July 17, 2017

Social Security going bust: The inconvenient issue

Buried down deep in the Friday afternoon news dump is the not inconsequential news that Social Security is about to go bust – a lot faster than anyone had predicted earlier. Investor's Business Daily sums up the coming fiasco pretty well:

The Social Security report finds that the "trust fund" will run out of money in just 17 years. The news only gets worse from there.

The program's unfunded liability over the next 75 years is now $12.5 trillion, which is up from $11.4 trillion last year and $4.7 trillion a decade ago. In other words, Social Security's long-term unfunded liability has increased by 166% in the span of 10 years.

And on a cash flow basis, Social Security is now losing money every year. Last year it was $54 billion in the red. In a decade the annual shortfall will reach $215 billion – after adjusting for inflation.

It's only by spending "interest" earned in the program's "trust fund" that Social Security can cover its current obligations. But remember, the trust fund is comprised entirely of Treasury debt. The federal government still has to borrow or raise taxes when the trust fund cashes in those bonds.

There's no getting around it: no matter how much the left claims the system is sound, it isn't. It's going bust. Let's describe what going bust is going to look like.

It's not going to be a nuclear explosion. It's not going to be pushing Grandma in her wheelchair off the cliff, as the left enjoys positing whenever someone tries to bring up some means of averting a fiasco.

Social Security is so creepily structured that going bust is not going bust. As with casinos, the house always wins. The way "bust" happens is that recipients get an automatic 17% reduction of benefits overnight. Living on that as your retirement program after paying in for decades? Too bad. The hard reality is, the government owes you absolutely nothing. It can give you "what you paid in," at its customary zero-percent interest. Compared to what you would have earned in stocks or bonds, it can give you more, or most likely, it can give you less. And it's about an eighth to a quarter of your income you pay in, year after year, unable to save it for a real retirement account.

Demographics are probably the main reason it's happening – people having fewer kids has its impact, no matter how you try to spin it. And now, with illegals claiming benefits, often more than they ever paid in, and the meth crisis ravaging Midwestern towns and throwing millions out of the productive labor force, the kitty that once held your money is being drained faster than anyone "anticipated." The trust fund is anything but a trust fund – at least, not for you.

The whole issue was disgracefully ignored during the 2016 presidential election, as well as most elections before that one, with political consultants calling it "the third rail of American politics," as if the truth is too painful.

There remains, as ever, one proven way out outside slashed benefits and politicians blaming the other party as that happens.

It's called "the Chilean Model," as 2012 presidential candidate Herman Cain put it, in what was his valiant effort to get the voters to get serious about the issue.

The Chilean Model, the system of private savings accounts for retirement, is practiced in 30 countries. It was developed on a nationwide scale by José Piñera, the former labor minister of Chile during the 1970s, when the country was a socialist rubble and the coffers were bare, and it has worked every time it's been tried.

Piñera faced considerable obstacles, no small ones from Big Labor, as well as numerous disinformation campaigns and Grandma-off-the-cliff scenarios. He was able to overcome all of them and was stunned to find that the option he offered to Chile's workers was lapped up at far higher rates than even he anticipated. The whole story is worth reading in these pages here. Link

If we don't do it, we go bust. And not in an explosive way – in that sly, insidious crumbling ruin way the system currently provides for those who keep sweeping the problem under the rug.

http://www.americanthinker.com...onvenient_issue.html

The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

This will be solved through 'reduced benefits'.

It will never be solved by 'political courage'. Any form of Private Accounts will never fly in this country and we have the Dems to thank for that.

The DEMS will shout 'ONLY the GOV can provide / protect your SS earnings!!!'

The Rs have shown time and time again they fold under media scrutiny.

And just like with Healthcare - the average American really doesn't have the knowledge to understand the way the system works (or doesn't work).

So benefits will be reduced on a rolling basis.

The ONLY thing new and catchy enough to gain traction IMO is the discussion on 'Universal Basic Income'.

That is a term we will be hearing more about IMO.

-----------------------------------

There are a lot of sharks circling the body of lady liberty. Everytime a dorsal fin breaks the surface, congress kicks it away and takes a little deserved victory lap but the sharks are still there waiting for the feeding frenzy. Social entitlements are the great whites in the gathering herd.

According to the report, the trust funds have a total asset reserves of $2.85 trillion. Even though the trust fund reserves are growing, the cost of the program will outweigh the revenue by 2022.

"It is time for the public to engage in the important national conversation about how to keep Social Security strong," said Nancy A. Berryhill, acting commissioner of Social Security. "People understand the value of their earned Social Security benefits and the importance of keeping the program secure for the future."

In 2016, the program took in $957 billion in income but still had expenditures as high as $922 billion.

The Committee for a Responsible Federal Budget suggests policymakers phase in gradual changes that would allow for more time to plan but also promote long-term economic growth.

"The Social Security Trustees continue to underscore the need to address Social Security’s financing shortfall soon," the committee said. "Failure to act would result in all beneficiaries receiving a 23 percent across-the-board benefit cut when the combined trust fund exhausts in just 17 years, when today's 50-year-olds reach the normal retirement age. The SSDI program faces an even more immediate deadline and will deplete its trust fund in 2028."

quote:

Originally posted by JALLEN:
The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

So, you disagree with the article?

My first SS check just hit the bank last Friday. I didn't wait a day to file once I became eligible.

quote:

Originally posted by JALLEN:
The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

My view as well, and I'm not nearly as educated on these things.

And the article says "And it's about an eighth to a quarter of your income you pay in, year after year, unable to save it for a real retirement account."

Off the top of my head, isn't socal security set at between 6 and 7 percent of your income, with an income top out between 100k and 200k?

Am I missing something, or is the author?

They could stop giving out all those extra "disability" benefits that were not part of the original law. There is a lot of fraud with those, too. And they should not have allowed any aliens to partake at all.

flashguy

quote:

Originally posted by lastmanstanding:
My first SS check just hit the bank last Friday. I didn't wait a day to file once I became eligible.

IMO that's smart and congrats BTW.

All those charts they show trying to convince you to wait. I call BS.

Take the amount you can as soon as you can and enjoy it while you can.

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quote:

Originally posted by chongosuerte:
And the article says "And it's about an eighth to a quarter of your income you pay in, year after year, unable to save it for a real retirement account."

Off the top of my head, isn't socal security set at between 6 and 7 percent of your income, with an income top out between 100k and 200k?

Am I missing something, or is the author?

For 2017 it's 6.2% of your first $127,200 in earned income. The 6.2% is matched by your employer, and thus 12.4% goes into Social Security.

1.45% of all of your earned income goes to Medicare, and your employer matches that as well. There is additional 0.9% Medicare tax withheld on your earnings over $200,000 in a year.

quote:

Originally posted by chongosuerte:

quote:

Originally posted by JALLEN:
The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

My view as well, and I'm not nearly as educated on these things.

And the article says "And it's about an eighth to a quarter of your income you pay in, year after year, unable to save it for a real retirement account."

Off the top of my head, isn't socal security set at between 6 and 7 percent of your income, with an income top out between 100k and 200k?

Am I missing something, or is the author?

A couple of points:
1. AIR what we as wage/salary earners pay into the social security system is only half of what gets put in there. The employer pays an equal amount.

2. If only those people who actually contribute?!?!?! to the fund were the ones getting paid out of that fund, there would not be room in Ft. Know to store all the money!

Nearly 40 years ago, we knew of at least 3 people drawing social security who had never paid a dime into it. And one of them was working as a paid employee of a sheltered workshop. Total family income for that family (parents) was nearly $200K per year.

Folks are charitable? OK, but why is it that the politicraps keep providing all these "charitable programs" at our expense?

I am 79 years old, and paid into social security starting at age 17 when I joined the army, and continued to pay until age 65 when I retired.

Strip out all SS recipients who never paid in! For the "charity" aspect create a separate program that clearly IDs the finances and purpose.

And the trust fund is not going bust, the politicraps and their minions in the LSM only use that as another basis for yet another increase in the amount workers have to pay.

quote:

And the article says "And it's about an eighth to a quarter of your income you pay in, year after year, unable to save it for a real retirement account."

Ya... it's an exaggeration:

quote:

For 2017 it's 6.2% of your first $127,200 in earned income. The 6.2% is matched by your employer, and thus 12.4% goes into Social Security.

If they had simply said "about an eighth" it would be correct, but "an eighth to a quarter" is an exaggeration.
Furthermore, those forced "contributions" don't make it so that you are "unable to save it for a real retirement account."
About 1/2 the people do, and 1/2 don't save in adddition "for a real retirement account."

But.... the point of the article is that you could do better in the Chilean Model than the pay-as-you-go (paygo) social security system.

quote:

Originally posted by 6guns:

quote:

Originally posted by JALLEN:
The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

So, you disagree with the article?

I don't accept it as accurate, I guess is the best way to put it.

It's a story by a journalist-American about a government program based on government figures and statistics and assumptions.

Ss I have pointed out several times, the only thing worse than irresponsible uninformed speculation is irresponsible, uninformed speculation that happens to be accurate.

Whether any of this is accurate is open to speculation.

quote:

Back in the '70's, it was going to run dry in the 90'

and then they chopped benefits when they brought in the Windfall Elimination Act. Doublespeak for we take it from you to pay for others.

I don't get a dime of my wife's benefits. she collected for only seven months but because of it, it was cut off totally.

The disability program has seen tremendous growth in both costs and the number of beneficiaries in recent decades. Since 1990, the share of the working-age population receiving disability benefits has more than doubled—from about 1 in 40 individuals to about 1 in 20 today. Spending on SSDI has doubled in real terms since 2000.

quote:

It's a story by a journalist

Yep, and you are right.... "The trust fund has been running out of money for decades."
The author uses inflammatory language: "going bust" but admits in the article that "going bust is not going bust" at least not all at once or anytime soon.

Still, the pay-as-you-go (paygo) social security system is not actuarially sound, which is pointed out by the trustees. More beneficiaries, fewer workers contributing.

I posted it to start a discussion about the long-term "fixes" or alternatives.

From the author of The Chilean Model:

The Bull by the Horns: The battle for Chile's Social Security Reform

By José Piñera

In 1925, Chile became the first nation in the Western Hemisphere to follow the example of Bismarck’s Prussia in creating a pay-as-you-go (paygo) social security system. Ten years later the U.S. Social Security Act was approved, based on the same concept. Paygo systems operate in contravention of the laws of human nature and human action. By destroying the link between contributions and benefits, between effort and reward, between rights and responsibilities, the paygo system carries the seeds of its own destruction

After a couple of decades of apparent success, a host of unintended but predictable consequences of the paygo system began to manifest themselves in my country. In addition to the well-known demographic problems that plague paygo systems, Chile’s system also fell prey to the abuses of special interest legislation. The greatest abuses came from laws that allowed politically connected employee groups to obtain a premature retirement, often with full benefits.

In December 1978 when I was appointed Secretary of Labor and Social Security, I was a Professor at the Catholic University of Chile, having returned from the United States with a Ph.D. in economics from Harvard University only three years before. Since my days as a graduate student, which I mostly spent reading the works of Adam Smith, Thomas Jefferson, F.A. Hayek, Ludwig Mises, Milton Friedman, and other such heroes of liberty, I had the conviction that only fundamental economic reforms based on individual freedom would deliver my country from poverty and underdevelopment, and would create the conditions for a return to democratic rule.

So when I was offered a cabinet post, notwithstanding the very difficult historical circumstances , I could not morally refuse to serve my country and strive for a better world.

My ideas for social security reform were part of an overall vision of a free market and a free society in Chile. To make a clean break with the old social security system, we would have to begin by being honest: we would promise nothing that could not be delivered. In practice, the new system would be based on a defined individual contribution, rather than a defined benefit. After all, life itself is not a "defined-benefit" proposition, but rather an endeavor where your contributions to it mainly define its outcome.

On my speech to the country on May 1st, 1979 (Labor Day in Chile), I announced that the new system would be constructed on three pillars, each cemented in the strong mortar of individual liberty: individual accounts, administration of the pension funds by private enterprise, and a safety net. Liberty and freedom of choice were the keystone of the whole plan.

Individual retirements accounts, where workers deposit what was formerly their payroll tax, constitutes the key innovation of this revolutionary reform. This is ultimately a paradigm shift regarding social security. It transformed a pay-as-you-go, unfunded, defined-benefit, national retirement system, into an individually capitalized, fully funded, defined-contribution one. By giving workers the choice of investing their former payroll tax in the market through these accounts (ensuring by minimal and market-friendly government regulation that the managememnts companies do it in a prudent portfolio of bonds and stocks), the whole working population can accumulate wealth, become shareholders-capitalists, control their own resources with all the dignity that that entails, have property rights over that money, exercise the freedom to tailor their retirement plans to their individual needs, and finally benefit from what Albert Einstein allegedly called the most powerful force in the universe: compound interest.

In a sense, our biggest challenge was philosophical: we had to dig the country out from under the weight of collectivist ideas, ideas that had been assimilated, admittedly, under the guise of good causes. In Chile, there had long been a widespread distrust of private enterprise. Further, there was the tenacious belief that social security could and should be an effective vehicle for the redistribution of wealth in society. In practice, of course, paygo social security was an undeniably regressive system, one which locked the poorest workers into the bottom tier of the pyramid scheme, while increasing privileges for the more politically powerful, wealthier workers higher up. The truly damned were the poorest laborers, who would work and contribute the longest, because they enter the labor force in their teens, and receive the least, because they have much shorter life expectancies.

Under the new system, individual actions like working and saving more would be good for the greater society, improving the use of existing human capital and the savings rate. And the right incentives inherent to the system would have wealth-creating, supply-side consequences like improving the productivity both of capital and labor.
Moreover, the system would foster a new ethos of personal responsibility and civil morality. An individual would begin to ask himself: Why make others do what is my responsibility? Why should I become a burden to the State or to future generations? Rather than fomenting a culture of dependency, why not improve my situation in life through work and savings, which will in turn help society?

Private administration. The old system manifested all of the worst aspects of a monopolistic bureaucracy. It was opaque and difficult to understand for anyone who was not a lawyer or an expert. Service was anything but "user-friendly." The administrators did not see pensioners as customers. Instead, they were viewed-and treated-as annoying statistical problems, or even as liabilities (which, in an accounting sense, they were). Under the new system, however, the pension fund managers would be competitive, profit-oriented enterprises, eager to win new clients and keep the old ones happy. Although the system would be private, the government would still have a key role to play in setting prudent investment ceilings, prosecuting fraud, and regulating competitive business practices.

Safety net. Although the main engine of the reform would be the productivity and industry of the individual, the government would guarantee a basic minimum pension, allowing each worker to live out his old age with dignity. If an individual had not accumulated enough capital during his or her working life-as long as they had worked a minimum of 20 years-the government, using general revenues, would fill up the account to the point where the retiree could purchase a minimum annuity. (Independently of the social security system, there was already a welfare pension created for elderly people in conditions of extreme poverty, unrelated to the years worked.)

At the Ministry of Labor and Social Security, I was able to assemble an excellent team of young people to design the new system, remembering at every turn that "the devil is in the details." All of us knew how difficult our task was. For decades in Chile, social security reform was deemed a nearly impossible task, one of "taking a bull by the horns". Still, we were bound together by our faith in the power of ideas and the benefits of freedom. This faith was crucial: there is a time to study and to listen carefully to the opinions and concerns of various critics, but the moment arrives when one has to make difficult decisions and step boldly into the future.

By the time my team finished a first draft of the social security reform plan, it was already 1980. A new decade was already upon us. I announced the reform in countless meetings all over the country, fostering a real conversation on the issues involved, with the common man and not only with the élites.

Immediately, the antireform forces geared up to defend the status quo, and we were attacked on several fronts. The attackers fell into different groups: Vested interests, who would lose their privileges under the new system; leftist ideologues, the intellectual hand-maidens of big government; bureaucrats in the social security administration, who did not want to earn a living in the private sector; national union leaders, who exercised illegitimate political and economic power through the paygo system; and, most career politicians, fearful of economic liberalization and generally opposed to reductions in the size and power of the State. It was as if the anti-reform forces had adopted the slogan jokingly coined by chilean anti-poet Nicanor Parra: "If Left and Right unite, we'll never lose the fight!"

On August 11, 1980, the government announced that it would hold a constitutional referendum. The new document would include a Bill of Rights and a clear transition to civilian rule. The main objective of the Constitution of 1980 was to restore representative democracy as a mechanism, under a regime of limited government, to ensure a free society in Chile.

I must admit that I feared the misuse of the results of the referendum. Many people-both inside the government and out--saw it basically as a referendum on the market liberal reforms of the past seven years. Even though those reforms were slowly becoming successful, as it is widely recognized today, those vested interests harmed by them were trying to use this referendum to derail the reform process before the benefits of the new policies were evident to all citizens. So, if the Constitution were rejected, market liberal economists would be held as scapegoats for the defeat. That would mean, without a doubt, the end of social security reform. The referendum was held on September 11, 1980. When the votes came in, the new Constitution had been approved by a majority of 65.71 percent.

After the referendum, the antireform forces resumed their efforts to defeat our plan. I resumed the weekly three-minute explanations of the reform, begun earlier that year, on one of the primetime TV news programs. Those TV appearances were crucial to building the popularity of the pension reform among the nation’s workers.

The "silver bullet" was the provision that gave every worker the right to choose whether to stay in the paygo system or opt freely to invest his payroll taxes in individual retirement accounts.

Soon it was October, only weeks away from the final meeting of the legislative body that had to approve or reject the reform. It seemed very likely that the pension reform would pass, since the idea was gaining supporters everywhere. Some special interest groups thought they could hash out some last-minute compromises.

One day early in the month, I was petitioned to attend a closed-door meeting with nearly 30 labor union directors. After a long round of cordial greetings, we got down to business. The spokesman explained that although they were ideologically opposed to the reform, they knew that it was likely to be passed. I offered to explain again the reform to them in full detail, so as to dispel their doubts and concerns. I even said that perfect reforms were not possible in this world, so there was also room for improvement without compromising the principles and the coherence of the plan, which was essential to its success. "Don’t try to do that," said the spokesman. "We have not come here for more explanations, nor for technical improvements. We have come to suggest to you that our support would be very helpful to you in the future. After all, you are a young man of 30 with--maybe--a promising political career in front of you …. We are willing to give you our public support, Mr. Secretary, as long as you are willing to be reasonable and modify a single detail in the forthcoming reform."

I was astonished at such an indecent proposal. At that moment, I was reminded of Jefferson’s extraordinary dictum, which had dug into my mind and soul from an early age: "Whenever a man casts a longing eye on public office, a rot begins in his conduct."

But out of curiosity I asked what that "detail" was. "Very simple," he answered. "Instead of giving workers the right to choose the manager of their individual accounts, it should be the exclusive decision of the directors of the unions to which workers belong." He continued: "The workers, Mr. Secretary, will not know how to make a decision of that nature. Most of them are probably not even interested in the matter. On the other hand, we are in a much better position to judge which institutions will be most beneficial to the workers. If we can come to an agreement about this, we will be very pleased to be of use to you in the future."

I must confess to having been surprised, not only by the brazen nature of the offer, but also by the Olympian contempt they showed toward the freedom and dignity of the workers. In formulating a response, I tried to soften my outrage. In the end, I opted for humor. "Friends," I said, "I would very much like to be able to count on the support of directors like you. But, unfortunately, I cannot accept the offer that you have come to tender. And I can’t accept it … because I am concerned with saving your souls." "How is that, by God?" shouted several of them at the same time. "It’s just as you heard it, gentlemen. As we all know, union leadership is politicized, but I have never believed that it might be corrupt. And I hope you will pardon me … but I will not open the door to dishonesty and corruption. I don’t have the slightest doubt that if manager selection becomes a union leader decision-as opposed to one made by each worker-you directors would be inundated by so many pressures that it would not be easy to maintain your integrity. The pension managers, who would love to manage the retirement savings of large groups, will find it much cheaper to corrupt union officials than to compete for the accounts in the free market by offering better returns or lower commissions. I will not accept that, because it will lend itself to temptations which none of you would want to face." Nobody raised his voice after that. The meeting was quietly adjourned.

The next visit was that of the chairmen of all the powerful banks in Chile. They supported the concept of private individual retirement accounts, but they wanted the system to be managed only by the banks, and one of them even made an impassioned argument against allowing "foreign" financial institutions to manage the workers’ retirement savings. As with the trade union directors, I pondered their arguments but rejected their position completely. Competition was crucial to providing good service. And it was out of the question for me to restrict workers’ choices to grant Chilean financial businessmen a monopoly in managing the system.

On November 4, 1980, the reform was finally approved. The last matter to be decided was the day of inauguration of the new retirement system. The plan gave the pension fund companies six months to start up, which would have set May 4 as the date. As I read the law just approved in that historic meeting, an idea suddenly hit me: To move the inauguration date up to May 1, the international Labor Day. It is a date that historically has had a special meaning for workers, and that regrettably in some countries is an occasion for protest fueled by the rhetoric of class warfare. But in Chile, in the future, I foresaw that day as being one of celebration of a reform that gave freedom and dignity to our nation’s workers.

With this final modification approved, I rushed to my office to share the good news with the rest of the team. In the midst of all the cheering, a voice broke through the noise: "We did it! We took the bull by the horns! Viva Chile!"

I arrived home very late that evening. I was extremely happy but completely exhausted. To relax, I turned on the TV news. They were announcing the breaking news that Ronald Reagan had just been elected President of the United States.

http://www.josepinera.org/libr..._cascabel_pinera.htm

quote:

Originally posted by JALLEN:
The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

I have to respectfully disagree. Gov't funded retirement/benefit programs have significant negative net present values when considering the demographics of current and future number of people, and their money, being paid out vs current and future number of people, and their money, being paid in, all in present day terms.

GM denied the reality of their defined benefit retirement program, their CEO at the time acknowledged such was what bankrupted them. Both Stanford and Northwestern did independent studies of the defined benefit public retirement programs in CA, estimated their unfunded liability was ~$500 Billion.

quote:

Originally posted by Scoutmaster:

quote:

Originally posted by JALLEN:
The trust fund has been running out of money for decades. Back in the '70's, it was going to run dry in the 90's, abd so forth. It's like global warming brought to you by the little boy who cries wolf.

I have to respectfully disagree.

How can you disagree with a mock?

I mean it the same way Michael Corleone did when he remarked that Hyman Roth had been dying of the same cancer for 20 years.

The reality is closer to what you say of course, maybe worse. But they have smoke and mirrored it so that no office holders have been disgraced by this debacle.

quote:

Originally posted by chellim1:...the pay-as-you-go (paygo) social security system is not actuarially sound, which is pointed out by the trustees. More beneficiaries, fewer workers contributing.

I posted it to start a discussion about the long-term "fixes" or alternatives.

My bolding, but that is solid correct data, looking at the trends and demographics, it will bust.

The only long term fixes are some combination of the following:

- Get more money in (ie, increase the rates and the ceiling, maybe include a levy on capital gains or other exempt income);

- Pay less money out (ie, cut the amount of the benefits and/or those who can receive benefits, raise the age at which a person gets benefits;

- Venezuela style inflation.

Regardless, the people will get burned (the politicians and bureaucrats will take care of themselves).