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Time is running out to fix Social Security
Here are the hard truths of our threatening situation regarding Social Security and Medicare. We have a looming major fiscal crisis which no one denies. There are solutions but no politically easy ones, and our options get worse with time.
Yet every time a working politician suggests considering even mild changes, the formidable senior lobby and AARP erupt in outrage and beat down the hapless reformer. Former allies of responsible reform flee and the status quo Is again preserved.
Facts, as they say, are stubborn things. Social Security is, by design, a mandatory government-administered, defined-benefit retirement trust, funded by payroll taxes. However the inflows to the trust are insufficient to support the benefits promised, and, unlike private pension plans, there is no corpus of funds earning compound interest to make up the difference. Thus, the fund will become insolvent in nine years. As matters stand, benefits across the board will need to be reduced by 23%.
Worse, deficits in Social Security and Medicare comprise the overwhelming majority of future anticipated federal debt accumulation. So the courageous politicians who assured seniors in this and every election that they would “protect” their Social Security (i.e., do nothing) were not protecting anything except their own political skins.
The problem nobody wants to face is that either benefit levels are too high, payroll taxes are too low or retirees are retired for too long. Politicians long ago raided the “surplus” and replaced the funds with non-income-generating IOUs.
Reducing benefit levels, even for high earners, is politically toxic. The mere suggestion evokes hyperbolic charges of “pushing granny over the cliff” and “giving the middle finger to senior citizens.”
On the other hand, raising taxes would be nearly as unpopular. It would take a 25% hike in the payroll tax to fill the hole once insolvency occurs. Economic growth and consumer spending, the drivers in our economy, would be crowded out as would several federal programs.
Clawing back the Social Security trust funds so that income could be generated would be nice. But that train has left the station. The funds have long since been spent on other priorities
That leaves only shortening the length of retirements that Social Security supports. This option is also massively unpopular, as public demonstrations against it here and around the globe attest.
Yet when Social Security was established in 1935, the average life expectancy was just 63. Today it is nearly 80. We are now down to just three workers paying into the system for every retiree, compared to 16 at the beginning of Social Security.
These workers’ earnings are paid out as current benefits in what amounts to a giant Ponzi game. Like Ponzi schemes before it, this one is also doomed to failure.
The concept of retirement was basically unknown until recently in human history. Everyone worked as long as they could and the rest were cared for primarily by families. So why is delayed retirement, even modest (two years) and gradually phased in violently opposed?
Part of the reason is that government subsidies are never “enough.” Free money is always popular and beneficiaries quickly develop an entitlement mentality.
Since retiree benefits are funded by payroll taxes, the notion of being “owed” is understandable. Unfortunately for proud seniors, the facts now are that the money flows in Social Security are essentially like every other government welfare program.
Fortunately, most jobs today are not as physically demanding as in the past. Medical care for job-related injuries is much improved. Disability insurance and retirement accommodations for workers in occupations like law enforcement and the military are already in place. For the rest, many able seniors experience work as manageable and even enriching.
Regardless, the do-nothing option, so wildly popular in this last election, is no longer feasible. The “private account” reform offered by George Bush in 2005, which was demagogued into the ground by the same crowd proudly blocking all reforms this go-around, would have resulted in the average worker having three times more retirement income by now.
This can has been kicked down to near the end of the road. Our options now are to defer retirement or face serious program cuts. Sad.
Published in General
They put a gun to your head and take it. Then you don’t get what you are entitled to. They could have made people procreate FICA slaves at gunpoint.
Government Is How We Steal From Each Other™
cEntRal pLAnNing MakEs oUr liVEs beTTEr
It is probable ( I have no studies to support my opinion) that the SSA benefits are far too substantial. At a minimum, they should be taxed as ordinary income. It may not be fair to everyone, but it would be fairer for the whole. The taxes on benefits should be kept separate and used only to pay future benefits. Beyond that, the benefits ultimately must be reduced and the retirement age increased to 68. The COLA increases are very costly, especially during periods of high inflation, such as occurred during this current administration. COLA needs to be examined and restructured. My wife and I would be affected by some of these drawdowns in benefits. But it certainly is better to get something rather than nothing. The problem we have is to expect one segment of our population to sacrifice when the rest of the country keeps spending like the proverbial drunken sailor. We do not have honest political brokers in this country.
A much needed reality check. This has been totally lost in our political discourse.
“Kick the can down the road until it goes over a cliff. Then declare an emergency where the government (that caused the crisis) takes over everything in response.”
http://financialrepressionauthority.com/2017/07/26/the-roundtable-insight-george-bragues-on-how-the-financial-markets-are-influenced-by-politics/
The Government Is Running Out Of Money™
Well, when the last bond is cashed in and benefits cut by 25%, then SS won’t have any part in the debt accumulation.
Promises that can’t be kept won’t be.
Based on a study of one (me) and basic logic, yes.
As I understand the original premise of Social Security, it was to protect against total destitution. Yet today my Social Security benefits support about 90% of a very comfortable “middle class” suburban lifestyle for my wife and me.
Unfortunately it is very hard to pare back benefits on the already-retired or the soon-to-be-retired because too many already retired people and those nearing retirement age have built into their retirement plan an expectation of a generous Social Security benefit, and did not save enough other funds.
I think the easiest path would be to raise rapidly and significantly for people who have not yet retired the “retirement age” at which people can begin to collect Social Security benefits. I don’t consider it unreasonable to tell someone who has not yet started collecting Social Security benefits that they have to wait another five or ten years to begin to collect those benefits, as they can just continue working. Relatively fewer jobs today (as compared to the jobs of 75 years ago) are the physical jobs that are impossible to perform as the person ages.
As noted in the post, “retirement” is a relatively recent phenomenon. When the Social Security system was set up, very few people lived very long after “retirement.” Yet today, people routinely live to their mid/late 80s and even 90s – 25 or 30 years after retirement. Telling today’s 60 year old that instead of starting Social Security benefits at age 68 he’ll have to wait until his late 70s doesn’t seem as harsh as telling today’s existing retirees they will only get half the Social Security Security benefit they are already getting.
Nonetheless, I have no information about whether so raising the “retirement age” might be sufficient to ameliorate the coming fiscal crisis. Perhaps some combination of raising the “retirement age” rapidly and significantly and paring benefits for the not-yet-retired could be used.
For some years the economic fundamentals of the typical working life versus non-working life has struck me as unsustainable from a societal standpoint.
“Back in the day” (a century ago?) a person spent 17 – 20 years growing up and preparing to enter the workforce (not directly productive years for most people). The person then spent 30 – 40 years working. If the person was able to “retire,” the person likely died within a short time after retirement.
So roughly two-thirds of the person’s lifespan was spent in economically “productive” work, and one-third in economically “unproductive” activities like growing up, learning, and retiring.
Today, those proportions are often reversed (two-thirds economically “unproductive” and one-third economically “productive”).
Today it is not unusual for a person not to enter the productive workforce until the person is 25 or even 30 years old. The person then works for 30 – 40 years. The person then retires, yet is likely to continue living for another 25 – 30 years. It is now common for people to live well into their 80s and even 90s.
How can a society support itself when each individual worker spends only one-third of his or her life in economically productive work?
I’m not smart enough to solve this, but I came up with my own idea. In the long run, the only thing they should have given everybody was a couple of life insurance contracts. You have one for welfare anytime in your life. You have another you turn on when you are 50 or whatever for medical care and retirement. The only thing everybody has for insurance is straight indemnity contracts. You pay a flat fee and you pick your own deductible. You get a flat redemption for this or that medical issue. It doesn’t pay for medical maintenance like they do now. It would be very easy to get the information to see if you’re investing enough for your future.
Locked in return. You either add to them or you don’t. You protect them or you don’t. Look at how much money we print. Would it have been a big deal to give this to a little kid when they were born? Two self-funding life insurance contracts? All of the money goes into private long-term investment.
No separate welfare or retirement benefits. You take care of yourself or you go to charity.
Compare that to what we have now.
I have worked for 40 years now, I intend to work another 5-9. That will be 45-49 years. Since my life expectancy is 77 years, I’ll have worked nearly 2/3 of my life (63%), not 1/3 as you estimate.
However, far more proportion of income in the 1930’s was devoted to necessities, particularly compared today.
You can afford to be retired, but you have to have planned for it. Society can afford for you to be retired as well.
We are fast approaching a post-scarcity society.
Interesting proposal, Rufus.
Re: “Politicians long ago raided the “surplus” and replaced the funds with non-income-generating IOUs.”
Sadly, this is absolute and complete horse hockey!!! As such, it diminishes an important discussion and calls into question e writhing else you have written.
Fact…Social Security excesses of tax receipts over benefit payments are required by law to be invested in US Treasury securities. Thus has it been since the inception of the program. Nothing was “raided.” And Treasuries pay interest … recently that’s been a small number … but they pay interest. This “raided & worthless IOU argument is BS. That dog won’t hunt…as the saying goes. If you absolutely positively can’t risk losing the principal invested you buy US Treasuries.
it IS true that Bush2 proposed changing the law to allow investing a portion of the Trust Fund in the stock market. Had that been done there would be lots more money in the Trust Fund than there is today. But that was not to be and we need to deal with the works as it is. The state of affairs is that in the 2030’s the Trust Fund will be depleted and if things remained unchanged Soc Sec benefits will have to be reduced by about 25%. That’s what the current law requires. This is the outcome that doing nothing results in.
It’s one thing to say that people need to keep working longer; it’s another for them to actually find places that will hire people in their 60s and 70s. People already have plenty of trouble with finding new jobs in their 40s and 50s.
D e f l a t I o n, which is the way God intended man to live, solves all of this. We can start at half a percent deflation.
I’m not aware that God has a preferred monetary policy.
He does, which is why things actually become cheaper over time, when denominated in the hours of work required to buy them.
Another point is that Social Security/retirement in general would be less of an issue if home-ownership were still valued as much as in the past. It’s easier to live on a reduced income, if you’re not paying rent.
Inflationism is a modern construct that is forced on society by propeller heads. It can’t happen without a central bank and the government forcing you to use their money.
Gee, what happened? Be specific and include the “Ownership Society” crap from the Bush administration right before 2008. Also include how shelter affordability went down 85% to 120% after Biden got into office.
I am really looking forward to this discussion.
My Mom (she’s in her mid-80s) is still claiming that the benefits are taxes they paid into the system and are “owed” now, no matter how many times I’ve explained that whatever she paid in along the way was long ago paid back to her, as the benefits paid out far outweigh the contributions. I’ve shown her articles with the math, nothing complex, easy to digest.
It doesn’t matter. She’s owed them, period. So it’s easy math in terms of voting, and none of this is new. The window to fix the problem shrinks daily, however, so some much less painful solutions (outlined well in the OP) in terms of impact can’t be done, and it’ll be a harsh, cold slap instead of a polite tap on the shoulder.
We’re led by cowards and voted in by people who think the gov’t exists to provide. Demonizing the rich who pay the bulk of income taxes collected just makes it an easy political argument to buy into, and vote for.
A one-term president, and a Congress finally willing to live up to its responsibilities, would take this opportunity to overhaul *everything*, including entitlements, come to a fair and reasonable solution, and live with the political consequences. I’d go home happy from DC after 2 years if I could fix a catastrophic problem, even if the knuckleheads screaming for my ouster didn’t understand why.
Children do the same thing, they scream, and cry, but responsible parents make responsible choices and don’t give in to crying and screaming. Why can’t politicians?
A bridge would have to be built, so those receiving current benefits are minimally impacted or not at all, and if a solution is offered, maybe there’s a 2nd bridge for those nearing retirement so they’d be impacted a bit less, and the 3rd bridge is the new standard for everyone.
Time phase the solution in, segregated by the impacted stakeholders.
acTUaRIaL sCIenCE iS bOrInG
A central bank is not necessary for inflation. Ancient empires grew big bureaucracies and printed money to pay for them. This caused inflation and caused the empires to decline. A government can print money with or without a central bank.
OK but that is not how it would happen in the last hundred years.
foRCInG uS tO uSE goVErNmENt moNEy mAKes ouR lIvEs betTEr
Because parents aren’t elected by their children?
If the government prints the money directly, then the government IS the central bank.
A couple of more things.
Like I said, you would pick your own deductible. It irritates the hell out of me that I can’t pick my own deductible in Obamacare. Then the government would cover over a certain amount. I don’t know if that’s $250,000 or $1 million. I don’t have enough information to figure that out. You would also have the government pay if it hit your insurance deductible for more than two or three years or something. The government would be funded out of straight taxation. But the big thing is everybody would have a straight indemnity contract where you get a flat fee and then you negotiate with your hospital or your doctor. That would straighten out a million things. What we have now is just pure theft and graft and it’s going to the wrong people. Obamacare is putting 25% on Medicaid every single year. These people are idiots.
I have another question. Why isn’t procreating a FICA slave free? It’s free on Medicaid. I think 40% of the births in this country are on Medicaid.
Furthermore, say like you procreate four FICA slaves on your own, not covered by any welfare. Why should you have to pay any taxes on anything?
The whole system is so stupid. It’s none of LBJ’s business how many FICA slaves you have.
They’re doing a lot of damage but unfortunately they aren’t idiots. They know what they’re doing.
They are forcing single payor.
I let this crap rumble around in my head for about two years after it was passed with a parliamentary trick. They aren’t being honest about it. They are lying.