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An "In Your Face" Entitlement - FERS
I don’t think there is anyone who looks at the issue of entitlements in
the US who is not gravely concerned about the direction we are on.
Economists of all stripes, damn near everyone in D.C. and a long list of
academics have all highlighted the problems. But the same groups that
are raising red flags are misleading us on when and how this problem
will affect us.They say/think it is a tomorrow problem. Actually it is
hitting us today.
I want to focus on the Federal Employees Retirement System (“FERS”).
This is a retirement program for federal workers. The program is similar
to Social Security in a number of ways.
-FERS collects money from government workers and their employer.
-The program pays benefits to eligible workers and their families.
-FERS has a trust fund. Currently there is $775b of Special Issue
Treasury securities in the fund. This is equivalent to 6% of our total
debt and is therefore a very big deal. FERS holds as much of our paper
as do the Chinese and the Federal Reserve.
-FERS is running a cash flow deficit. This is a new phenomenon. FERS is
converting itself into a defined contribution plan that will address
some of the problems. However the cash drain experienced in 2010 will
not be reversed in the foreseeable future. It will increase. Some
numbers from OMB:
The benefits paid in 2010 will come to $70b. Therefore total revenue
exceeds expenses by a tidy $28b. This is the conclusion presented to the
public. Clearly there is no problem with FERS. They are running a
surplus! I look at it exactly the other way around.
Note: In fiscal 2010 our deficit was $1.3 trillion.
Total expenses were $3.4t. Therefore ~40% of all federal expenses were
funded by debt. I will use this percentage when adjusting for the FERS
impact on our debt profile.
Cash out at FERS was $70b. Cash in was only $4.0b. The difference of
~$66b is the real measure of what is happening at FERS. They are sucking
down cash. A substantial portion of the deficit is funded with debt
creation.
(A) The $17b of payments by Agencies is a paper transfer from the
government agency that is the employer. Treasury turns this script into
cash. Treasury has no money as we are running a deficit. The pro rata
share that becomes debt is $7b (17*.40). The entire payment is
recognized as a current budget expense.
(B) The $42b of interest is a non-cash item. It is just script.
Think of it as borrowing from a HELOC. If you don’t pay cash each month
they just add it on to the principal. In D.C. they call it the
Intergovernmental Account (IG). Interest paid whether in script or cash
is a current expense.
(C) The $32b of General Fund transfer is paid by Treasury. Again,
Treasury will have to borrow $13b of that (32*.40) from the public to
make the cash available to FERS so it can cash the retirement checks.
The whole thing hits the budget.
(D) The money from Treasury (17 + 32 = 49b) is still short 17b
from the 66b cash deficiency . Where does that come from? Treasury of
course. FERS sells $17b of those Special Issue securities it holds back
to Treasury. Once again, Treasury has to go to the public market to come
up with this entire shortfall. This results in an increase in Debt Held
by the Public (“DHBP”) and a decrease in the IG account. But this $17b
does not find its way onto the current budget.
By my count:
-FERS had a 2010 on budget cost of $89b.
(A+B+C) =17+42+32=89
-FERS increased 2010 total debt by $62b.
(A*.4) +(100% of B)+(C*.4) = 7+42+13=62.
FERS caused an increase in the all-important DHBP of $37b.
(A*.4)+(C*.4) +(100% of D) = 7+13+17=37.
I pick on FERS as it is a little known entitlement program. They paid
out only $70b last year. Their big sister, Social security will lay out
$700b. But in 2010 FERS had a larger impact on DHBP and total debt than
SSA. In my book if you’re adding to the debt load you're adding to the
problem.
In our big economy FERS won’t sink us. But it is just one piece of the
puzzle on entitlements. When you put all of the pieces on the table and
study them you would see that all of programs have their lines crossing,
FERS is just the first to “cross over” in a big way. Cash is
going to be King in the future. All entitlements will be eating cash.
The problem is that there is absolutely no way to make them paygo
without busting the economy. We are in the first year of a losing battle
with entitlements. It will go on for another fifteen years or so. Blame
the baby boomers. I expect that is exactly what we will do.
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Harvywalbinger, I play it straight fella...no margin, no straddle, stops or shorts. Yeah, the markets are a shark tank; but nobody, and I mean no body can move me out of a position if I don't want to sell...in a cash account even your broker can't borrow your shares to loan them out. Its real money, and its mine...and its inside my ROTH IRA wrapper. Dividends (or some portion thereof that I designate) are reinvested for free...does wonders for your cost basis.
I make all my own decisions with a Self -directed ROTH IRA. I reap ALL the rewards (minus a modest trading cost - currently $5.95 per trade). That's it on the cost side...again no management fees, funding fees, or 401(B) fees ad nauseum.
With a self directed ROTH IRA, I don't need to make a buck today, I'm in it to make some serious money 5,10, even 20 years down the road. Although I've been known to take a short term cap gain or two (like 60% in one day)....a bird in the hand IS better than two in the bush.
Most managers of funds, take a cut right off the top of your hard earned pile, and you take all the risk with what's left. After all, them brokers gotta pay for their annual vacations to Tahiti somehow, right? (What a deal).
I don't want some middleman standing between me and the risk I'm trying to manage, masking it...and I sure don't want to wake up one day wondering why and what in the hell just happened???
All my mistakes I own. They belong to no one else. In fact, I learn from analyzing my own errors, even more than I learn from my winners.
So yes, the electronic screen has an ever increasing number of decimal placeholders. But my MO is the same as it was when I bough and sold 50 shares as it is today with 10,000.
With time one becomes more and more confident in ones ability to make good calls, and I'm a better stock picker today than I was even 5 or 10 years ago. I've always considered myself one of the littlest investors on the planet...still am. So it helps to think critically and make your own investing decisions.
Good luck, and my your days be filled with fair winds and following seas.
SF - Brucepall
Saved round. 401 (k)s or traditional IRA accounts are taxed deferred until retirement (and the withdrawals begin). What will the effective tax rate be then? Well, in the past the maximum tax rate has been as high as 90% (when I was very young), or as low as 15% (long term cap gains) as it is on this day.
Its roulette to pick a future tax percentage - out of thin air if you please. These accounts have their advantages, but truth be known most folks of modest means don't pay any income taxes...even if they say they do - just look at their with-holding they tell me. So I ask them how much they get back at the end of the year - and they say the whole enchilada!
So why would someone with zero tax liability today, defer 401(k) or traditional IRA income for the opportunity to pay some future portion of said income as a tax to our government? Why would anybody in their right mind defer zero? Duh, It just doesn't make sense.
Putting numbers into the equation helps make the point. Lets say after a life time of diligently saving in a 401(K) or traditional IRA the balance is one million dollars. Congratulations, now its payback time. But if the effective tax rate is 90% (and it damm well could be), Uncle Sam takes his $900,000.00 and you get $100,000.00. Not so great, eh? On the other hand, if your Roth IRA has grown to one million smackers, its all yours free and clear to do with as you please...donate it to charity, buy hookers, throw it out the car window...whatever.
If one doesn't trust our government to be reasonable with taxes way down the road when you retire - then it seems reasonable and prudent to take the Roth route if you have the choice. Even if the rules change in the future, they can't take away what has already come to pass with the Roth option as it now stands. Therefore, to me the Roth IRA is the no-brainer way to go.
Semper Fidelis- Brucepall
Bruce, I too read, analyze, and ponder stuff- like the federal budget, social security actuary reports and the like (and make my own mind up about what they mean). This is why I've taken charge of my own financial future and distanced myself as far from my government as I possibly can (I buy stock in foreign resource companies via ADRs, and have interest bearing accounts in foreign currency; Norwegian Krone;Canadian, Singapore, Australian Dollars; Swiss Francs, et al). The conversion of my TSP into my Roth IRA (post above) is also in this vein.
Even though I'm from the Idealist Boomer generation, I own everything I have (no debt). Paying yourself first is a very good habit to acquire; and in that regard I have been very fortunate to have had that instilled in me at a very young age. I should also add that I've had some lucky breaks along the way too. So if our government can create this intricate financial structure (even if its turned out to be, ahem, generationally unbalanced), then why can't someone take its best parts and adapt them to one's own financial circumstances to achieve a better individual outcome?
This brings me back to "Self-directed" Roth Individual Retirement Accounts (or IRAs). As I understand its legislative intent - it was to level the playing field for the modest income folks to have some of the same wealth creation opportunities as the big dogs have. As Roth's currently exist, remarkably, they have a very light regulative touch. In that as long as what you desire to accomplish within this wrapper is moral and legal, then it is allowed. One may place stocks, bonds, real estate, and even gold coins within its structure - if that is what one knows and is what one's good at investing at. This covers a tremendous amount of ground; however, one can come up against boundaries here. A gambling grub stake to take to Vegas would be out of bounds, for example. The key here is "arms length" transactions. "Self-directed" just means you tell your Roth IRA administrator what to do, and then he or she (as long as its morally and legally ethical) executes on your behalf.
Roth IRAs have been around since 1995 or so (about 15 years). The first year one was limited to 2K in contributions. This limit has grown substantially since then, and kickers have been added to the tax code starting in 2010 with the 100K+ AGI limit removal now available from "recharacterization" of existing 401(K)s for roll-over into Roth IRAs. To cut to the chase - right about now, those that have been diligently managing their investment risk, are now coming upon the realization of a substantial sum - in many cases of a half million dollars or more (especially if one's spouse took this same "self-directed" Roth IRA path simultaneously).
Thus, it would appear to me that a business opportunity is beginning to open for these individuals. I just haven't found a Roth IRA administrator who is doing this yet. Specifically, lets say one owns several unencumbered properties (retains the title) free and clear. Now there is a lot of money tied up in such things; but there is a lot of money in Roth's too. Why can't I sell (via arms length) one of my properies - like a condo - to my Roth IRA? And then direct my Roth administrator to manage this property (for a fee) and then have them rent this condo?
Roth's are particular in that its internal funds cannot be recycled through the owner (ie -I cannot take possession, even momentarily through transfer). However, if one's Roth balance is sufficient to pay ones administrator to disperse the property taxes, assessments, insurance, repairs, management fees, and so forth, as well as collect the monthly rental fees from the tenants (which go back into the Roth as income). Then why not? Perhaps I'm just a leading edge adapter, and this hasn't received much exposure yet?
Good things could come from this. 1) If you are younger than age 59 & 1/2, then this would enable one to unlock a tremendous amount of money inside ones Roth IRA. Your Roth writes a check to the seller of the condo (you) and you transfer your condo title to the Roth IRA administrator. 2) All fees to maintain and rent said property comes from (your) Roth via its administrator...and all rents return to (your) Roth IRA via its administrator to grow its balance. 3) To wit, one has effectively unlocked and received cash for one's real estate as well as unlocked some portion of the cash value inside one's Roth IRA.
This seems to me a viable business plan (legal and ethical). One does have to be prudent and not exceed a stress tested threshold of what one's Roth may carry. I just haven't been able to find an administrator (and I've propositioned several) who would go for it. Hummm...seems uncomplicated to me. What am I missing here Bruce? Can this idea be improved upon?
Semper Fidelis - the other Bruce - Brucepall
PS - With "Self-directed" brokerage accounts, one doesn't need the government's permission to create one. I manage three (mine, hers, and ours) in addition to my wife's "Self-directed" Roth IRA brokerage account, my own "Self-directed" Roth IRA brokerage account, as well as our son's "Self-directed" Coverdale College Fund account. I call the former "Naked" accounts to denote that they have no tax deferred or tax free status - its just a moniker I made up. So don't get hung -up on the wrapper/label. One could just as easily label them my " Mediterranean Yacht Fund" or "Costa Rican Vacation Home" for example.
[quote]
The Six Problems With Modern Liberalism
1) You really didn't learn everything you needed to know in kindergarten:
Liberals love to think of themselves as sophisticated, nuanced intellectuals,
but the truth is they have a kindergartner's view of the world. If it has been
defined as "nice" to people they like, they're for it. If it has been defined
as "mean" to people they like, they're against it -- and that is about as deep
as it gets. Unfortunately, that lack of adult perspective isn't so cute in
political leaders who are making life and death decisions that may still have
ramifications fifty years from now.
2) "Liberals hate religion because politics is a religion substitute for
liberals and they can't stand the competition." -- Ann Coulter: Somewhat
ironically, given the hostile relationship that has developed between the
Left and Christianity, liberal beliefs have more in common with religious
doctrine than a political agenda. There is no significant debate on the Left
about the aims of their agenda -- and the only "sins" believers can commit
against their religion are no longer being politically useful, deviating
from doctrine, or worst of all, cooperating with conservatives in some
fashion. No matter how much evidence piles up that big government doesn't
work, that welfare destroys families, and that socialism doesn't bring
prosperity, it makes no impact on liberals because their dogma is based
on faith, not logic.
3) "It is not human nature we should accuse but the despicable conventions
that pervert it." -- Denis Diderot: There is no dream more eternal in the
liberal heart than completely remaking human nature. If we could all just
care about the person across the world as much as we do our families, we
could live in a utopia! Unfortunately, in practice, human nature tends to
be quite a bit more difficult to subvert than in the liberal imagination.
That's why, despite more than 5,000 years of human civilization, very little
progress has been made in this area - but, oh, the Left is still trying.
One day, if they just spend enough money on the right government programs,
all the wars will end and everyone will be living in identical million dollar
mansions while we spend our days humming tunes from the latest Woodstock Tribute Album.
4) "Oh what a tangled web we weave, when at first we practice to deceive."
-- Sir Walter Scott: Like freaky religious cults, liberals have become adept
at hiding their more abhorrent views from the public until it's too late.
It's common to see liberals adamantly deny that they hold a position over
and over again only to completely switch sides the moment they have one
more vote than they need to pass legislation. Whether it's lying about
their opponents or what they believe, honesty is certainly not considered
to be the best policy on the Left.
5) "Why do you look at the speck of sawdust in your brother's eye and pay
no attention to the plank in your own eye." -- Matthew 7:3-5: Despite
the fact that liberals love few things better than to cry "hypocrisy,"
there is a rather bizarre disconnect between what modern liberals seem to
believe about themselves and how they behave. Liberals believe that they're
compassionate, but only with other people's money. They tie themselves in
knots trying to come up with valid reasons why terrorists hate the United
States, but they never give a moment's thought to whether the people who
dislike them might have a point. They pat themselves on the back for helping
minorities, but never stop to consider that liberal policies have done more
damage to black Americans in the last fifty years than the KKK could have
done in a millennium. Somehow, stunning hypocrisies of this sort, which are
too numerous to recount without doing a whole other column, never seem to be
bother anyone on the Left.
6) "Trust yourself. You know more than you think you do." -- Benjamin Spock:
It's great to have a healthy self-image, but there's not much to be said
for thinking you're smarter than the collective wisdom and traditions passed
down through human history just because you happen to read the Daily Kos.
Unbecoming arrogance of this sort permeates modern liberalism. The most grave
of decisions are undertaken by the modern Left without the slightest regard
for the potential consequences. Past disasters created by similar bouts of
whimsical thinking, of which there are many, are treated as acts of God
untethered from mere human decision making and prompt no self reflection
whatsoever. That's because to the modern liberal, the real world results of
their policies are secondary in importance to the amount of positive
self-esteem generated by supporting that policy.
[/quote]
"Dreams Come Due" -- Sorry, Progressive/Liberal/Socialist/Decepticrats, but REALITY accepts only money, NOT FIAT paper or debt! Big Brother can't continue to carry ALL of you, you're gonna have to get out of the cart and do some pushing.
ATG:
Thanks for providing tyhe link.
It stated " In fact, appropriatiions to increase the amount of nonmarketable Treasury securities in the fund so as to eliminate the unfunded liability would not affect federal outlays or the deficit or require additional payments by employees or the taxpayers."
Wow, it seems like one can create something out of nothing!
I thought only God could accomplish that.
Don Levit
Yea you have FERS down. 1% per year basically, work 30 years get 30% of your high three. The state and local pensions are much bigger and need to be brought down. As far as the 401k, there is a 5% match but you have 5 very limited investment options, none of which are good for what is coming. They used to let you move between the funds but now they restrict that to 2 moves a month. The average fed has a 401k balance of $68k which is $10k than non federal 401ks. They really push it so they try and get everyone involved right away.
It is just a matter of time before the money in the federal 401k plan is taken by congress. We are all going to get brought back to 0 or less with inflation except for the rich.
I joined the Federal Gov around 6 years ago and took a $25k pay hit to do it. I don’t regret it for a moment as I feel good about what I do. I work all defense projects, preparing for scary stuff. About 1 in 5 fed workers I talk to know how bad things are and will be getting. The rest are clueless. My guess is this is a better ratio than most environments. Our work might make us more paranoid by nature. So many workers in so many areas, gov, education, healthcare etc.. are blind and thinking of rainbows and unicorns. I have to ask, what color is your unicorn?
Great input. Tks
It's fairly amusing. if you take the fiscal history of the United States and subtract out the costs of the wars and the interest thereon the domestic social budget is pretty close to balance. Now that doesn't hold over the last three years I am sure but prior to 2005 the entire national debt and all the interest thereupon was just about the same amount as the costs of the wars fought over the same period. What a coincidence. Now we are lost though so in the end an interesting bit of trivia.
Ah, the TSP - Thrift Savings Plan - with a G,F,C,S, and I fund scheme of iteration...with a regulation book that rivals Social Security which got longer and longer with each passing year. Back in the day, I use to front-run these funds, -ie-if your electronic fund change made it in by 11AM EST your change was good for the next business day. Each fund letter had its own characteristics and I would watch the global markets (for correlation) and so switch to which ever one was performing best. When the markets really went south (like in Europe or Asia), i'd jump into the G (get out of jail free fund) until the dust settled. Made a bundle in my last 5 years of active duty (2002-2007). BTW the military gets no match, so this was all my money to begin with. Put in the max (starting with 1% of my base pay the first year, 2% the second year, etc). Turned 12K into 123K in five years. Then the fun stopped.
The TSP administrator came out and basically said it wasn't fair to all the other TSP participants for an enlisted man to be making all this money by timing the markets and taking advantage of everyone else...so they changed the rules (on the transfers). What a load of crap. It was all my money to begin with, and I took all the risk, so why shouldn't I reap the rewards of my efforts? But no, the gov gods had spoken and I had to conform if I still wanted to be in on the mediocre returns (just like everyone else).
Well guess what folks? Starting in 2010, the IRS removed the maximum allowance caps on 401(K) transfers (-ie- your TSP) into a "Self-directed" IRA Brokerage Account. Never heard the term "Self-Directed?" Not surprising, because there is not money to be made off of you on it (no funding fee, management fee, 401(B) fee, etc.) - that is why you will never see an advertisement for a "Self-directed" account. But if you call any broker and ask for it. They will certainly tell you, yes sir or ma'am we can set that up for you!
This way I converted my tax deferred 401 (K) -AKA the TSP - into a Roth IRA. Yes, I'm paying the tax due this year (I could of spread it over 2 years if I so choose). But the benefits are as follows: 1) I'll never pay tax again on these assets 2) all the gain I make from here on out is mine free and clear (even if its a million bucks). 3) I just cut - snip, snip - all the government strings to my 401(K) and TSP regulations, and tossed them into the trash ...and replaced them with about a page of Roth rules, who's parameters fall away at age 59.5. 4) With this transfer, I by-passed the annual contribution cap on ROTH IRAs (123K instead of the usual 5K or 6K if you are over age 50), and 5) I can now invest in whatever my heart's desire within this "Self-Directed" wrapper: I can even place gold coins in there ;-) -ie- I'm not stuck using some mutual, index, or managed fund - which really limit one to mediocre returns.
So yeah, if this supposedly box-of-rocks retired enlisted-man can take charge of his own destiny (and get the government out of his life), so too can you. Semper Fidelis- Brucepall
If your funds are in a self directed IRA, with which you presumably own stocks, etc... you may avoid taking the crap offerings available to the regular plebes, but you still have only the illusion of this wealth. You play in the shark tank, but you are a guppy (as am I). Your wealth can be taken from you at any time. Think flash crash (now a daily occurance in different stocks). It's time (actually overdue) to convert to hard assets (land, gold, silver, beans, bullets, etc.). If you can invest in gold coins that are kept in your possession, that's be OK. Otherwise, you might as well buy GLD (just kidding). My suggestion would be to cash out, take your tax lumps, & buy outside of the machine.
All the market are rigged. And not in your favor.
Instructive account Bp semper fi:
ie Government rewards failure and punishes success...
FERS has a trust fund. Currently there is $775b of Special Issue Treasury securities in the fund.
Sorry if I missed it, but the salient point of those SITs is that they are non-marketable, and like other unfunded government mandates or liabilities, worthless.
http://archive.gao.gov/t2pbat1/154582.pdf
The only real question is if US government treasuries default by monetization (inflation) or force majeure (deflation).
The 618 year history of the American colonies suggests the latter.
The Continentals and Greenbacks were both repaid by American taxpayers after Treasury cronies scooped them up for pennies on the dollar.
The repayments sucked a whole lot of prosperity out of the economy, contributing to Long Depressions in the 1700s and 1800s.
http://en.wikipedia.org/wiki/File:GROWTH1850.JPG
http://en.wikipedia.org/wiki/File:US-GNP-per-capita-1869-1918.png
Well writ BK...
There are 4 major money-sucks on the federal budget: defense, interest, SS, Medicare. These money-sucks are so ingrained into the US and world structure of promises that they are untouchable.
The first two are called... well, they are called the defense budget and interest on the national debt. The second two are called entitlements because, as far as I can tell, they send money to little people.
The first two send money to big people- so they are not entitlements because they are not bad. They cannot be cut. We can only cut... entitlements, the money that goes to little people. We cannot cut the money that goes to big people. That would not be Serious.
p.s. BK, I'm not hassling you, I'm just point out that by using the word entitlements, you assist the propaganda. It's unconscious, woven into the web, but it's there. It's called framing. He who controls the frame, wins.
p.p.s But I will hassle you about the above assignment of debt to programs. Discretionary spending deserves a much greater share than untouchable money-sucks, because they are incremental decisions.
p.p.p.s Why is John Galt, anyway?
Wow, you said a whole lot in relatively few words and you nailed it.
Unfortunately, people define things the way they do for no better reason that it's the way they want to.
Junk me if you chose. The deToqueville inflection point is already behind us. Therefore, the non- productive majority will vote the productive minority's assets to themselves. Aka the "tyranny of the retired."
This cannot be fixed by the opiate of voting. Such can only compound the problem.
Better to look for a constructive pessimist solution.
+1
We have witnessed the unprecedented lack of fiscal responsibility from the majority "Baby Boomer" voter base. It really is shocking how self-serving towards one generation our policies have become.
This is "mob rules" democracy at the expense of a Constitutional Republic that was designed to protect the property of the minority. Because "income taxes" have long been over-ruled as NOT Unconstitutional, and since we have a debt-based monetary system with no balanced budget requirements at the Federal level, we now have existing generations blatantly stealing from future generations.
This is nothing short of an assault on life, liberty, and the pursuit of happiness. Should we take up arms against our oppressors? I often wonder.
We've met the enemy, and it is the emerging 'ruling class' pensioners of the Baby Boomer generation.
as was mentioned above, if you Boomers wanted your Social Security, then you should not have spent the money elsewhere on Big Government. You allowed:
Feeling generous now? You should be, because it cost you your future Social Security payments. Your money WAS TAKEN BY FORCE, BUT it was NOT "saved" in a lockbox. You fucked that up, Robin Hood, by raiding the public coffers.
The. Money. Is. GONE (along with the hard-earned Social Security contributions of younger generations).
...and us young folks know this. So don't expect us to bail your arses out (again and again and again and again), because we've had enough of those bailouts for the Boomers.
Class warfare? huh! ...get ready for AGE WARFARE.
oops. fat finger..
I am 60. Paid in a bunch to SS over the years. But as you say it was spent. So now "you" have to pay it back. "You" are going to do it with an explosion of debt, or crippling taxes.
At the same time what "you" will get will paired down to not so much. So "you" pay and "you" don't get.
How can that possibly work? It can't. It will cause your age warfare. A disastrous outcome.
Economics meets our social fabric on this road. It's why I keep writing about it. In an odd moment I wrote about Euthanasia. The second 'deal' in this was me making a joke. The scary thing is we are headed in this direction.
Three Deals With Warts
http://brucekrasting.blogspot.com/2009/06/ipo-calendar-some-deals-that-d...
Of course, I am making a crass attempt to poke old farts in this discussion with a stick because of their unprecedented lack of fiscal responsibility as the majority voter base. It really is shocking how self-serving towards one generation our policies have become.
This is "mob rules" democracy at the expense of a Constitutional Republic that was designed to protect the property of the minority. Because "income taxes" have long been over-ruled as NOT Unconstitutional, and since we have a debt-based monetary system with no balanced budget requirements at the Federal level, we now have existing generations blatantly stealing from future generations.
This is nothing short of an assault on life, liberty, and the pursuit of happiness. Should we take up arms against our oppressors? I often wonder.
We've met the enemy, and it is the emerging 'ruling class' pensioners of the Baby Boomer generation.
great post, Bruce. keep up the fantastic work!
NOT CONSIDERING THE SUPPLEMENTAL RECEIPIENTS AND OTHER HANGERS ON
Social Security (forced savings) was and is a good idea that was corrupted becasue people started living too long. They created the basic actuarial structure on a life expectancy of 68 years and as that grew to 82+ years they did not make the necessary adjustments because of lack of political will. That plus all the ancillaries like disability, survisors and other things that have been added through election season largess (voter bribes) will eventually need to be reconciled. Anyway it's a waste of breath. The real more imediate problem is the health care industrial complex and the cost of Medicare.
I wonder sometimes about average life expectancy. There is an old cemetery down the road from me with probably a hundred or more headstones. Going by the age of the people buried there it appears that if you made it out of childhood there was a pretty good chance that you would live to be 80 or better. With all those young kids dying would it not bring down the average life expectancy? Now, if the statisticians didn't count people who died prior to age 20 what would that do to the average life expectancy then verses now?
NOT CONSIDERING THE SUPPLEMENTAL RECEIPIENTS AND OTHER HANGERS ON
Social Security (forced savings) was and is a good idea that was corrupted becasue people started living too long. They created the basic actuarial structure on a life expectancy of 68 years and as that grew to 82+ years they did not make the necessary adjustments because of lack of political will. That plus all the ancillaries like disability, survisors and other things that have been added through election season largess (voter bribes) will eventually need to be reconciled. Anyway it's a waste of breath. The real more imediate problem is the health care industrial complex and the cost of Medicare.
Hate the game, not the players.
Get hired by the Fed Govt--that kind of job/pension security can't have a price put on it. Short of total anarchy, Uncle Sam will ALWAYS get paid--meaning FERS is solvent.
We the taxpayers are on the hook for $23 trillion for bailing out the elite and the bankers. How can we ever pay that? I have an idea! Go after the pension plans of Laura Helmsley's little people--us leprechans. A good place to start (the camel's nose under the tent, for sure) would be the pensions of government employees. Everyone has an unkind word to say about that lazy trash. Since it has already been scientifically established that there are certain genes in all government workers that they share with leeches, which is probably the underlying reason they "choose" government work--a sort of genetic fluke if you will--indeed, a eugenic argument could be made that they should be discouraged from procreating, by economic means (cutting their pensions, for starters), and perhaps later by forced sterilization.
Bruce, thanks for an interesting article. I think your readers might benefit from some insight from one who is a recent FERS retiree. I have been reading ZH for about two years but only recently registered to post. In order to understand FERS think back to when it was implemented, January 1984. FERS replaced CSRS as the government understood that CSRS was unsustainable. The government under Regan wanted something that resembled private industry at least as much as was politically possible. They modeled FERS after the top companies in the SP500. Those companies had a retirement system composed of three legs, a defined benefit, social security and a 401K. Each leg would be about one third of your retirement. Each of us understands that the government wants all problems to be able to be resolved with a “one size fits all” resolution that fits in a shoe box and never has to be revisited. As an aside, every state knew the same problems and more existed for their employees under state systems which in many cases became more generous than the old CSRS. To my knowledge no state made any similar reforms but many did add benefits.
Okay, on to how it works. Your defined benefit is 1% for each year of service. You will contribute a small amount of your salary for this and will pay full social security. In addition, you can put into a 401K and the government will match up to 5% of your base salary. Let’s say you work for the XYZ Department and retire with 35 years of service. Your annuity will be 35% of your high 3 years of base salary. No overtime holiday or differential will apply to boost you base. You get no COLA’s until age 62. After age 62, if the CPI is 2% or less you get the CPI. If it’s between 2-3% you get 2% and above 3% CPI you will get CPI minus 1%. This employee would get an annuity of 35% a CSRS would get 2% per year minus 2% or about 68% with a full COLA. Local or state employees probably would get at least that but many would get near 80% and depending on contractual obligations that may be required to include more than their base rate in the calculation. Exceptions to the base rate and minimum retirement age are made for law enforcement, fire fighters and air traffic controllers whose base rate is 1.7% for the first 20 years and then 1% thereafter with a minimum 20 years service and age 50 or 25 years any age for this group. I retired from this group. This group also receives the FERS COLA on the annuity portion at retirement regardless of age. In addition all FERS employees may be eligible for a stipend. What is that you ask? As best I can tell it is sausage making at it’s finest. It is based upon the number of years worked for government (only) and the amount you would receive at age 62 from SS. An approximation is the number of years divided by 40 times the age 62 amount you got on last years SS summary that you got from SS. Once you retire this amount is fixed and does not change until you apply for SS or are eligible for SS. At age 62 the stipend goes away and you get SS. If you chose to defer SS the stipend still goes away. The bottom line for me was a 39% annuity and a stipend that amounted to about 9% so all in all about 48% and change. In my locale if I worked at the state or local level I would have getting close to that 80% plus a full COLA. Note to “Pemaquid” do your research neither CSRS nor FERS resembles what you described.
The problems are: 1) it was designed with assumptions way above current rates, 2) deposits are IOU’s like social security, 3) too low of a contribution rate, 4) no maximum benefit cap, and 5) monies are held in aggregate and not under the individual. Simple (yes they really are) to fix but there is no way they will address these because if they do then the chorus will start for SS fixes with end result being these funds getting segregated out of the general budget again and not available for congressional spending. That would be a problem!!!
Whisperin
whisperin - As an avid ZH reader I love it when people with direct or field expertise/experience on the issue at hand chime in. Thanks for your input on behalf of all those who feel likewise.
whisperin,
Thanks for your post!
No need to worry as every dollar this plan promises to pay out will be paid. No questions about that.
The only question I would ask myself if I were in this plan is what will those dollars be able to buy when I receive them. If you are retired now they're worth what they are worth but not for long! You'll have plenty of money from this plan but whose going to sell you anything for those dollars when dollars are worth shit?
We all know that has to be the end game. It's always the end game!
W, Thanks for this explanation.
b
All con-artists work on the same principle: "Give me your money now and I will give you back much more later." That's why it's called a "confidence game". That is exactly how governments work: "I will tax you now and you will get back much more 30 years hence."
The government will cart everything in your house away on a flatbed truck before they let something like FERS go under. Who else backs up a retirement/benefit plan like that ?
Get a government job.
Any government job.
Get a government job.
Maybe you think you're a top 2%-er but just in case you aren't...this is what you should be telling your kids before they go to bed every night.
That's they way it's been in pretty much every advanced civilization the world has ever known. I think we're reverting to the mean.
Or a health care job, government by another name.
I've been beating this drum for a while, and yet, if you live long enough, everything cycles. Or maybe I'm just like the early Christians, living on hope.
my understanding is that govt produces nothing and so, must be limited to a portion of the size of the private sector. am I mistaken?
http://covert2.wordpress.com
What do you give the Government that's taken everything?
the government produces money which the private sector gladly accepts. "define the benefit" and then you will understand where the true cost lies since "government don't do work but they will cut the check." In short "follow the health plan." that baby is huge for reason: it only covers the "current account" shall we say.
FERS and Social Security don't work at all the same way.
I guess there's no number of times it has to be repeated, but Social Security is NOT a pension fund. Social Security is a transfer program from younger to older workers. It has a large trust fund now because of the large demographic bubble of the baby boom.
Spread the word:
http://reason.com/blog/2008/10/24/saving-social-security-episode
Full Disclosure: I subscribe to Reason Magazine
;)
It will be interesting if someone actually has the balls to add up everything owed and tell the American people that the true deficit is actually 500% of GDP.
Come on Bruce, it will be up to the point all these programs get bailed out. You should know full well by now how the government will react based on what they have been doing over the last two years.
In the final outcome we are all in the same boat, the mad scramble for success is an illusion. This creates a headache for the political class, which has been trying to get us drawn into Coke/Pepsi style brand warfare. An informed electorate will never buckle under to single party rule, which is the situation in France and California somewhat, where the voters control the budget through the initiative process, the elected officials are the bureaucrats paid to put the projects to work. In theory direct representation through ballot initiative is one hell of a lot more Democratic than the Washington way, of earmarks and lobbyists. Where is it all going? Toward an equitable distribution of wealth. Not redistribution, because there was never a policy to distribute in the first place. We all own the economy, equal partners. Some double dipping million dollar pensioners will take a hit, the little guy will get to keep what he has. If the thing isn't resolved soon, perhaps a Pension Cap Initiative will be introduced, at least in California.
There is going to be revolution, it just may not be as loud as some people think
The last thing we need is "Tyranny of the Majority!"
FERS and MERS.....perhaps we should avoid acronyms like these....??
Great work Bruce.
This is really the only rational way to look at it. Follow the cash and ignore the intergovernmental transfers.
But, if you look at it this way, the Treasury securities held by FERS aren't debt. They are just another unfunded promise. It is a little like me setting up a college fund for my kids, then later raiding the fund, spending the money, and leaving only an IOU. The IOU isn't the same as debt. When my kids get ready to go to college, I have to either find the money to pay for it, borrow the money, or renege on my promise to send to kids to college. As a practical matter though, I am screwed no matter how you look at it since I have already spend the money I should have been saving.
Problem is: given a long enough time, the cash value is inflated and becomes next to worthless.
i removed my own comment, am sick of my own self ringing my hands & crying ........
btw did your state finally execute that guy who now holds the record for being on death row the longest with the most appeals? I hear he had quite the experience with the Federal Government. Something about a "filing cabinet that the Federal Government won't allow state police or even the governor to open" even though they demanded it? You're a twat. Go clean your kitchen.
you do work for the CIA. Here's a strategic bombing raid on your quaint little Ohio town, beach.
anymore information that the ZEROHEDGE people can tell me about this situation is greatly appreciated. i actually believed that our pension would be there for us. I'd love to get an answer to this question : what about the BIG GUYS, the Congressmen, the "higher-ups" who get federal government pensions, will they lose their pensions, too; will it be considered an entitlement for them ? or, is it all just about us little people losing. ? thank you !!