View Full Version : Fixing Social Security
Over the last couple of weeks, the MSM has been bringing back the issue of social security and the fund's insolvency here in the US. SS payments do not go into a trust fund, the congress spends the money as it comes in replacing it with IOUs (bonds).
Today, FBN is reporting on the Greek govt's efforts to save theirs, unions be damned.
Raising the retirement age and no more early retirements. Note, theirs is from 61 to 63.
So, with our population living longer, what about something similar in the US? If not raising retirement, increasing w/holdins?
v/r
phil
http://www.foxbusiness.com/story/markets/market-overview/refile-update--greece-proposes-pension-overhaul-defies-unions/#
Tuesday, February 09, 2010
Greece Proposes Pension Overhaul, Defies Unions
Reuters Global Budget Deficits a Growing Concern
ATHENS--Greece proposed an overhaul of its near-bankrupt pension system on Tuesday by raising the pension age and banning early retirement, defying pressure from unions on the eve of a 24-hour strike to protest at austerity measures.
Amid speculation the European Union was preparing a bailout package, Greece's Socialist government announced as part of an EU-backed deficit-cutting plan that it was studying proposals to raise the average retirement age to 63 from 61 by 2015.
Labour Minister Andreas Loverdos said the pension scheme would go broke within five years unless it was reformed. A new pension law would forbid any voluntary exit from the system and establish a new fund to manage its reserves of 30 billion euros.
"These reforms are not just tinkering, they constitute a major overhaul to make the system viable in the coming decades," Loverdos told the committee in charge of drafting the reform. "We're putting an end to early retirements. We are putting an end to clientelism."
The European Commission said last week reforming the pension system must be a priority for Greece -- the member state where public finances are most at risk from an ageing population, largely due to widespread early retirement by civil servants.:rolleyes:
Experts say the system would go bankrupt within 15 years without drastic reforms. Analysts welcomed the proposals but said more action was needed to meet a target of cutting the deficit below the EU ceiling of 3 percent of GDP by 2012.
Last year, Greece's deficit spiralled to 12.7% -- the worst in the euro zone.
"It is an encouraging sign the government is trying to tackle the longer-term threats to the public finances," said Ben May of Capital Economics.
Prime Minister George Papandreou's government is due to announce details of crucial tax and wage reforms this week. Unions have threatened to intensify strikes if the Socialists stand firm on public sector wage freezes and tax hikes.
MANY GREEKS BACK STRIKE
The 24-hour strike by the ADEDY public sector union on Wednesday will ground flights, shut schools and government offices, and leave public hospitals operating on emergency staff, piling pressure on Papandreou to back down.
Analysts say the government has support to weather the ADEDY strike and another on Feb. 24 by the GSEE private sector union, but it likely will face public anger if its measures fail to produce effects. Greece has a history of violent street protest.
While polls have suggested most Greeks back the austerity drive, people in downtown Athens voiced support for the unions.
"I will certainly participate in the protests," said Spyros Fortis, 46, a lawyer. "I voted for this government but sadly they won't tax bankers or businessmen, only the poor ... We would have accepted the measures if they were just."
In a positive sign for the government, data on Tuesday showed January inflation easing to 2.4%, above the EU average of 1.0 percent but below economists' expectations. Analysts said this may ease pressure on wages.
Markets, meanwhile, rallied on reports ECB chief Jean Claude Trichet cut short a trip to Australia to attend a special EU summit this week, triggered talk of an EU bailout for Greece.
The news lifted Greek bank shares more than 5%, recovering almost all the ground lost on Monday, and also supported the euro, which hit nine month lows last week.
However, an ECB spokesman said Trichet had always intended to attend the Brussels meeting. The European Investment Bank -- which markets had speculated could take part in an EU bailout -- also said on Tuesday it could not take part in any scheme to help member states weather budget deficits.
I just look at it this way....
I'll be working till the day I die. I know I'll never see retirement or any SS check.
:munchin
robert2854
02-09-2010, 09:47
Being 64YOA I hope they raise the age of SS tto make it more solvent, but these guys in power are all about giving the money away and just charging it to us.
I just look at it this way....
I'll be working till the day I die. I know I'll never see retirement or any SS check.
:munchin
X2
Being 64YOA I hope they raise the age of SS tto make it more solvent, but these guys in power are all about giving the money away and just charging it to us.
It has been misused a slush fund for decades, robbing Peter to pay Paul and the coffer is filled with IOU's that aren't likely to be repaid.
It is theft on a grand scale, and the only way I see it coming to a halt is if Social Security ceases to exist.
http://www.usatoday.com/news/washington/2010-02-07-social-security-red-retirements_N.htm
Rash of retirements pushes Social Security to brink
By Richard Wolf, USA TODAY
WASHINGTON — Social Security's annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.
The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.
"Things are a little bit worse than had been expected," says Stephen Goss, chief actuary for the Social Security Administration. "Clearly, we're going to be negative for a year or two."
Since 1984, Social Security has raked in more in payroll taxes than it has paid in benefits, accumulating a $2.5 trillion trust fund. But because the government uses the trust fund to pay for other programs, tax increases, spending cuts or new borrowing will be required to make up the difference between taxes collected and benefits owed.
Experts say the trend points to a more basic problem for Social Security: looming retirements by Baby Boomers will create annual losses beginning in 2016 or 2017.
"The moment of truth has arrived," says Rep. Paul Ryan, R-Wis., top Republican on the House Budget Committee. "This is a wake-up call."
JOBS AND THE ECONOMY: Rebound in 2010?
Social Security took in only $3 billion more in taxes last year than it paid out in benefits — a $60 billion decline from 2008, according to federal data. The slide in revenue occurred sooner than Social Security actuaries had expected, for three reasons:
• Payroll tax revenue that was growing at a 4.5% average annual clip along with wages flattened out in 2009 because of rising unemployment and pay raises that largely disappeared.
• The number of retired workers who began taking benefits increased by 20%; those taking disability jumped by 10%.
• Monthly benefits were raised 5.8% because of a spike in energy prices the year before.
Social Security was saved from bankruptcy in 1983 by a bipartisan deal that increased payroll taxes, taxed some benefits and gradually raised the retirement age to 67. That was supposed to keep the system solvent at least until 2058, but the projection has slipped to 2037.
The impact of the recession shows that "for all these projections, unexpected things happen," says Maya MacGuineas of the Committee for a Responsible Federal Budget.. "Money has to be found to repay those trust funds."
President George W. Bush proposed voluntary private retirement accounts in 2005, but the effort stalled in Congress. President Obama has proposed giving Social Security and other thorny fiscal issues to a bipartisan commission.
IMO - Anyway you look at it, it is a losing proposition.
armymom1228
02-09-2010, 10:51
First thing Congress needs to do is put the money back into the trust fund and quit stealing it from those who have put it into the fund. As I recall, that fund was supposed to be self sustaining.
Next we need to reeducate this youth oriented society that being older is not bad. I think that is already happening. But job discrimination based on age is more common than anyone wants to admit. It's really hard to prove as well. For those of us who are out there currently doing the job hunting, it gets discouraging to be up against much younger applicants and see them get the job. One has to wonder if its age or something else. Does the employer see 'me,' at 58, and wonder if I will retire at 62 or go longer. Yet they see a 30 yr old with, theoretically, another 32 yrs of work before being eligible for early retirement.
Like others here, I will be working till my last breathe despite having social security and a trust income. Neither is enough to support my simple lifestyle.
Social Security has already been raising the age of 'retirement' for some time already. At the moment, if you were born after 1960, your full retirement age is now 67.
One thing I can tell you is that you need to keep up with Social Security now. Apparently the IRS is not good at reporting your income. I have several yrs where i was reported as zero income, when I made a LOT more than zero. It is up to me, so sayeth SS to prove I worked and put $$ into the system. You can go
here (http://www.socialsecurity.gov/mystatement/) to request a copy of your earnings statement. Do the benefit estimator it worth the wakeup call to see how little it really is.
AM
armymom1228
02-09-2010, 11:04
IMO - Anyway you look at it, it is a losing proposition.
So what is YOUR suggestion we, the retirees do?
It's not like we have not paid into the system. I have been working since I was 15 yrs old. I am 58 that means I have paid into this system for 43 yrs. Are you implying that I should just forget ALL that money I have put into a system that will only be giving me, at the latest projection of 62, a mere $865/month?
What would you have me and other retirees do? Just walk away and chalk it up to a bad investment we had no choice in making? :lifter
AM
Surf n Turf
02-09-2010, 11:29
Armymom,
What I think they are planning is to “means test” social security.
So, if you have “saved for retirement”, have a “pension” or an annuity, that will be used to calculate if you are “eligible” to receive Social Security payments.
Even if you have contributed to the fund for 50 years, the money will not be yours, and no payments will be forthcoming if you have assets or retirement income – ‘cause you were responsible ----
YMMV – but I doubt it
SnT
So what is YOUR suggestion we, the retirees do?
It's not like we have not paid into the system. I have been working since I was 15 yrs old. I am 58 that means I have paid into this system for 43 yrs. Are you implying that I should just forget ALL that money I have put into a system that will only be giving me, at the latest projection of 62, a mere $865/month?
What would you have me and other retirees do? Just walk away and chalk it up to a bad investment we had no choice in making? :lifter
AM
I know, I was put into forced labor at age 10 by the family and began donating to the SS cause no later than age 15....so 32 years for me.
I would chalk it up to a pyramid scheme and theft on the scale that surpasses Bernie Maddoff. It is a hard pill to swallow but yes, I would walk away from it in a heartbeat. IMO - I would get a better ROI buying tangible items I can barter and trade with.
If I get anything, and that's a big IF considering the possibilities of inflation and monetized debt chiseling away at it. Let alone the fact that the .GOV is running an economical black hole. We are broke! The paper they print has as much value as Monopoly money.
YMMV.
I realize how lucky my husband and I are. We both have Post 9-11 GI Bill to put our girls through school. We will both have a Lt Col retirement, even with 30% going to his ex, his is still a substantial amount given his 28+ years in the service. He will probably have a 80-85% disability rating to go along with retirement. He is getting a GS-13 job upon retirement, and in 4 1/2 years I am lining myself up for the same. We have put a substantial amount of money away and the only debt we have is the house.
I have come to realize that we may be some of those people, that no matter how much we have put into SS over the years, we may never see it, because in all actuality we don't need it. Tough pill to swallow, yes, but I can see the handwriting on the wall: SS is going to need to go to those that have no other means of support in their old age. Those of us that don't need it to survive will have to do without.
armymom1228
02-09-2010, 11:51
Armymom,
What I think they are planning is to “means test” social security.
So, if you have “saved for retirement”, have a “pension” or an annuity, that will be used to calculate if you are “eligible” to receive Social Security payments.
Even if you have contributed to the fund for 50 years, the money will not be yours, and no payments will be forthcoming if you have assets or retirement income – ‘cause you were responsible ----
YMMV – but I doubt it
SnT
How would they, they being the Fed government, decide who got what and how much could I have coming in or in say, trust income from a trust I don't own and am only the beneficiary of the income from, before i could not get money I had paid into the system.. and .... how could I opt or anyone opt out even thru an employer. Paying into social security has never been an option. It is automatically taken out of my paycheck
Social Security already has a yearly income set before they start deleting money from your check. It is not much like $3000 I believe. After age 70 it is unlimited. But please to remember Social Security is still taxable, or so Mom tells me every quarter when she files her taxes.
It is a huge tangle that will not be untied anytime soon. For the record, I am slated at 62 to get a mere $865/month. Try living on that without working and making ends meet. My mom gets about $1800/month. If she did not have dads LT col pay in addition she would be up the creek without a paddle.. she has never worked and is 91 and now pretty much blind. How would someone like her find a job with no skills other than being what she is a housewife. When she was getting her own social security it was only $625/month. I read somewhere awhile back, that the average monthly payment is only $900. I might be wrong though.
greenberetTFS
02-09-2010, 11:53
AM,has a good point................. :) I'm 73 and I'm still working part time and have been since my retirement and still putting money into SS every week......... :) The problem I'm facing is that with my wife's and my SS money it's hardly enough, so I have to work to survive........... :)
Big Teddy :munchin
GratefulCitizen
02-09-2010, 12:05
Social security is doomed.
Demographics and generational work preferences are the problem.
Can't find the reference right now, but here's the description of the problem:
-WW2 generation: wanted stability and loyalty from their jobs.
-Boomers: wanted recognition and advancement from their jobs.
-Xers: want fair compensation and abundant time off.
The ponzi scheme will collapse.
There are no methods which will bribe the Xers into carrying the load.
-Too few of them, they won't accept substitutes for net pay rate, and not enough are interested in attempting to amass fortunes.
Insufficient base to tax.
SS is going under, the only question is when and how.
My bet: COLA will be diminished/re-anchored to the point of irrelevance, inflation will destroy it.
TrapLine
02-09-2010, 12:22
I just look at it this way....
I'll be working till the day I die. I know I'll never see retirement or any SS check.
Same here. But look at the bright side, I started work at 12, am in my mid thirties, so I have time for at least two more complete careers, maybe more. Maybe if I completely loose my ability to think and work, I could get get elected to congress. I bet their retirement is secure.
An addition to my thoughts on this travesty.
No one likes getting screwed over. I don't want to see my Mom or AM get screwed. But most of all I don't want to see my kids get shackled with this burden, they likely will but anything we can do to limit the burden would be an investment to their futures.
AM,has a good point................. :) I'm 73 and I'm still working part time and have been since my retirement and still putting money into SS every week......... :) The problem I'm facing is that with my wife's and my SS money it's hardly enough, so I have to work to survive........... :)
Big Teddy :munchin
With few exceptions, everyone I have known that continued to work in retirement lived into their 80's and 90's. It sounds good at 47, but I may change my mind in another 20-30 years.
craigepo
02-10-2010, 13:51
Attached find George Will's article, reviewing Representative Paul Ryan's take on fixing, among other things, social security. Included therein is an interesting figure illustrating where the Social Security retirement age would be today if Social Security has initially been paired with the average life expectancy age.
http://www.jewishworldreview.com/cols/will020710.php3
armymom1228
02-12-2010, 13:01
The first thing we need to fix anything, is to create a law that lobbyists are outlawed.
Flat tax is the best, get a flat dedution for the first 10,000k of income and then tax the rest at a set rate. No penalty for being single or married, each persons income taxed as a single at the flat rate. That gives a family a 20K deduction. It keeps them above poverty level. Put back the money stolen from Social Security and outlaw touching it. Raise the age to 70 with 65 as a early retirement. Pass a law making age discrimmination twice as heinous as gender or race discrimmination in the employment place. Give business a tax credit for hiring and retaining those over 50 or 60.
Dunno if it will work, but its a start.
AM:munchin
Take a hard look at prices and incomes over the past half-century or so. What have they done?
Once upon a time, $30 a week was a good wage. But then, one could buy a modest little house back in the late 1940's for under $1,000. (Yes - one thousand dollars.)
The policy of the federal reserve is inflation. However, they calculate inflation such that cost of living adjustments are minimized.
So - as we inflate, wages go up, and so does the tax bracket. We have a shadow tax increase. At the same time, we minimize the increase in payments, thus reducing the payments in real terms. Those who believed the promises are ground into poverty.
From a political perspective, this is a no-lose deal. From the view of someone who depends on Social Security, it is nothing short of brutal.
I suspect the pattern will continue. On the good side, we will hear of people making $500,000 per year. Unfortunately, they will be complaining...and besides, the job will be flipping burgers....:eek:
armymom1228
02-12-2010, 15:41
How does one determine when age discrimination occurs?:munchin
You can't unless it is open and blatant. HR directors have race and gender drilled into them, but not age. Until a someone can prove they didn't get a job due strictly to their age, it will continue.
I recently had an HR director look at me, she being 20-something, and ask me how long I intended to remain in the workforce? Translated, that meant, "when do you plan on retiring, and how long can we expect for you to be useful to us"?
In this society, we worship youth, not venerate age and experience.
How many 20 something Warren Buffets or Steve Jobs do we see out there?
Those 20 somethings are not doing so hot running this country either are they?
There IS a reason you have an age requirement to run for President.;)
AM:munchin
I suppose maybe age discrimination occurs if a company has to spend a significant amount of time and/or $$$ to train a person, and doesn't want to train a person only then have them end up retiring?
Keep health insurance costs in mind. The company must prepare a "census" of employees, with age a factor in determining costs. In the case of a company that self-insures through a plan administrator, I strongly suspect that the company considers the possibility that age will correlate with increased costs.
GratefulCitizen
02-16-2010, 18:26
Been thinking about this problem, in the context of the entire taxing/borrowing situation with the federal gov't.
Have an idea which might work, but it would have to be forced via constitutional convention.
The congress would never go for it.
Amend the Constitution to the following ends:
-Take away all borrowing and taxing power from congress except for a direct capitation tax upon the States, in proportion to population.
-Prohibit the congress/courts from meddling in the tax policies of the States.
-Allow the States to borrow against their own credit.
States would be responsible for developing effective tax policies.
People will vote with their feet if the tax system isn't to their liking.
Producers would tend to move to low-tax States.
Freeloaders would tend to move to high-benefit States.
Redistribution from revenue-producing States to "freeloading" States would be checked by the Senate.
Thoughts?
craigepo
02-16-2010, 18:47
Would a balanced budget amendment, coupled with moving social security funds out of general revenue, back into a specific-purpose fund, not be more likely and doable?
As I look at the numbers - LINK (http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf) - in Table 1-3, I notice that new debt represents 26% of total outlays in 2011. That supposes growth. Later years assume even more growth. In 2014, it's still 12%.
There are people who suggest that the growth projections are unlikely to be met. The text "This time is different" considers past post-recession environments, and their research indicates growth is not likely to be high in the near term.
So - no matter how one splits the pie, no matter how one distributes the net producers and net consumers, one faces the political problem of how to cut spending by at least 26% in 2011, and by lesser amounts down to 12% in 2014.
We could increase taxes - but that might well put the nation back into recession. Future growth would probably be damaged. A tax increase of 36.7% for 2011 would not be popular with most.
There is, of course, a simple solution. Inflation, and lots of it. From this, much may follow.
Surf n Turf
02-16-2010, 23:00
-- moving social security funds out of general revenue, back into a specific-purpose fund, not be more likely and doable?
craigepo,
Money is fungible, and where would the government “invest” the social security revenue if not in Government bonds (as we are currently doing)
SnT
ZonieDiver
02-16-2010, 23:54
I worked hard.
I contributed to Social Security for all these years.
I want what's coming to me.
However, I will NOT endanger my children's, and grandchild's, future for that.
I'll work 'til I drop before I do that.
It is time for "Boomers" - along with the remnants of the so-called "Greatest Generation" to (quoting Morgan Freeman's character in "Glory") "pony up" and "just say no"!
It has to end sometime. The imbalance must be set right. Now is the time. Just do it!
Surf n Turf
02-17-2010, 21:28
I worked hard.
I contributed to Social Security for all these years.
I want what's coming to me.
However, I will NOT endanger my children's, and grandchild's, future for that.
I'll work 'til I drop before I do that.
It is time for "Boomers" - along with the remnants of the so-called "Greatest Generation" to (quoting Morgan Freeman's character in "Glory") "pony up" and "just say no"!
It has to end sometime. The imbalance must be set right. Now is the time. Just do it!
ZonieDiver,
Do you really think that if we forego taking Social Security the money will be used to pay down the DEBT. I don’t think so ----
Do you really think that the cockroaches in DC give a damn about your / my children or grandchildren. I don’t think so -----
Do you think the “imbalance” is caused by making Social Security payments to those that have “involuntarily paid” into the system for the better part of their lives. I don’t think so ------
If you “means test” Social Security, what are the unintended consequences ?
SnT
armymom1228
02-17-2010, 21:50
IMHO it is doomed unless two things happen.
They take all the drug addict pices of shit that have never worked a day in their lives off of it.
Can you clarify that comment? Are you refering to those legally disabled or our elderly? thanks.. AM
armymom1228
02-17-2010, 21:56
ZonieDiver,
Do you really think that if we forego taking Social Security the money will be used to pay down the DEBT. I don’t think so ----
Do you really think that the cockroaches in DC give a damn about your / my children or grandchildren. I don’t think so -----
Do you think the “imbalance” is caused by making Social Security payments to those that have “involuntarily paid” into the system for the better part of their lives. I don’t think so ------
If you “means test” Social Security, what are the unintended consequences ?
SnT
I don't think there are any easy answers. All sorts of people have debated this issue endlessly and have yet to come up with a viable solution that that will fly with the public or the government.
AM
GratefulCitizen
02-17-2010, 21:58
The govt quits mismanaging the fund.
Never gonna happen.
So long as politicians are rewarded for spending, they will spend.
If politicians get tossed for spending, they may spend less.
craigepo
02-17-2010, 22:46
I have noticed at my day-job that social security-disability is being used as the new welfare. It takes years to get a proper disability case through those courts, because they are so jammed up with malingerers.
ZonieDiver
02-17-2010, 23:06
ZonieDiver,
Do you really think that if we forego taking Social Security the money will be used to pay down the DEBT. I don’t think so ----
If we, the people, will it... it will be so.
Do you really think that the cockroaches in DC give a damn about your / my children or grandchildren. I don’t think so -----
Those "cockroaches in DC" care about one thing, primarily, which is: being re-elected to office. IF we, the people, show them that we are committed to these things, yes, I think these "cockroaches" will do exactly WTF we want them to do. And "we" - the older generation are the ones they fear the most, because, unlike the younger ones, WE vote. IF we make it clear that we will give up something that we are "entitled" to receive ONLY if they do what is proper with the funds... yes, they will do it.
Do you think the “imbalance” is caused by making Social Security payments to those that have “involuntarily paid” into the system for the better part of their lives. I don’t think so ------
Despite other misuses of the funds, the primary problem with SS is "a numbers game." Too many receiving too much and not enough paying enough in. It is not a "pension plan" and never was. FDR sold a "bill of goods" because that is the only way he could get it through - even in those tough times, the "dole" was NOT a popular phrase in those days.
It was never intended to be someone's sole means of support for a lifestyle approximating that which they previously enjoyed. It's a transfer payment, like other taxes, and we need to approach it as such.
YMMV
Nope...no easy answers to this topic...just hard ones. How about letting me be a bit self-centered? How does SSI benefit me? I busted my ass, retired from the Army…got another job…will bust my ass here until I retire again. My wife does well for herself and will also retire with a pension…so...what if I don’t want Old Age Insurance, or SSI, or MEDICARE? The answer is…it is not about me, it is about the common good, isn’t it? Sounds a bit like someone making a decision to take from someone according to their means and give to someone else according to their needs.
Lately I have been hearing more and more reminders that Social Security is “insurance” not a retirement fund. It is…that is a fact. The unsaid theme, however, is that I might not be able to get that “insurance payment “ if I don’t need it. There are scores of our wonderful elected officials out there talking that point right now. I wonder where the magic line on earnings will be drawn that determines when you are no longer eligible to receive payments. Oh…but, by the way…we’ll still take that monthly SSI tax from you, thanks!
I have the feeling I will pay my whole life into an insurance policy to get a big old ZUG at the end. Not exactly a wise investment. And believe me, I am not counting one red cent of SSI benefits in my retirement plans. I figure, I’ll take care of myself, thanks. But that is kind of a personal responsibility thing in the first place.
When George W proposed a reasonable alternative (Govt retirement accounts akin to the TSP) that would actually be real cash in a personalized account, which, could not only be disbursed upon retirement age…but transferred to heirs if the person died before drawing it out…it was slapped down. Why? Because people are too stupid to manage their own money.
How about this…if there is a burning desire to make sure everyone gets a check when they’re 65…pass a law mandating you have an established retirement account (BTW current law lets you start to draw that out at 59 ½ with no penalty). Whatever you and your employer put in…you get out.
Even if you get past the whole Old Age Insurance and SSI thing, the problem then becomes tackling the other 5 or 6 programs rolled into the Social Security Act…and the whole baby-boomer group that put in for the past 40-50 years and are now getting ready to draw those stipends. That is what hurts.
Someone start a thread on the current tax system…I got something to get off my chest!!:D
IMHO it is doomed unless two things happen.
They take all the drug addict pices of shit that have never worked a day in their lives off of it.
The govt quits mismanaging the fund.
Were screwed......
I prosecuted state cases daily from 1999- 2001. When they would bring defendants into court for first (initial) appearance before the Judge many would request a public defender claiming they were indigent. The judge would swear them before the Clerk of Court took their financial data. Many times a defendant would comment that his only source of income was $450 a week from SSI. The majority were able body men who had a habit and were charged with controlled substances violations. The sad fact is that $1,800 per month tax-free provided persons addicted to drugs a mechanism to keep using until they self corrected, either thru rehab or demise.
v/r
phil
This is going to be a bit long. I'll divide it into 3 pieces. Part 1 discusses the demographic tidal wave which renders the problem intractable. Part 2 develops part 1 into a discussion of why private accounts could not have saved us. Part 3 is a rant.
Part 1.
Demographics is destiny. Let us consider those born between 1946 and 1960 as boomers. Per Wikipedia, 76 million babies were born in this period.
People are starting to claim benefits, starting about 2008, as the leading edge of boomers reaches age 62. Notice that the costs will increase as more and more boomers start taking money out and fewer put money in. This bears on part 2, and is a key issue. In addition to the Social Security issue, Medicare is a cost which is likely to increase sharply as the boomers get older and (presumably) sicker.
Notice that revenue from FICA taxes is lent to the federal government. That money can be (and is) spent.
Note that Social Security depends on taking money in from current payments in order to pay out current benefits. This is not a retirement program, nor an insurance program, but rather a transfer payment.
Let us reflect for a moment on the following:
* As of 2007, Social Security benefits comprise 50% or more of the income for 63% of elderly beneficiaries. It makes up 90% or more of the income for 32% of elderly beneficiaries.[53]
LINK (http://www.justfacts.com/socialsecurity.asp)
Part 2.
When we consider retirement, we might ask ourselves what it really means. Perhaps a working definition might be that a retiree makes less stuff (whether goods or services) but continues to consume stuff (housing, food, medical care, energy, and so forth). So a retirement plan creates some sort of way to permit the retiree to consume more than they produce. Otherwise, it isn't retirement.
Whether we speak of private savings, private or public pension plans, or some other retirement approach, we're generally reducing consumption in the present, saving and investing it, and hoping to fund future consumption.
However - remember that demographic bulge. During the period from about 1990 - 2008, prudent individuals and organizations reduced their consumption in order to save and invest more. Their goal was to fund the future consumption. What are the consequences of this?
As money flowed into the markets - stock, bond, and other - prices of investments went up, yields on bonds went down, and consumption lagged behind production (lots of producers, with money being saved instead of consumed), thus keeping price inflation low. But - what happens when the process is reversed? Simply this - money flows out of investments and savings, and continues to flow into consumption. This implies a downward bias in all markets as investments are sold to support consumption.
What happens then? The value of savings is reduced through market action. As people cut back on consumption due to reduced circumstances, economic activity declines. This further pressures markets and also revenue for both companies and governments. Keep in mind, then, that we do not have just a social security crises; we also face the same challenge in public and private pensions. Public pensions depend on investments, and if those investments do badly (which they are), the various governments must further burden already angry taxpayers. Private pensions, if they fail, fall onto the PBGC (Pension Benefit Guarantee Corporation), which is much like the FDIC. This is at least a possible further burden on the federal budget. Private savings face pressure due to declining investments. Thus, retirees face pressure on all fronts. Despite careful plans, social security may wind up being the only resource many of those retirees have. And keep in mind - at some point, retirement is not by choice. At some point, the elderly are simply not viable workers.
Part 3. The rant.
Bernie Madoff took in payments, then distributed payments to other people. He also spent some of the money on himself. It was called a Ponzi scheme. He was convicted of fraud and sent to prison. Poor Bernie was a pathetic amateur.
Various officials, elected and appointed, have made these promises for many decades. As the numbers quoted above show, a large number of people have believed those promises. According to my understanding, the two key elements of fraud are a) money and b) misrepresentation. We seem to have both.
If an individual or organization commits fraud for decades, should we believe their promises about the future? If so, should we let Bernie out of prison and set him up in an office again? If not, why should we believe that those who have lied (yes, lied) about Social Security will actually use the mass sacrifice to any good end? For myself, I want every cent. And if there is to be a default, then I want lots of liars to go to prison for a long time - along with asset forfeiture so they and their families do not profit from the fraud. MOO, YMMV.
And now, a postscript -
All of this was foreseen years ago. Back in 1995 or so, Barron's included an article that predicted the effect on the markets. If their view is correct, we can anticipate a couple decades of poor performance on stocks and increasing interest rates. We'll probably see inflation on the things we consume, too.
This implies that every single one of us has some skin - and perhaps a few vital organs - in this game. No pension - not public, not private - is secure. Social Security and Medicare are not secure. And, gentle reader, neither your savings nor mine are secure in terms of purchasing power.
I do not believe there is any good solution. Only a shrinking universe of steadily worse outcomes. And unless the folks in charge of such things revise their behavior rapidly, I firmly believe that the next couple decades will be grim.
craigepo
02-18-2010, 13:59
Nmap
I don't like your description, mainly because I think it is very accurate, and will probably come to pass. Would the following fixes help lessen the damage?
1) Tie retirement age(age at which a person may begin receiving social security benefits) to a realistic life expectancy number(or even older as was done when social security originated);
2) take social security receipts out of general revenue, and lock them into a specific-purpose, social security only fund;
3) pass a balanced budget amendment(I realize this one is tenuous)
Craig
.......1) Tie retirement age(age at which a person may begin receiving social security benefits) to a realistic life expectancy number(or even older as was done when social security originated....
Would that screw black men even more than they are now?
The problem is you pay in with an expectation of getting something back.
Get married young, have kids that have grown up and then drop dead at 61 years 11 months. Flush................
Thats why, as others have stated, its not a retirement fund its wealth transfer and politicians are looking to lift the taxing cap.
nmap,
Not busting your chops...but you brought out some good points and I want to address some of them since I kinda got on a rant earlier and you discussed one of my points on govt retirement accounts..
I said the baby boomer issue is what hurts. What’s that new Army buzz phrase? “The long pole in the tent.” But do we do nothing and sacrifice the standard of living of our next generations for the welfare of the boomers? Answer, unfortunately is…HELL YEAH…they are the ones that actually go vote! And that’s why no one will touch that third rail of politics.
But I digress. The point of the government accounts are this, they are a valid alternative. The argument of consumption/production is practically moot. Do nothing and keep what you got, folks are still going to not produce when they retire, and the producers have to pay for them. From those according to their means…to those according to their needs. This is un-sustainable. It is a fact.
I guess we can always raise that retirement age to 80, and have the young-uns breed like hell. Hey, we need a bigger tax base, and my government subsidized Cialis prescription has some refills. BTW…if all the boomers are going to do is consume…then wouldn’t there be a big old demand for more producers to keep up with demand? I would love to own a business when that happens.
Based on the production/consumption model you described…government retirement accounts, coupled with repealing federal income taxes and going to a consumption tax seems to be an alternative. The problem is…it is a big move…”and gov-ment don’t like no big move”. The answer is not one thing...it is a series of solutions to inter-related problems. A fundamental change to our government. Have I heard that before? I have...it made me sick...'cause the change was going the wrong way.
The complaint over government retirement accounts, akin to the TSP, boil down to this…what if there is a market crash? Politicians always cry doomsday over this. Well, hello, here we are. Downturns in the market are temporary. If it becomes permanent…we won’t need to worry about receiving that SSI check anyway. The current situation really affects the cohort group that was going to retire within the past couple of years. Of course the market has regained over 60% of the loss…and as they say…you only lose when you sell. It would require an adjustment to the retirement timetable, which is set by the individual anyway. I can retire at 59 ½ or work and save until I am 65…my choice.
And, of course, if one was getting ready to retire, it would have been wise to take an interest in where your money is invested in the funds. If I was within 5 years of my retirement…my Government retirement account would have all been moved out of the C, S, and I funds (Common stock, Small caps, and International) and into Government Securities. There was no negative annual return for the G fund during this recession. The gain was minimal for the year…2.9%, but not a loss. That is a hypothetical move because …there are no government accounts for average Joe. But believe me, come 2023…all my shit is going into the G fund. Nothing hypothetical ‘bout that.
You minimize the risk to your capital. But…that requires personal responsibility and interest in how investments work. The argument is it is too complex, people are not intelligent enough to figure it out for themselves, so we’ll continue an unsustainable cookie cutter approach for "everyone". Until they change it from "everyone" to only those who don't have pensions thru their employer...or that made over $250,000 over the past 5 years before retirement. It is, after all, "insurance" and not a sole source for retirement income.
I still want to tackle the TAX issue next. I am all about a consumption tax. Wouldn't you like those drug dealers and illegal aliens to pay good old American taxes? I would. Also, with the boomers, if we are going to have a boat load of non-producing consumers…wouldn’t a consumption tax be the bomb? That’s gonna be my platform when I run for congress…Institute the Fair Tax and repeal Federal Income Tax while repealing Social Security and passing a law requiring a retirement account. Free beer for veterans! (I'll pay for that out of what's left over from cutting the IRS.):p
At the risk of a thumping from TS for pimping another website…go to Fairtax.org.
1) Tie retirement age(age at which a person may begin receiving social security benefits) to a realistic life expectancy number(or even older as was done when social security originated);
From the perspective of bringing revenue into balance with costs, it works perfectly. The expected economic problems would evaporate, since savings and investment would tend to increase and retirements would decline.
A possible side effect would be an increase in U6 unemployment as additional workers entered the labor market. This unemployment effect might propagate into other segments as the non-retired elderly sought income.
In general, this represents a massive default. I suspect there would be substantial political and social repercussions.
2) take social security receipts out of general revenue, and lock them into a specific-purpose, social security only fund;
This cannot prevent the economic problems. The ebb and flow of investments and disinvestment will continue no matter how we divide the money.
If I may digress, this is one of the problems with private Social Security investment accounts. As long as funds flow into the investment universe that the accounts use, returns will be favorable. However, when funds begin to flow out of that universe, returns will cease to be advantageous.
3) pass a balanced budget amendment(I realize this one is tenuous)
Craig
The economic effects from private and public pensions, as well as individual savings and investments would remain. But let us focus on Social Security and the overall budget.
This comes from: Source (http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf), specifically Table A3 on page 8 of the Tables section, and page 26 of 180 of the PDF.
For 2011, we have: (in billions)
Individual Income Taxes: 1,258
Corporate Income Taxes: 266
Social Insurance Taxes: 934
Other Revenues: 211
Total Revenues: 2,670 <-----
Mandatory Spending: 2,045
Discretionary Spending: 1,371
Net Interest: 233
Total Outlays: 3,650 <-----
Notice the big difference between revenues and outlays - $980 billion dollars.
To accomplish a balanced budget in 2011, we must either:
Raise our taxes. ((1,258 + 266 + 934) + 980))/(1,258 + 266 + 934)
= 3,438/2,458
= 1.398.
That's a 40% tax increase for individuals, corporations, and social insurance.
We could also achieve this with a spending cut. If we suppose that Mandatory spending really is mandatory, then we must cut discretionary spending by just under 72%.
What are these discretionary outlays? From Page 5, Chapter 1:
Discretionary Outlays. On the discretionary side of the budget, outlays grew last year by 9 percent ($102 billion). Spending for defense rose by a total of $43 billion; of that increase, $15 billion was for operations and maintenance (which grew by 6 percent), $12 billion was for procurement (which grew by 10 percent), and $7 billion was for personnel (which grew by 6 percent). CBO estimates that roughly one-third of the total increase in discretionary outlays for defense in 2009 was associated with military operations in Iraq and Afghanistan. (Funding for those operations is discussed in more detail in Box 1-1.)
Nondefense discretionary outlays rose by $59 billion in 2009. Slightly more than half of that increase resulted from funding that lawmakers provided in ARRA. The new State Fiscal Stabilization Fund (which provides money to state and local governments, primarily for their education expenses) spent more than $12 billion in 2009. Additional ARRA funding boosted outlays for student financial aid by more than $6 billion. Outlays for ground transportation programs rose by a total of $7 billion in 2009, with $3 billion of the increase coming from ARRA funds. (For a detailed breakdown of ARRA spending in 2009 and projections for 2010 through 2020, see Appendix A.)
Some other categories of discretionary spending saw large increases in outlays unrelated to stimulus funding. They included veterans’ affairs (which increased by $6 billion, primarily for medical care) and international affairs(which rose by $5 billion, primarily for global health programs and international peacekeeping).
We could, of course, have some combination of tax increases and spending cuts.
Mandatory spending includes Social Security, Medicare, and Medicaid. In order to isolate the problem, these areas have not been reduced.
In my opinion, such cuts or tax increases would be wrenching - but they are what a balanced budget amendment requires.
If I may digress - in my opinion, this represents a strategic vulnerability. If our creditors, China among them, start to liquidate our bonds, then interest rates are likely to increase and our ability to borrow more could be impaired.
Should interest expense increase, our deficit does likewise. If our borrowing ability should be impaired, the cuts mentioned above would be imposed by the realities of the bond market.
Conclusion? The only approach that works is to toss 76,000,000 voters under the bus, which is not (IMO) politically viable. China has tied its Yuan to the USD. This means that the slow default of currency debasement and inflation may not work as it has in past years.
nmap,
Not busting your chops...but you brought out some good points and I want to address some of them since I kinda got on a rant earlier and you discussed one of my points on govt retirement accounts..
To a great extent, we agree. There are a couple points that I would like to explore.
First, the government accounts. They do not and cannot address the demographics. Lots of people will invest, which fuels an upmove in the markets - both stock and bond. When that large batch of people retire, they will pull money out and cause the markets to go down. These will not be short-term moves. We've had a 25 year bull market. In fact, we've come up from 550 or so back in October of 1974. We've seen the good side of the demographic bulge - we may spend decades (plural) experiencing the other side. Are downturns in the market temporary? Well, the Japanese Nikkei has been down from its lows for over 20 years. That's a fairly long spell to categorize as temporary.
On the other hand, the current system isn't sustainable, just as you say. It requires, among other things, a high ratio of workers to retirees. Increasing life expectancy creates a problem. Likewise, declining numbers of children affects the ratio. If we look at the underlying assumptions of Social Security and a great many other things, we find that growth is at the core. But growth cannot go on forever. At some point, it must fail. Otherwise, one ends up with some nonsense like a sphere of human flesh expanding at the speed of light. Could some perfectly managed and constantly adjusted scheme work? Perhaps - but the devil is truly in those details.
I guess we can always raise that retirement age to 80, and have the young-uns breed like hell. Hey, we need a bigger tax base, and my government subsidized Cialis prescription has some refills. BTW…if all the boomers are going to do is consume…then wouldn’t there be a big old demand for more producers to keep up with demand? I would love to own a business when that happens.
Yes - there will be opportunities. One that I suspect will do very well would be a personal assistant/concierge type of business. The service might do the shopping, balance the checkbook, or clean the house. There is a home health care business up in Dallas that provides a 24 hr. assistant to elderly/disabled patients for $7,000 per month, and I suspect there are programs that help pay for it. That's the thing about change - the bigger the change, the greater the opportunity for gain. Or, for loss.
As you point out, the G fund has some very good aspects. There is, however, the problem of inflation versus performance. If inflation is understated - and I contend that it is - then savers will experience a negative return over time. Granted, a small negative return (in purchasing power terms) is more comforting than a large negative return during a crash - but one still has a loss.
Actually, it's not that hard to replicate the G fund. Bonds are available, as are CDs. In particular, ladders are nice - a 5-year ladder has the investor purchase a CD for 1,2,3,4, and 5 year maturities. When the 1-year CD matures, the money is put into a 5 year CD. This tends to keep yields high. If one demands liquidity, the same thing can be done with bonds - even treasuries.
Second, investment competence is a hard one. There are people who make seemingly crazy decisions and wind up making great profits. Sometimes, the opposite occurs. But we face the problem of what to do with those unfortunates who follow the rules and wind up with nothing. If we do nothing, we face the prospect of tossing granny into the street where she freezes to death, thus producing bad press. But if we bail out those who make bad decisions, then there is no benefit for caution; rather, the best course is to choose the most speculative course possible and risk everything. One either wins big or gets a personal bailout. I don't know an easy solution.
On the point of a consumption tax instead of the income tax - yes, absolutely. Sign me up. I gave up on even understanding a fraction of the tax code years ago. I fill out the TurboTax forms to the best of my ability and spend $39 on the audit insurance.
Manadatory Spending has to be cut!
Social Security was set up in the 1930's on actuarial tables that only covered 5-15% of the population with SSI (Supplemental Security Income) and was never meant to be a "retirement pension" or "full replacement of income". Social Security was meant to keep widows and old ladies (and a few old men) in small tenements with some heat; so they would not die on the streets. Somehow, the program has grown with political expectations and voters wanting more for less! We need to return it to the safety net it was intended to be or it will go broke (or Our national economy will collapse).
The biggest problem was the greatest generation brought up a bunch of lazy and opinionated idealistic people called the "boomers" while some worked hard, the majority of them were semi-productive, and thought that the growth and hard work of others would and will float all ships. Additionally they revised history to suit them and think everyone in the world should just "get along". DREAMERS!! (Federal Income Tax is an example of the "Progressive Tax" notion that those that work hard should pay for those that don't).
Nothing is free. Government is bad at managing money...but great at spending it...Charity is a personal choice....Social Security is not a retirement income and should not be part of planning to stop working or "retire". Only hard work and good investments allow the people that planned to retire, to do so...on their own dime. Stop thinking you are owed anything, if you "did your time" and were risk adverse (non entrepenurial or not the largest producer of products or ideas) you have earned nothing, you have beleived a lie because you believe you are entitled, and it was easier! DREAMER...WAKE UP!!!
I never thought or beleived that as a white male with capacity, that I would collect a cent of SSI. I have served my country and I have taken risks and run my own business. I want for much, but wait till I can afford the price for these "wants". I rely on no one for my survival. Maybe my fellow Americans could stop whining and get a job (correction, keep a job by being a team player, working harder, being a good steward of their personal income and their employers' resouces). If you don't make something, you are a taker or a user. You must assume responsibility whether you like it or not; to make your own destiny. Goverment can assist, but it can't make you successful (or comfortable in your old age). Opportunity does not equal outcome.
Put social security back to what it was, a supplement for only the people outside of the actuarial tables to receive a benefit (a small one at that) as a safety net, for grannies and grandpa's (in todays terms greatgrannies and great grandpas) as intended.
Just my ranting thoughts!!
armymom1228
02-20-2010, 13:07
I dunno where people get the notion that Social Security is some sort of huge amount of money each month. My benefit should I elect to opt in at 62 will be a whopping $865/month. For those who were not able to pay into the system say a housewife who's husband is still alive.. I believe the benefit is $655/month. Anyone want to try to live on either of those incomes? Not everyone has a military retirement benefit. Some worked thier whole life paying into a retirement fund only to find out it is bust when it's time to retire.
I believe, after all the yrs working with Vets and older people, that we cannot always know the circumstances that bring them to where they are and to judge another is not always either Christian or appropriate. In some cases yes, but most, no.
To offer a blanket indictment is not right. I know a LOT OF my generation that have and continue to work hard. We have our parents values and worth ethic. What so many see are the squeaky wheels who make the nightly news.
I can make the same indictment of my youngests set of children's generation. So many of them are the ones who voted for hope and change.......:rolleyes: expecting society to do for them.
(as did a lot of liberal boomers for that matter).
mcarey;
The question is "Is SS a tax or a benefit?"
It was sold as a benefit - pay in & get it later.
If it's a tax why the employee/employer dodge? Why not just give the individual all his pay and then take 12% off the top back?
I think the average worker might vote a little different if each pay stub started out with "Your Net Worth to the Company this pay period" and then showed all the costs the employer paid to keep you working. Then "Gross Pay" followed by all his taxes and deductions.
greenberetTFS
02-20-2010, 13:22
I dunno where people get the notion that Social Security is some sort of huge amount of money each month. My benefit should I elect to opt in at 62 will be a whopping $865/month. For those who were not able to pay into the system say a housewife who's husband is still alive.. I believe the benefit is $655/month. Anyone want to try to live on either of those incomes? Not everyone has a military retirement benefit. Some worked thier whole life paying into a retirement fund only to find out it is bust when it's time to retire.
I believe, after all the yrs working with Vets and older people, that we cannot always know the circumstances that bring them to where they are and to judge another is not always either Christian or appropriate. In some cases yes, but most, no.
To offer a blanket indictment is not right. I know a LOT OF my generation that have and continue to work hard. We have our parents values and worth ethic. What so many see are the squeaky wheels who make the nightly news.
I can make the same indictment of my youngests set of children's generation. So many of them are the ones who voted for hope and change.......:rolleyes: expecting society to do for them.
(as did a lot of liberal boomers for that matter).
Excellent point AM,right on target from someone living that scenario......:(
Big Teddy :munchin
Would that screw black men even more than they are now?How does this screw black men?:confused:
Stay safe.
armymom1228
02-21-2010, 00:16
How does this screw black men?:confused:
Stay safe.
Journal of Sociology and Welfare. (http://findarticles.com/p/articles/mi_m0CYZ/is_1_32/ai_n13619870/)
All employed workers are required to contribute to the Social Security System; however, a disproportionate percentage of African American males never live long enough to collect any benefits from their contributions. On the other hand, the life-expectancy of white males is significantly longer than the life expectancy of African American males, and their collection of Social Security benefits tends to exceed their contributions to the system. The federal government keeps the Social Security system from becoming completely solvent by raiding it of any surplus funds it collects; thereby, preventing the Social Security Fund from developing interest income, and accumulating funds for future generations of retirees.
All employed workers are required to contribute to the Social Security System; however, a disproportionate percentage of African American males never live long enough to collect any benefits from their contributions. On the other hand, the life-expectancy of white males is significantly longer than the life expectancy of African American males, and their collection of Social Security benefits tends to exceed their contributions to the system. The federal government keeps the Social Security system from becoming completely solvent by raiding it of any surplus funds it collects; thereby, preventing the Social Security Fund from developing interest income, and accumulating funds for future generations of retirees.
US pop:
White persons, percent, 2008 (a) 79.8%
Black persons, percent, 2008 (a) 12.8%
Which group has paid more into SS? Then ask yourself--which group receives more benefits?
BTW...They had the Latino population at +15% also which screwed up my math...;):D
Saty safe.
...Which group has paid more into SS? Then ask yourself--which group receives more benefits?........
True as a group - but you pay and draw as an individual.
And as an individual the black man is the one really coming out on the short end of the stick. Raise the retirement age very high and he'll be hanging onto SS by a fingernail.
True as a group - but you pay and draw as an individual.
And as an individual the black man is the one really coming out on the short end of the stick. Raise the retirement age very high and he'll be hanging onto SS by a fingernail.It'll be a miracle if, I make to the age for my SS...
You wanna help out the man? Get them SOBs to stop taxing the hell out us.:D
BTW...I plan on working past 65y/o. It'll keep my mind busy from thinking about all these liberals which is a waste of O2 & brain cells.
Stay safe.
mcarey;
The question is "Is SS a tax or a benefit?"
It was sold as a benefit - pay in & get it later.
If it's a tax why the employee/employer dodge? Why not just give the individual all his pay and then take 12% off the top back?
I think the average worker might vote a little different if each pay stub started out with "Your Net Worth to the Company this pay period" and then showed all the costs the employer paid to keep you working. Then "Gross Pay" followed by all his taxes and deductions.
Pete,
I agree that workers should see the their true cost to their employer, public or private. May help with the individual work ethic.
SS was set-up as a tax to provide SSI to a small minority of the aged population. Like most govt programs as years passed, people had "bright Ideas" to add disabilty and orpahned children and increase benefits to a "living supplement". Works fine when a lot more people are paying in than will ever be able to collect. It has turned into an entilement for the "worker" or the "non-worker". So I guess it is now both a tax and benefit (entitlement).
I just think we have to face realty and raise the age of receipt now! or face more debt in the future.
We will probably have to cut procedures covered under Medicare too. That wil be a fight, but everyone cen't get unlimited procedures to extend their lives on the check of others!
I beleive in charity, I give, but I don't beleive the govt will ever be a 4 star charity using the bulk of taxes to provide services economically or fairly.
America is still the best place to live and come to for top notch health care!
Surf n Turf
02-21-2010, 21:00
I beleive in charity, I give, but I don't beleive the govt will ever be a 4 star charity using the bulk of taxes to provide services economically or fairly.
McCarey,
WADR, are you equating Social Security with handouts from a charity – like a “free meal” at the Salvation Army soup kitchen ?
SnT
http://www.foxnews.com/politics/2010/03/14/social-security-start-cashing-uncle-sams-ious/
- AP
- March 14, 2010
Social Security to Start Cashing Uncle Sam's IOUs
This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.
PARKERSBURG, W.Va. – The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.
It's time to start cashing them in.
For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.
Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.
Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
Social Security's shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.
"This is not just a wake-up call, this is it. We're here," said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. "We are not going to be able to put it off any more."
For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit.
Remember Al Gore's "lockbox," the one he was going to use to protect Social Security? The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on "Saturday Night Live."
Gore lost the election and never got his lockbox. But to illustrate the government's commitment to repaying Social Security, the Treasury Department has been issuing special bonds that earn interest for the retirement program. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form.
They are stored in a three-ring binder, locked in the bottom drawer of a white metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950s as part of a plan to locate important government functions away from Washington, D.C., in case of an attack during the Cold War.
One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don't bother trying to steal them; they're nonnegotiable, which means they are worthless on the open market.
More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.
Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.
Social Security's financial problems have been looming for years as the nation's 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security's trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program.
The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire.
Stephen C. Goss, chief actuary for the Social Security Administration, says the crisis has been years in the making. "If this helps get people to look more seriously at that in the nearer term, that's probably a good thing. But it's only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed."
In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.
For the budget year that ends in September, Social Security is projected to collect $677 million in taxes and spend $706 million on benefits and expenses.
Social Security will also collect about $120 billion in interest on the trust funds, according to the CBO projections, meaning its overall balance sheet will continue to grow. The interest, however, is paid by the government, adding even more to the budget deficit.
While Congress must shore up the program, action is unlikely this year, said Rep. Earl Pomeroy, D-N.D., who just took over last week as chairman of the House subcommittee that oversees Social Security.
"The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don't need to be done in the next few months," Pomeroy said.
The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military. About $2.5 trillion is owed to Social Security.
Good luck to the politician who reneges on that debt, said Barbara Kennelly, a former Democratic congresswoman from Connecticut who is now president of the National Committee to Preserve Social Security and Medicare.
"Those bonds are protected by the full faith and credit of the United States of America," Kennelly said. "They're as solid as what we owe China and Japan."
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