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SS Newbies - 60K a Week!
I follow what’s being discussed about Social Security. A Google alert
produces 20 stories a day on average. In my view most of it is drivel.
The passionate (and prolific) supporters of Roosevelt’s great legacy
constantly make the same assertions. That SS has a Trust Fund that will
last until 2037, and that SS does not have any impact on the deficit.
Neither of these things are true.
When you look at a financial statement always look first to the lower right for the “bottom line”. It's no different with SS. Their bottom line for 2010 was a deficit of $49b.
This is how the Trust Fund presents its results. They don’t hide the deficit. They highlight it, as they should. I just wish that Huff Post and all the others that are blathering that "SS is off limits in 11’ as there is no problem” would just shut up and read what SSA is reporting.
I try to forecast these numbers. My estimate last summer was -35b. So I
was off by $14b. I thought I had a negative view. I still missed the
revenue number by 3%. A year ago a fellow who knows SS quite well
suggested that I was “Chicken Little” with my forecast that SS would begin a period of perpetual deficits in10’. After all, this was not supposed to happen until 2016. But, of course, it has happened.
In 2010 there were 1,509,278 net new beneficiaries of SS checks. Ten
years ago in 2000 the number was 462,740. The rate of increase is more
than three times what it was just a decade ago. There are a bunch of
folks who are, let’s say, leaving the system. Therefore the actual number of newbies getting checks is closer to 2.5mm a year. It comes to 60,000 a week. Business must be booming at SSA. Clearly this is a “growth”
story. If you’re looking for work, file an application with the local
SS office. They’re hiring. AdMin at SS was $6.5b last year. Look for that to go up by at least $500mm in 10’.
My current outlook for SS in 2011 is a picture not unlike that of 10’. I
see some evidence that the revenue side (payroll tax) has stabilized.
On the assumption that we see full year GDP growth around the current
thinking of +3% I would expect revenue to grow by about $25b. I am much
more confident on my outlook for expenses. These will come in at least
25b higher than 10’. Absent any significant prior year adjustments this
would put the full year cash flow in deficit by $40-60 billion. The
critical ratio of Pay Roll tax minus Benefits will be in deficit by
$55-75 billion. Call it a disaster. And that's the "good"news.
Note:
I’m laughing at myself while writing this. My forecasts are based on a
3% growth story. But look at the headlines. The global energy complex is
in doubt at the moment. Sure, a case can be made that the new “Ins” that are coming to govern these critical areas will be motivated the same as the old “Outs”. Money.
If they don’t pump, they don’t get paid. I don’t care who is in. They
all will need money, so the best chance is a soft landing. A speed bump,
at worst. But if you had asked me a month ago to make odds on what has
happened I would have lost a ton of money. The situation and any
economic projections are simply up in the air. I am reminded of this
version of an old story:
A scorpion and a crocodile meet on the banks of the Nile. The Scorpion says:
“Crocodile, please let me crawl on your back and swim me across the river. I need to get to the other side.” The crocodile responds:
“Not a chance! If I let you crawl on my back you would bite me and I would die!” The scorpion answers:
I would never do that. If I bit you while on the river I would drown. Rest easy and give me a ride.
The crocodile thinks this over, sees the logic and agrees to give the
scorpion a lift. But in the middle of the river the scorpion bites the
croc and they both die. Before he goes under the croc yells to the
Scorpion. “But why? Now we are both doomed.”
The scorpion cries out, “Nothing makes sense in the Middle East!”
(yes it's real. LINK)
»
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i see that none of the commenters actually address why so many people are filing. It's called "going broke, can't pay my bills, need a steady income." A huge number of older unemployed cannot find work. And ones who have a job want to get into the system before they are completely screwed. Nor do I see any alternative solutions for the tens of millions who will end up in tent cities without Social Security.
Social Security is has gone from a 2 yr exposure to over 20 yr exposure with no adjustment to income.
When SS was established retirement was at 65 and life expenctancy was 67 so the gov't had an average exposure of 2 years.
Over time life expenctancy rose and no only did the retirement age not keep up, but it went in the opposit direction, so not retirement at 62 or below with an average life expentancy of over 80 produces 20 years of exposure (gov't payout) vs the initial 2 years. This is all on an input that has not risen (people still pay in for 20 -30 years for a benefit that has extended 10x).
Bruce, you should examine who've they expanded benefits to, over the years, not simply go with "the rich should pay more".
Social Security is just another program that The Gov used for Social Engineering.
Did you know that "naturalized citizens" get Social Security, without ever having paid a dime into it? Show up in the US, wait 6 years, and get free money. Is this "fair"? Is this actuarilly sound? Do you think the average Middle Class citizen supports this as he/she sees this non-trivial take on his/her paycheck?
It's a very similar dynamic to the State Worker Pension fight. Money commitments were made that can't be supported, long term. These phoney commitments have to be re-examined, and, clearly, reduced.
Actually I am not in favor of the "Make the rich pay more" plan.
I look at it from the other side. If you're rich, you shouldn't get a check.
Is it right that Warren Buffett gets $1,800 a month that he does not need? No is my answer.
I hate taxing more. It just feeds the beast. I want to spend less. For SS cuts can't be across the board. Too many people are dependent on the checks. It would be very unfair to do that.
There are a ton of boomers who got fat the last 40 years. They don't need this money. Others did not get fat and need it. The boomers have to sort this out amongst themselves. They can't stick the problem on those who are 20/30/40 today. To do so would turn a good chunk of the working population against SS. That would be the worst outcome for the Rooseveltians. I just wish they would wake up to that fact.
Yes, this concept is old, it was called "Means Testing" when Reagan proposed it.
Yeah. This is nothing new. For 30 years they have been dicking around with this. SS would look much better today if they had addressed this sooner. True with most things.
Anything that ruins the SS has to be good...said the aged Nazi hunter. Unfortunately, times had changed. Finding the ex-nazis in their nineties was no longer the issue. Balancing the home budget was. But the old Nazi hunter would never believe that anything called the SS deserved a better fate than to be junked. Some things are hard to change until ...you get Alzheimered!
The whole premise that one central body should set up a fund for retirement for a whole nation is ridiculous.
The premise that this thing gets funded at gunpoint is criminal.
Not against means testing but what real bump will that create 'cept maybe a new breed of tax specialists
So how is aborting all those future tax payers, and then importing hopeful, maybe, probably not, taxpayers from Mexico working out?
http://www.youtube.com/watch?v=RlJGrIyt-X8
American people just keep singing this song.
What does the failure of SS mean?
Millions upon millions who decide that if 30 years of paying in doesn't pay, taxes are optional -not to mention the 16-46 year olds who realize that all that tax isn't going to pay shit for them, either.
OOOOPS.
Can you say MORAL HAZARD?
(if you are in Washington or Wall Street - act like a chimp and do the "Hear no Evil, See no Evil, Speak no Evil" thing - it will work for you as well as Louis XVII, Hitler, and Gaddafi.)
same sex marriage in the male population .. will reduce the payment of social security,, one needs to live until 65.. whats the rate of aids in San Francisco
I left my heart in San Francisco
Nixon 1972 raised social security benefits 20% across the board .. checks were mailed just before the election .. the checks all arrived with a nice red flag ,
\Nixon won ,lol
maybe obama has the same plan .. just before the election brighten every bodies pocket with manna from heaven
Never seen anyone die of a scorpion "bite." Not yet, anyway.
ok, then, if you have not seen it, then it cannot be possible.
They sting he means.
Rise food prices...
Starve the old poor people to death...
Problem solved... SS is in the Black!
"Therefore the actual number of newbies getting checks is closer to 2.5mm a year."
Do you think anyone within that $6+ billion admin expense account has accounted for the potential future impact to "surviving spouse benefits" within the impending age of same sex marriages? Hard to figure how the self employed, government employees and the rest will figure into this between the initial age of qualification and the final and the subtleties in-between. Ellen has what, 20 years on Porsche?
I wonder what the stats are on that because there are all kinds of twists and turns to this...it would be interesting study.
First off, what about marriage trends in general...given divorce more prevalent, it might be that there is a net loss of the ratio of surviving spouses...
Also, currently, I bet there are lots of gay people getting surviving spouse benes from straight spouses, because gay people used to get a married to opposite sex people all the time. Maybe as being gay has become something people are less incline to hide or be in denial about, there will be less keeping it on the downlow marriages? And what percentage of pop is gay, 5 percent? And do/will they marry at same rate as straights? - probably. The states that have civil unions and domestic partenerships for things like health benes could probably give us a sneak peek.
I don't gay marriage will have all privledges/benes right away, but 15-20 years from now, given current court readings, shifting public opinion, it will almost certainly happen
I also predicted SS cash flow negative for 2010 in late 2009, and was given the crazy award.
I have lately presented a new SS effect for 2011, I call the demagraphic pull-ahead (an exponential effect of lost cash flow based on a relatively large switch from contributor to beneficiary). But, perhaps only looked at half crazy this time around.
Mark Beck
Mark, you have Beck in your name, of course you have some crazy in you
Bruce-
Can you help a lazy, non-financial accounting person out on this. When SS was reformed in Reagan admin, wasn't the FICA taxes increased to create a surplus to be in trust fund available when the inevitable needs of retiring baby boomers came due. My understanding was that this trust fund was built up by baby boomers to pay for baby boomers. So of course, as the baby boomers retire, the trust fund would be drawn down...of course the cash out would be greater than cash in, but that this is what the trust fund was for. Now I believe the trust fund was "leant" for Fed govt...but that does not change fact that when be bulge of people were working, they put in more than was taken oout so that when they retired, more could be taken out than was being taken out?
So this is my surficial understanding, how am I wrong?
Spot on MM. In '83 we doubled down on our FICA witholdings to do exactly as you say. Every dime was overwitheld for "US the Boomers". We didn't volunteer for it. But it was our paychecks and our employers paid as though deferred compensation. These "surplus" funds are still held as Non-negotiable Notes and could and should be monetized as needed to cover the month to month deficits in SS payments. Like the add on TV says : "It's my money and I want it now." Bruce is badly configured on this one. Regards, CI
you are just giving me props 'cause I too have a dog profile pic...
and I have faith in Bruce, he is more about numbers and less about ideology...he can and will have reasonable discussions about this beyond talking points.
I think you got it exactly right. Our boy Greenspan did this in 83. He was hailed as a genius at the time. He got the job running the Fed because of it.
But what is happening today was not supposed to even start for at least another six years. The lines have already crossed. We will never "save" enough to pay for the boomers. Time ran out.
The problem is that Alan and the other deep thinkers never thought it possible that the Trust Fund would go negative at precisely the time that the US is running 10% deficits and needing to borrow 1.8T a year OUTSIDE of SS.
What happened in 08 ruined a lot of things. Including SS. If it weren't for 08 we wouldn't be in the mess we are in. But we're in it. We need to accept that and deal with it.
Thanks Bruce, that's great. So SS going negative cash flow, in of iteself is not a sign of insolvency (as many seem to claim), but rather it's going negative earlier than predicted is the problem. That is not clear in either common discussion of this left or right. So money set aside for boomers will not last as it was planned to. Still it seems at least a tad smarter and a tad more sovlent to have had a trust fund that had some surplus to deal with later draw done, than ot have none at all (see local govt defined pensions with no proper savings for inevitable vs local govts that simply created trust funds and funded them at time worker was workign and being paid salary also).
So this leaves us somewhere in the middle of the common narratives, SS not insovlent as of today by SS less solvent than thougth to be as of 2008. So any estimates based on 2008 and 2009 trends that tell us how long before SS craps out under current terms? 2030?
Its my understanding that simply raising the cap on FICA income tax, which is at $100k -ish, (just as Medicare tax is uncapped) gets us close to solvent to some fairly far out date liek 2040, is that still so?
I balk at people acting like SS is completely bankrupt just because current cash out is greater than cash in, with no discussion of trust fund. But I also balk at not keeping data up to date, given 08 hit, unexpected early retirees etc..
We should be aware of estimated time-out date for trust fund and know exactly what the various fixes are so we can prioritize and chose...and it seems those working, now, should be a part of choosing, given it will be their retirement at stake, rather than running out later and old of those times asking young of those times to pony up.
So what do we need to do...uncap FICA?, later retirement? raise FICA tax? reduce benes, and which of those solutions seem most fair, reasonable?
What happened in '08 did not cause the "mess" in SS. It just changed when it would occur. It is inevitible.
The point is that there is no way to redeem the supposed investments in the trust fund. Where does the money come from? So, to avoid the redemption problem, Bruce proposes a legislated selective default ("fuck them") so that redemptions are not necessary. Bernie is in prison for that right now. He was a con man because he talked people into it. What does that make a Pol who simply coerces you into it with the threat of confiscating your assets if you don't pay?
Have you viewed:
http://reason.com/blog/2008/10/24/saving-social-security-episode
??
i dont think anyone is foolish enough to hold off taking their SS for the larger figure......they are grabbing their money at first chance
Is that Turd Fergusons hand? Reminds me of RobotTraders pigmen crocodile pix.
Nice piece Bruce.
Got a question on a previous post on Os muni debt. Is there an online source that would give an overview of muni debt in cities/counties in North Carolina?
I have been looking at this. There is a TON of info. Look for the county budget. It has to be public & on line (law). In it you will find the debt section. There is required disclosure. There is great detail. I started looking at Tampa today. Oh boy.....
Cut off Social Security today for a Hamburger on Tuesday
I'd like to see Buffett and Gates take a swing at restructuring SS (hell they could probably carry the program themselves for a couple years) instead of pouring their wealth down (proven) African sinkholes - not that their hearts aren't in the right place.
They're both certainly competent enough in the right areas, they both believe in wealth redistribution (at least for the mega-wealthy) and frankly, we could use some fresh leadership in this area.
Personally I think the best move is to tighten up qualifications for benefits (not necessarily but not excluding means testing) and to get aggressively selective about immigration. We still have a window to make a power play for the world's best and brightest (and youngest) and we sure can't handle our current immigration (non)policy.
Both Buffet and Gates have proposed a solution. They have repeated it many times. There has to be a means test. If you have income outside of SS that is in excess of $250k a year you don't get a check.
Warren and Bill are fine with this. I would lose benefits too. Tough luck/good fortune. This is too easy to fix. For the life of me I don't know why they won't put it on the table as an option.
The answer is that there are too many rich old folks who don't want to give up the 20Gs a year. And this grey group has political clout. Big time...
I say fuck em. And I'm one of them.
Well, I say screw that theory and idea.
This has been a Ponzi scheme since day one. There have always been people who recognized it for that. They were simply shouted down and referred to as simpletons or kooks. What I first want to happen is to see a parade of the Pols who have made the claims defending it and confiscate their assets, 100%.
This thing was sold as a way to keep the widow from starving. That was about all it was supposed to do as the insurance portion related to underage children had little cost associated with it. It began with a 1% tax on employer and employee, total of 2%, on the first $3,000. And no benefits were paid for the first two years to create the "insurance Trust Fund" in which the individual was supposed to have some sort of account established. The more paid in, the higer the benefit, with a very low minimum and a fairly steep slope for increased benefit increases based upon higher contributions.
During the 1950's and 1960's and 1970's the thing was running at a huge surplus. The Pols declared that there should be large benefit increases, particularly at the bottom end minimum levels, because people were "struggling" and could not live comfortably on the benefit. That screwed the pooch. It completely raided the pot and divorced the payment from the contribution. And that was for people who had only paid 2% into the system.
Now we have a system which takes 12.5% of all earned income up to $106,000. Two income families pay twice. Concieveably they could pay over $25,000 a year into the scheme. Of course those same people will also pay the higer income tax rates and lose any number of other deductions and credits to bleed them some more. When little Debbie or Harry goes to university there won't be any discount coupons for that either, full price for you rich bastards that should have been saving your money.
So those people who have made all the contributions during their income producing years, paid double in other taxes to keep Mildred warm and fed on stamps, are going to be lined up and shot at the end because they were responsible and thrifty? My response is "Screw that Nonsense" and screw the pustulated Pol who proposes it.
How much of a difference will that make? How many SS recipients are making more than $250K a year so that it will fix the SS deficit?
You're exactly right about the rich--and they're cheerleading a default on Treasury debt held by the SS Trust because it would, on balance, be the better deal for them.
They don't give a fuck about what's right--just what works best for them.
In reality a selective default on Treasury debt held by SS is just another massive transfer of weatlh upward.
The mantra for the boomers was always, "Enlightened self interest will guide my choices"
Boomers also grew up on a false and wide-spread mantra, falsely understood anyways:
Crowley's Do ast thou will, that is the whole of the law.
it underlies hedonism, consumerism, couldn't care lessism...
Strangely, it means to point to a highly disciplined way of life.
Great writing as always BK.
ORI
http://aadivaahan.wordpress.com/2011/02/16/truth-about-america-truth-abo...
Regards Bruce. Bob Wright (d. Jan 2, 1970-Silver Star) was guided by saving others lives in exchange for his own. He was a good friend of mine in OCS. Bob left his SS for you. Thanks, CI.
And the reality the same old same old: The rich running the rest into the ground.
Save until it hurts and then DON'T keep it in a bank where The Bernank gives you 0.0001% on your hard earned savings.
Do your due diligence but think about what my broker (and my father) recommends for wealth preservation---gld, uso, slv---and the some more gld, slv, uso.......and work your butt off and STOP buying wothless trinkets.
GL!
Probably a minor thing but there seems to be a surge in state and local government retirements. Sac Bee has a story on that today. Wage freezes, perhaps some pressure to push older workers out the door in favor of new, lower cost public sector workers and little things like California taking cell phones and state vehicles from employees might be responsible. Whatever the cause these folks will be switching from contributors to consumers of social security and at an earlier age than was projected.
Bruce, what about the line on the chart marked "Assets?" Are these all loaned to the general fund and spent? So even though they have an asset, it's no better than the ability of the general fund to repay?
"I follow what’s being discussed about Social Security."
Yes, and that's one of the reasons why you are a never miss for me.
Thanks for your valued contributions.
Bruce, are you taking into account that the govt. has been draining SS funds for many years, and replacing them with IOU's? Just curious. It seems to me that if the govt. were to replace those funds, with interest, then the fiscal picture would look much different than it presently does.
If the govt. were to replace those funds.....
Yeah, that would make things look different. But where would the 2.6 Trillion come from?
Please don't tell me that the Fed will just buy up all the paper and print money.
We wouldn't make it three months with plan. The loss of confidence would unwind most things. There is no future in what you describe.
Regards Bruce. I disagree. The $2.6 trillion in Surplus held as non-negot. could be purchased by the Fed. The Fed buys MBS, UST's, ABS, etc. It could monetize the entire surplus and send the checks to All those who have paid in and are paying. Inflationary? Perhaps but not necessarily catastrophic. Regards, CI
Is it so hard, Bruce, to get your head around the fact that there is "no future" in paying "our debt" period?
So your inplicit message is that the Treasury should, in effect, selectively default on the SS Program. That sounds not only brilliant--since 40% of our elderly depend entirely upon SS to live--but fair. Sure, let's default on the people who most need a program that they have, in fact, paid for their entire lives.
Yeah, here's where a chorus of geniuses exclaim "It's a ponzi and it's always been a ponzi!" Our entire financial and monitary system is a ponzi. That's no justification for selectively defaulting on SS Treasury Debt (what has been the interest rate on that debt over the past 40 years, btw?)
If our government can't pay its debts, it's time to default. On all of them if necessary--but those held by SS should be last.
How stupid are we supposed to be to buy the alternative? It's just another transfer of wealth--upward.