age. This would have worked for me, but not for everyone.

What exactly is your point? Maybe I'm not following you correctly. Are you suggesting alternatives or just complaining about quarters for nickels?

 

[CalGun]

And you think that printing won't have any consequences or ever matter? Seriously? Or you just don't are about those after you?

Think about that. How is (bolded) possible? Very simple - the USG will provide any money needed by "welfare" whereas (theoretically) Social Security can "run out of money".

If the USG can fund the welfare, they can fund the Social Security exactly the same way.

As for SS running out of money, I heard the same story in 1957 when I took my first job. Nobody ever believes SS will be around when they retire. But they live as if it will be, buying cars, homes and Rolex watches on credit. The truth is that I believed this and saved money never expecting to see a penny in return. Instead, to my (pleasant) surprise, I get $2177.00 put in my bank account every month for the last 43 month.

Now, I happen to agree that SS should be revised and combined with all the other plans. But it won't be - not a chance. But it won't "run out of money" either. Money is just paper produced by the Federal Reserve and if a 17T debt isn't proof that you can spend more than you make forever, I don't know what proof you could ask for.

 

[specklebang]

And you think that printing won't have any consequences or ever matter? Seriously? Or you just don't are about those after you?

Now, I happen to agree that SS should be revised and combined with all the other plans. But it won't be - not a chance. But it won't "run out of money" either. Money is just paper produced by the Federal Reserve and if a 17T debt isn't proof that you can spend more than you make forever, I don't know what proof you could ask for.

Some years ago, I was convinced that the dollar could not survive the irresponsible actions of our leaders. Like many other fools, I stockpiled gold and silver in hopes of sustaining my family when the dollar collapsed under the weight of our spending far more than our incomes. 17 trillion dollars in debt would surely render our currency worthless.

Instead, the dollar is stronger than ever. So, I was wrong.

I'm not sure what my observation has to do with caring about future generations. If I'm even going to bother caring, I'll care about the present. Better yet, I'll care about those closest to me instead of some hypothetical great grandchild of some undefined future generation.

Who do you care about?

If someone qualifies for aid send them a 5 gallon bucket of rice and another of beans. If they don't like it TOUGH.

 

[ludin]

Some years ago, I was convinced that the dollar could not survive the irresponsible actions of our leaders. Like many other fools, I stockpiled gold and silver in hopes of sustaining my family when the dollar collapsed under the weight of our spending far more than our incomes. 17 trillion dollars in debt would surely render our currency worthless.

Instead, the dollar is stronger than ever. So, I was wrong.

I'm not sure what my observation has to do with caring about future generations. If I'm even going to bother caring, I'll care about the present. Better yet, I'll care about those closest to me instead of some hypothetical great grandchild of some undefined future generation.

Who do you care about?

The only reason the dollar isn't as strong as people think. the problem is other world currencies are just doing worse compared to the dollar.
eventually the debt will have to pay paid and currently we are having to borrow to pay the interest. the national debt exceeds the GDP.

the system will collapse it is just a matter of when. we are getting to a point of no return. the projected US debt in 2020 will be 24 trillion dollars.
around 2024 the interest on that debt alone will exceed the military budget.

programs like SS etc and the irresponsibility of our government has driven us into this financial disaster.

 

[JoeTheEconomist]

Apparently, you say the are out of money since 1983. That it is a sham with the money provided by the USG. Then, in the next breath you say it can't be done. So, which is it? You seem to be arguing with yourself.

I'm not trying to convince anyone of anything. Furthermore, I take my word far more seriously than that of some "professional" who was around a year after my birth.

Had you read the earlier posts, there was a commment that SS would run out of money but welfare would not. So, I suggested combining the two. I'm not sure I was being 100% serious but I do feel there are some plausible alternatives to the current system.

I paid in $180K to get my $2177.00 a month. If I live long enough, I'll be even on the deal or better. Or I'll die and I'll lose money on the deal. I would have been just as happy to have paid $180K into my own account and bought T-Bills of duration to retirement age. This would have worked for me, but not for everyone.

What exactly is your point? Maybe I'm not following you correctly. Are you suggesting alternatives or just complaining about quarters for nickels?

Social Security reached insolvency in 1983. The only reason that full benefits were paid was loans from the DI-fund. So the people who warned you that it would run out of money were correct. It was retrieved from insolvency in part by expanding coverage cover federal workers. At 94% coverage, there isn't a new audience to draw in. We added means testing. It isn't like we can expand it much from where we are today.

I have priced some annuities recently, and your current payout is sizably above what you would get in a private market transaction. So you might be just as happy with the 180K, but you would be poorer for it.

SS and welfare are completely different. The person who raised the question doesn't understand how Social Security works. Social Security is based on contributions and the other is based on need.

 

[CalGun]

I have no kids. Didn't want any or try for any and my wife felt the same way. We have 21 nephews and nieces and will share some of what we have with them. Much of it is aimed at reminding them of our heritage. I can see the dollar lasting my life for who knows what I go left. I can't see it surviving forever as no fiat currency ever has. I just don't like to see us hasten it's demise for whole I can survive it many won't.

Some years ago, I was convinced that the dollar could not survive the irresponsible actions of our leaders. Like many other fools, I stockpiled gold and silver in hopes of sustaining my family when the dollar collapsed under the weight of our spending far more than our incomes. 17 trillion dollars in debt would surely render our currency worthless.

Instead, the dollar is stronger than ever. So, I was wrong.

I'm not sure what my observation has to do with caring about future generations. If I'm even going to bother caring, I'll care about the present. Better yet, I'll care about those closest to me instead of some hypothetical great grandchild of some undefined future generation.

Who do you care about?

 

[MTAtech]

I've been reading doom and gloom about SAA all my working life and yet my parents lived through retirement without the system missing a payment.

According to the piece the OP posted, the system has enough money, without changes, to pay full benefits until 2037. After that, it can pay 3/4 benefits for another 40 years. Really doesn't sound like a "deplorable" state, for a system that hasn't contributed a dime to the deficit.

You see, the objective is to make SSA look like a big problem, so people will accept cuts in the program now -- so that cuts to the program can be avoiding decades from now.

These views have always been used by those who objected to the program from the beginning.

 

[newpublius]

I've been reading doom and gloom about SAA all my working life and yet my parents lived through retirement without the system missing a payment.

According to the piece the OP posted, the system has enough money, without changes, to pay full benefits until 2037. After that, it can pay 3/4 benefits for another 40 years. Really doesn't sound like a "deplorable" state, for a system that hasn't contributed a dime to the deficit.

You see, the objective is to make SSA look like a big problem, so people will accept cuts in the program now -- so that cuts to the program can be avoiding decades from now.

These views have always been used by those who objected to the program from the beginning.

The system is a problem EVEN IF we PRESUME SOLVENCY. Trading what we trade for social security's "FULL BENEFITS" is crap. And there's a reason why it isn't any good and that's because in essence its really no different from other retirement plans except you have no equity or units in the plan and they're compelled by law to invest exclusively in treasuries. Fantastic, current max payout is $2642.

What good is that going to do me? (Particularly in light of what was needed to put in to get that out)

 

[jaeger19]

The system is a problem EVEN IF we PRESUME SOLVENCY. Trading what we trade for social security's "FULL BENEFITS" is crap. And there's a reason why it isn't any good and that's because in essence its really no different from other retirement plans except you have no equity or units in the plan and they're compelled by law to invest exclusively in treasuries. Fantastic, current max payout is $2642.

What good is that going to do me? (Particularly in light of what was needed to put in to get that out)

What good is it to you... well you might want to ask the folks that had their retirement in ENRON, or in Mortgage Backed securities, or a myriad of other investments that went belly up. Depressions, wars, economic crisis, embargos, recessions... all cause private investments to go up, go down, to crash... and yet during that time... ups and downs.. social security keeps paying.

that security is whats good for you. Maybe you never need it... maybe you will. but its an hedge against things going belly up for you. And that has value whether you are able to understand that or not.

 

[jaeger19]

I've been reading doom and gloom about SAA all my working life and yet my parents lived through retirement without the system missing a payment.

According to the piece the OP posted, the system has enough money, without changes, to pay full benefits until 2037. After that, it can pay 3/4 benefits for another 40 years. Really doesn't sound like a "deplorable" state, for a system that hasn't contributed a dime to the deficit.

You see, the objective is to make SSA look like a big problem, so people will accept cuts in the program now -- so that cuts to the program can be avoiding decades from now.

These views have always been used by those who objected to the program from the beginning.

No offense.. but I think you are off the mark. The objective is to make SS look bad... but not to accept cuts in the program now.. oh no.. that's not the idea... "a promise made is a promise kept".. that's what you hear.. its to prepare future generations for the screwing they are about to get... its to continue the system and then make the changes so that my generation gets screwed.
OR in the case of some SS naysayers.. its to push all that secure SS money into private investment vehicles so that the private entities can get their hand on it. Either through actually getting the money to invest, or through fees, such as administration fees. That's the idea to tell younger people about what a "bad deal" its for them.. to try and convince them that they need to have SS money put into private accounts, or government accounts managed (for a fee) by private equity firms.

 

[newpublius]

What good is it to you... well you might want to ask the folks that had their retirement in ENRON, or in Mortgage Backed securities, or a myriad of other investments that went belly up. Depressions, wars, economic crisis, embargos, recessions... all cause private investments to go up, go down, to crash... and yet during that time... ups and downs.. social security keeps paying.

that security is whats good for you. Maybe you never need it... maybe you will. but its an hedge against things going belly up for you. And that has value whether you are able to understand that or not.

Not for the amount put in, that's the rub. It's a defined benefit system where people are putting in somewhere in the neighborhood of 12-13% (since this excludes Medicare) including the employer portion and considering what comes out the other end, it's crap, it should raise eyebrows.

 

[Gimmesometruth]

Not for the amount put in, that's the rub. It's a defined benefit system where people are putting in somewhere in the neighborhood of 12-13% (since this excludes Medicare) including the employer portion and considering what comes out the other end, it's crap, it should raise eyebrows.

Why are you under the delusion that SS is a retirement account?

It is and always has been an insurance account.

You are making the fallacious apples to oranges comparison.

 

[newpublius]

Why are you under the delusion that SS is a retirement account?

It is and always has been an insurance account.

You are making the fallacious apples to oranges comparison.

Semantic debate, call it what you want. The other aspects of the system kind've suck too. Bottom line is that for what we put into it, we should be turning up our nose at what we get out of it. We should know why, it's a multi-trillion dollar investment in government.

 

[Gimmesometruth]

Semantic debate, call it what you want. The other aspects of the system kind've suck too. Bottom line is that for what we put into it, we should be turning up our nose at what we get out of it. We should know why, it's a multi-trillion dollar investment in government.

Not semantic at all, it was never designed to be a "retirement account" or comparable to.

It is a basic means of support for those without any other means, a safety net. It returns @ 4% real for low income individuals and is not subject to being wiped out from the whims of stock market investors.

Stop with the false comparisons and just stick to anti-New Deal argument....you know....be honest.

 

[jaeger19]

Not for the amount put in, that's the rub. It's a defined benefit system where people are putting in somewhere in the neighborhood of 12-13% (since this excludes Medicare) including the employer portion and considering what comes out the other end, it's crap, it should raise eyebrows.

Again.. that's just not true.. that's like saying that your car insurance is not worth what you put in.... even though tomorrow you might get in an accident and get 1000% more than you put in.

You don't have a clue what the future holds.. for all you know.. you could be come disabled tomorrow and end up taking out WAY WAY WAY more than you ever put in. You could be wealthy as all heck and then have you children take it all at 80 and end up living on social security as your only income.. a myriad of things could happen that would make it a great deal for you..

And you could.. as I hope it will be for me.. a useless thing that I have put in for years and years and never get out what I put in.. that's true.. but I understand that it was a protective net that WAS there in case I or my family needed it.

 

[jaeger19]

Semantic debate, call it what you want. The other aspects of the system kind've suck too. Bottom line is that for what we put into it, we should be turning up our nose at what we get out of it. We should know why, it's a multi-trillion dollar investment in government.

Not semantic at all.. a very real and important difference.

 

[newpublius]

Not semantic at all.. a very real and important difference.

Call it insurance then, again I don't give a ****. It sucks no matter what you call it because what I'm evaluating is what goes in vs what comes out.

 

[newpublius]

Not semantic at all, it was never designed to be a "retirement account" or comparable to.

And yet 'retirement benefits' account for a good portion of the program, so cut the bull****.

It is a basic means of support for those without any other means, a safety net.

Nothing you would buy with your own income if you had to do it yourself.

It returns @ 4% real for low income individuals and is not subject to being wiped out from the whims of stock market investors.

It returns at 2% because you're ignoring the other half of the contributions which is a 'behind' the curtain cost.

Stop with the false comparisons and just stick to anti-New Deal argument....you know....be honest.

Society makes choices and our society is making a ****ty choice. We've taken trillions of dollars and invested it in the ****ing government and the result is predictable, we've fundamentally made our society worse off because instead of investing in useful things that people actually want, we invested in the government, so that it could build monstrous aircraft carriers and invincible tanks. Bravo, congratulations and I'm here to tell you, that was a fundamentally BAD CHOICE.