Thursday, May 24, 2018

Social Security: still a looming crash-and-burn, and still going unaddressed

Myra Adams at NRO takes a fresh look at the truly unsettling numbers. She begins by pointing out that official Social Security Statements include the warning that "by 2034, the payroll taxes collected will be enough only to pay about 77 percent of scheduled benefits."

It's a classic case of more going out than is coming in:

According to the Trustees of Social Security, the problem is fueled by two factors: First, from now until 2034, “the ratio of workers paying taxes to support each Social Security beneficiary will decline significantly from 3:1 to 2:1. In 1970, this ratio was nearly 4:1.” Second, by 2034 the total number of beneficiaries “is projected to reach 87 million — 41 percent more than the number in 2017.”
Of course, aging Baby Boomers born between 1946 and 1964 are central to the issue. Pew Researchreports that in 2019 there will be 72 million of us.
Unfortunately, time is running out for Social Security to be drastically reformed. Beginning in 2026 we’ll see what I call the Social Security “bulge years.” This is when all Boomers, including the youngest born in 1964, will have turned 62 and be eligible to collect retirement benefits.
Then, eight years later in 2034, when the 1964 crop celebrates their 70th birthdays and the oldest Boomers turn 88, the “bulge” is projected to burst, and only 77 percent of benefits can be paid. Sixteen years from now — if the problem is not properly addressed — such a drastic reduction has the potential to shake this nation to its very core.
Meanwhile, the cost of Social Security is staggering as displayed on the U.S. Debt Clock. (What I often refer to as the U.S. government’s “ticking time bomb.”)
Today, Social Security is the government’s second-largest annual budget expense at $967.5 billion. (It’s surpassed only by Medicare/Medicaid at $1.085 trillion.)


But in 2022, the Debt Clock’s furthest future year, the cost of Social Security is projected to be $1.166 trillion — the largest budget expense — surpassing Medicare/Medicaid at $1.138 trillion. Remember, 2022 is still four years from the beginning of the “bulge years” that start in 2026, when Social Security costs will significantly escalate.
Now get ready for some numbers that should spur Congress into action — but won’t.
Currently, per the Debt Clock, Social Security’s liability is $17 trillion, but that will grow to $24 trillion by 2022. Even worse by comparison is Medicare/Medicaid with its current liability at $27.8 trillion and slowly rising to $28.4 trillion by 2022. 
  • Moreover, both Social Security and Medicare/Medicaid, along with federal-employee and veterans benefits and debt held by the public, feed into the “mother of all numbers” —  the U.S. government’s total unfunded liabilities. The cost of benefits that the U.S. government is obligated to pay its citizens now stands at $113 trillion, but increases to $140 trillion by 2022.

Contrast those immense unfunded liabilities with the U.S. Gross Domestic Product (GDP) and federal tax revenue: 

• GDP, now at $20 trillion, is projected to increase to only $22 trillion by 2022.
• Federal tax revenue, currently at $3.33 trillion, rises to $3.4 trillion by 2022.
It does not take a math genius to recognize that sitting in drab Washington, D.C., federal buildings are teams of budget analysts who know that Social Security retirement is not the only government benefit program that will be forced to cut smaller monthly checks in the ensuing decades. According to the Social Security Trustees, for example, “Without legislative action, approximately 11 million disabled people and their families could face across-the-board benefit cuts of 7 percent in 2028.” 
After all these years and all this indisputable data, "entitlements" remain a third rail.

Plus, compared to any other method of planning for one's sunset year's it has an abysmal rate of return.


27 comments:

  1. Not an entitlement. It's social insurance. And, get with reality--just google retirement crisis America.

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  2. And "social insurance" is a really stupid term and concept.

    As far as retirement crisis, are you referring to the fact that most Americans are inadequately prepared for their sunset years? On the assumption that you are, that's not a collective, macro problem. That is the individual problem in the x number of cases where decisions were made resulting in that being so.

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  3. Just google it. First off pensions were jettisoned by Corp America during the Reagan years in which America began to become not so great making way for the Republican tyrant we got today. Don't google it. Your mind is made up anyway. May your principles prevail in this regard in this democracy where the stupid term social insurance has already been supremely vetted. Have fun and of course God speed!

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  4. Pensions became unaffordable, just like Social Security.

    We can call it "social insurance," we can call it strawberry cheesecake, but it's unsustainable as it's been structured since 1935.

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  5. And sure it's an individual problem but you're not taking OASI away without a big fight. As for this individual and his spouse, we're cool, absent another Great Depression which may well occur. The reason for OASI. The 401K has turned out not so great. Plus, retirement planning is difficult, fraught with financial peril and gosh darn it, people just don't do it.

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  6. Re: people just don’t do it: That’s their red wagon. Did someone force them to neglect to plan at gunpoint?

    Re: “take it away”: That’s going to be a moot point as the money runs out.

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  7. “Difficult and fraught with peril”: what a great excuse to not take charge of one’s own life. So much easier to become part of the cattle-masses and let the leviathan state decide your future.

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  8. http://znews24.com/retirement-shock-need-to-find-a-job-after-40-years-at-general-electric/

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  9. Instead of being a proud day for America, April 20, 1983, has become a day of shame. The Social Security Amendments of 1983 laid the foundation for 30-years of federal embezzlement of Social Security money in order to use the money to pay for wars, tax cuts and other government programs. The payroll tax hike of 1983 generated a total of $2.7 trillion in surplus Social Security revenue. This surplus revenue was supposed to be saved and invested in marketable U.S. Treasury bonds that would be held in the trust fund until the baby boomers began to retire in about 2010. But not one dime of that money went to Social Security.



    The 1983 legislation was sold to the public, and to the Congress, as a long-term fix for Social Security. The payroll tax hike was designed to generate large Social Security surpluses for 30 years, which would be set aside to cover the increased cost of paying benefits when the boomers retired.

    Let’s have a look at the events leading up to this proposal. Reagan and the government had big financial problems. Supply-side economics was not working like Reagan had promised. Instead of the lower tax rates generating more revenue as the supply-siders claimed would happen, there was a dramatic drop in revenue. Something had to be done, so Ronald Reagan set for himself a new mission. He would have to figure out a way to get the additional revenue he needed from another source.

    The mechanism, which allowed the government to transfer $2.7 trillion from the Social Security fund to the general fund over a 30-year period, was the brainchild of President Ronald Reagan and his advisers, especially Alan Greenspan. Greenspan played a key role in convincing Congress and the public to support a hike in the payroll tax. A few years later, Reagan appointed Greenspan to become Chairman of the Federal Reserve System. Since Greenspan’s new job was one of the most coveted positions in Washington, many observers have wondered whether or not this appointment represented, at least in part, payback for the role Greenspan had played in making vast sums of new revenue available to the government.

    President Reagan and his advisors knew, from the very beginning, that the government would soon would soon face a severe cash shortage. Budget Director, David Stockman, had deliberately rigged the computer at the Office of Management and Budget to generate bogus revenue forecasts in an effort to convince Congress to enact Reagan’s unaffordable proposed tax cuts. When Stockman first fed the data from Reagan’s economic proposals into the computer, he was shocked. The computer forecast that, if Reagan’s proposals were enacted into law, massive budget deficits would loom ahead for as far as the eye could see.

    Reagan needed a new source of revenue to replace the revenue lost as a result of his unaffordable income tax cuts. He wasn’t about to rescind any of his income-tax cuts, but he had another idea. What about raising the payroll tax, and then channeling the new revenue to the general fund, from where it could be spent for other purposes? An increase in Social Security taxes would be easier to enact than a hike in income tax rates, and it would leave his income tax cuts undisturbed. Reagan’s first step in implementing his strategy was to write to Congressional leaders. His first letter, dated May 21, 1981 included the following:

    As you know, the Social Security System is teetering on the edge of bankruptcy…in the decades ahead its unfunded obligations could run well into the trillions. Unless we in government are willing to act, a sword of Damocles will soon hang over the welfare of millions of our citizens.

    https://www.fedsmith.com/2013/10/11/ronald-reagan-and-the-great-social-security-heist/

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  10. Retirement woes for baby boomers - Digital Journal

    "There are many older Americans who are looking forward to retirement but there are many more who are fearful they may never be able to retire. These are the people who lost much of their retirement in the economic downturn."

    America’s Structural Problem
    "The real problem is structural and baked right into our retirement security system. The three-legged stool of retirement income we boomers thought we could count on — Social Security, company pensions and personal savings — has gone wobbly. With the declining availability of employer-funded pensions; the inadequacy of 401(k) plans with their steep fees and dependence on people’s voluntary savings for 40 years; stagnant wages and the sharp drop in personal savings, many near-retirees are left with what some experts describe as the “pogo stick” of Social Security to negotiate their Golden Years. And how much is that? According to the Social Security Administration, the average retiree is receiving just $1,335 per month or $16,020 annually, just above the federal poverty guidelines ($15,930) for a two-person household."

    http://www.digitaljournal.com/article/351230

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  11. http://www.msn.com/en-us/money/personalfinance/42percent-of-americans-are-at-risk-of-retiring-broke/ar-BBJXNSm?li=BBnbfcL&ocid=SL5JDHP

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  12. I’m currently doing this from my phone, so a deep dive into the Fedsmith excerpt will have to wait till I get home, but it’s obvious where the author is coming from, speaking disparagingly about “wars, tax cuts.” The increase in defense spending was absolutely essential in order to bring down the Soviet empire, which was accomplished. And it’s always clear that when someone assumptively speaks of tax cuts as bad that they hate freedom. The assumption is that the money belongs to the government, to be doled back out to those who earned it as government sees fit. What a vomit-inducingly obscene notifications n. One that all who cherish liberty wil fight to the death to defeat.

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  13. And the Digital Journal excerpt proves my point. Social Security provides a ridiculously paltry rate of return.

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  14. “Dependency on people’s voluntary savings.” Once again someone trying to enlist others in the hatred of freedom. As if there’s something bad about that which is voluntary.

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  15. itmhas worked and it will work, as paltry and as mismanaged as it is and who wants to fight to the death? What an asshole thing to trumpet.

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  16. We all know it provides a paltry rate of return but it's the safest of the safe, or it was designed to be after the ravages of the Great Crash. And you know full well it's not a popular target on your bad ass MFn fight to the death back. I thought that's why we had courts.

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  17. Now, a look into the attempt of this Allen Smith fellow to demonize Dutch.

    From Dutch's diary entry of September 21, 1981:

    "We have to have those cuts& we have to solve the Social Security problem. The D. leadership has refused to tackle the problem in an effort to find a bi-artisan solution. They are staking it out as an '82 campaign issue in which we'll be portrayed as trying to pinch the Sr. citizens. The fact is the 'trust fund' will be out of money by election time."

    From Dutch's diary entry of Friday, March 18, 1983:

    Met with House Repubs re: the Dem budget that came out of comm[ittee] on a party line vote. Our guys were all hung-ho and ready to do battle. The Dems must know they can't get their budget but Tip said it was a moral statement of Dem beliefs. I think they've handed us an issue. They would reduce or repeal everything we have done. They'd cut defense more than &100 billion over 5 years but they'd increase social spending $181 big. and increase taxes $315 big. On Monday Commerce will announce GNP growth for 1st Quarter '83 as 4% - highest since 1st Q. pf 81. Our program is working even better than we expected 2 months ago."

    From Dutch's diary entry of April 18, 1983:

    "A budget briefing by Dave S. If the Dems have their way the recovery will be over before it starts. They must give us the spending cuts we want or we face a trillion dollar deficit over the next 5 yrs."

    From Dutch's diary entry of December 21, 1983:

    "We aren't making the dent in spending we should but the biggest bundle of spending is Soc. Security, medicare, pensions, etc. We do have a proposal for medicare that will result in savings; however, it calls for higher share costs for the recipients in short illnesses but make up for it with catastrophic (no limit) insurance. Still I'll bet we'll get pillories for proposing it."

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  18. Supposed to be safe from derivatives and credit default swaps and capitalizing on others' losses. I suppose that threatens you.

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  19. From the site Ronald Reagan On the Issues:

    Social Security was always more tar baby than Teflon for Reagan. He told me when he was governor of California that Barry Goldwater’s campaign had demonstrated that Republicans could not safely discuss the issue, but Reagan could not stop talking about it. I have no doubt that he shared the view that Social Security was a Ponzi scheme. He was intrigued with the idea of a voluntary plan that would have allowed workers to make their own investments. This idea would have undermined the system by depriving Social Security of the contributions of millions of the nation’s highest-paid workers. In 1976 he said that Social Security “could have made a provision for those who could do better on their own” and suggested that such recipients be allowed to leave the program upon showing that “they had made provisions for their non-earning years.” This declaration sent shudders through the ranks of Reagan’s political advisers, who knew his true feelings about Social Security.“

    Q: How much longer can the young wage earner expect to bear the ever-increasing burden of social security?
    REAGAN: The social security system was based on a false premise, with regard to how fast the number of workers would increase and how fast the number of retirees would increase. It is actuarially out of balance, and this first became evident about 16 years ago, and some of us were voicing warnings then. Now, it is trillions of dollars out of balance, and the only answer that has come so far is the biggest single tax increase in our Nation's history, the payroll tax increase for social security, which will only put a band-aid on this and postpone the day of reckoning by a few years at most.

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  20. And now, back to the actual gist of this post. Would you care to propose a way to resolve the looming crisis Adams lays out here?

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  21. "It's paltry but it's safe." The cattle-masses love to hear such comforting words.

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  22. You gonna turn it down? Did your parents or grandparent? If not, well moo cow to you and yours too, if that's how you choose to view it.

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  23. I think the most obscene and nauseating thing I've seen in this comment thread is the assumption that tax cuts are worthy of disparagement. As if the money we all bust our tails for belongs to the government and then they dole it back out to us as they see fit. That's how things work in Cuba and North Korea.

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  24. Reagan is your hero, not mine. Fun and funny guy but his trickle down was warm and smelly. Why don't you address corporate fraud and market shenanigans for us ohnwisw one. And Neutron Jack didn't do GEs retirement plans any favors.! He sold his cattle a bunch of dung and vomitus and don't try to tell me he didn't try to sell it big time and look what they got now.

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  25. Why don’t I address any of those things? Because they do nothing to lend clarity in terms of the immutable principles involved.

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  26. Cool bumper sticker, if bumper stickers were cool again: Lend Clarity. Rhymes with Charity...

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