CBO on SS – It’s a Terrible Deal for Most People

Bruce Krasting's picture

Both Mitt and Barack spoke about Social Security (SS) in their debate. For political reasons, they took the same approach. They indicated their continuing support for this busted program. They agreed that some “tweeks” might be necessary, but there would be no fundamental changes to America’s largest entitlement program.


I wish that one or the other of the candidates had spoken the truth about SS. The fact is it is a terrible program for the vast majority of workers who are forced to contribute to it in order to keep this dog alive.


Fortunately, the Congressional Budget Office has provided the information necessary to look at SS and evaluate how various income groups will fare over their lifetimes. The bottom line is as ugly as it can get. The fact is that SS is stiffing 80% of American workers.


The key statement from the CBO report (link):


For people born in the 1940s or later who have household earnings in the second quintile or above, the present value of taxes will be, on average, more than the present value of scheduled benefits.


Got that lovers of SS? 80% of the people who contribute to SS get less than what they paid in. Only the bottom 20% of income earners have a chance of breaking even.


The CBO provided a chart that describes the consequences to various income groups. I found the CBO presentation a bit confusing and also misleading. The following is the original chart from the CBO, after that is my stripped down version.



My version of the CBO chart:



I) - My chart eliminates all of the information marked “Scheduled Payments” (SP). This term refers to a theoretical number that an individual is accruing according to a schedule at SS. But that number is not going to be paid to a substantial number of workers. The law says so. From the CBO report:


Taxes are projected to be insufficient to pay for scheduled benefits


If you’re under 55, nix to any thoughts you might have on that statement from SS about your SP. All that information in dark blue is just smoke. (I don’t think they even send SPs anymore)


II) I eliminated the info for those born after 1940. It’s not significant.


My revised chart allows most people working in America today to evaluate what his or her results from SS will be. Consider the following when trying to find where you fit in:


-The data is a ratio of the NPV of contributions one will make versus the NPV of the benefits one will receive. 100 is breakeven. If you are below the 100 line, your a loser.


-The results are presented in vertical bars. The bars represent a range of outcomes. The key variables are how long you worked, and how long you will get benefits before you die. It is 80% certain that you fit into this range of outcomes. If your not sure about those variables, assume you are at the midpoint of the appropriate range.


-No information is provided for the second and fourth quintile of income earners. The language the CBO uses (above) confirms that the second quartile also suffers from negative net returns from SS. Those in the fourth quartile are deeply in the red.


-The following is the information on annual income by quintile. The first line is the CBO numbers from 2009, the second line is my updated numbers for today (I think I’m pretty close with these estimates)



Did you find yourself in this chart? Are you surprised by the results? My conclusions:


If you are on the bottom of the income scale today, and you expect to remain at the bottom for the rest of your working life, then you will be happy with the results that SS will deliver to you. Only a small portion of those in the lowest income bracket will face a negative return on their SS contributions. If you are on the bottom rung, you can expect, on average, to get about $1.25 back for every dollar you (and your employer) have kicked into the rat hole of SS.


If you are not now at the bottom, and/or you don’t expect to be in that position for the rest of your working life, then SS is a very bad deal for you. Fully 80% of all workers will see a negative return on the money they are forced to put into SS.


I don’t get it. Both political parties want to keep SS as it is, or raise taxes further to “strengthen” it. I believe that if there were a poll of workers asking if they were pro or con on SS, the results would conclude that a majority wants the program to continue. But 80% are getting screwed.


12.4% of an individual’s compensation goes out the door to SS. If this burden were eliminated, the economy would thrive. Unemployment would drop as the extra take-home pay works its way through the economy. As the economy expands, tax receipts would rise.


Alas, there is no possibility to eliminate SS. The committed costs for the next 20 years are impossible to reverse at this point. This beast can’t be killed any longer.


There might be an alternative; an opt-out for younger workers. If there were an opt-out, I think that many workers would accept the deal. If there were a lot of folks who did not want to “pay to lose” with SS it would result in a huge hole. That hole would have to be filled. Some payroll tax would have to be applied to those who opt out. I have not seen any numbers on this approach (Hello – JCT), I estimate that a 2% tax on opt-outs would be required to keep SS afloat.


I’m curious what people think about an opt-out. If you respond, keep in mind that most of you are getting about 50 cents on the dollar for what you are now putting in. My question:


If you opt-out, you will get a net 10% pay raise for the rest of your life. Your income will go up by 12.2%, but you will get hit with a 2% tax that goes out the door. You will not get SS benefits when you retire.


If there were an opt-out, there would be consequences:


*The size of the government’s role in society and the economy would decline over time.


*The opt-out would result in a near-term stimulus for the economy as forced savings is converted into take-home pay and consumption.


*As SS has a source of revenue and no long-term liability (the 2% tax/no future benefits) the actuarial solvency of SS would remain about the same.


*Opt-outers would have to be much more diligent about their savings and planning for retirement.


The risk of an opt-out is that 25-30 years from now those who did opt-out end up with no savings and become a burden to society. Depending on the numbers, this could be a real problem. I say “could” as it is impossible to predict what will happen.


I can, however, say with certainty that the existing SS "plan" insures that there will be a major crisis with SS and the economy in less than twenty-years. That outcome is written in stone. It would be worth our while to consider the alternatives. I doubt we will be given a chance for any real alternatives from either Mitt or Barack. Their plans guarantee that we will hit an iceberg.


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venturen's picture

Isn't that true for any "Insurance"? 

oldman's picture


Take a couple of weeks off and work on your heavy breathing----you are being hysterical as usual.

SS was designed not for 'retirement' but for a minimum benefit in one's old age; a pension for the poor, so to speak. It has done so much more than this for the poor---it has been the only lifeline that we have, so it has worked as designed.

The idea was not a 'retirement income' for the wealthiest and most affluent population this planet has or will ever know; the higher income part of the population has always scoffed at it to the extent that it was never truly funded, but a convenient sugar bowl to pull money from rather than ask permission to fund our wars and 'police actions'.

Let it go, Bruce---just pay into it graciously with generosity in your heart. There are many of us without your drive, your intelligence, your experience, and your money that SS makes the difference between eating and begging. We are truly quite grateful for your contribution towards some sort of solvency in our last years and the bread on the table.

Thank you for your generosity               om

BTW, if there is true concern for solvency of the fund---why not limit the double-dippers with an income ceiling for the next thirty years so we can get through this boomertime without taking food out of the mouths of those of us less fortunate than the rest? just a thought---------

Bruce Krasting's picture

I responded to a similar comment below. You suggest that I want to take food out of peoples mouth so I can be rich. Rubbish. Read what I have said on this topic!

I have advocated a means test for SS. I have done that in writing for
four years now. So you know, I would lose my benefits if my proposal
were adopted. I willing to take money out of my pocket so others, less
fortunate, could get what they need.

Bicycle Repairman's picture

You're too easy on the little weasel.  The time for a comment like yours was a dozen articles ago.  The only thing Bruce understands is a kick in the nuts.

riphowardkatz's picture

you are sick. there you go with your impulse to hurt others that dont agree with you. Please stop yourself.

Bicycle Repairman's picture

There, there, Rip.  Go get yourself a cool drink.  This is the virtual world of the internet.  No Krastings were actually kicked in the nuts.  OK, little fella?

riphowardkatz's picture

Perfect responses coming from you, the under handed ad hominen. To be expected I guess. 

Keep on being the brute(someone who uses force to achieve their goals) you are.. Would ask though that instead of hiding behind government force why dont you be honest and come out and let the world know how much blood lust you have.   Tell people that you have the answers and they are so right you can force people to do what you say. If they dont do it they will be pnuished. Just say it. Thats what you want. You want power over people because your ideas do not warrant their voluntary cooperation. Scream it out."I WANT TO OWN YOUR LIFE" I think you will feel much better about yourself once you exhibit some intelectual honesty.

They always make fun of the bulleys in movies who act like you do and there is a reason why. Its a pathetic way to live. 

Bicycle Repairman's picture

Sorry kids.  Gonna have to wait on that mountain bike.

Tombstone's picture

The real bitch of SS is that we have had a government that couldn't look ahead, say back from 40 or 50 years ago, and determine that due to demographics this Ponzi scheme would ultimately fail.  Now, there is no way out without massive destruction to benefits that millions will need to survive just in order to claim poverty status. This is why the government will never fix the debt problem.  Socialists are lacking any balls; all they care about is economic fairness where everyone is living in the same gutter. 

GubbermintWorker's picture

I started contributing into SS 47 years ago when I started working in the summers at the age of 13. Then by the time I was 22 I have worked full time for the next 38 years and hope to retire in two years and take the reduced monthly payment. Better than nothing.

I just wish people could be better educated on SS and what a measily payout one receives on the investment, er tax, paid into it. Then you would see reform. If all the money I, and my employers, contributed had gone into PM's, my wife and I woudl already be on a tropical island sipping drinks with umbrella swizzle sticks.  But alas, today's education consists more of babysitting while Mom and Dad slave away to support themselves and people who are already on SS.

Dollar Bill Hiccup's picture

12.4% of an individual’s compensation goes out the door to SS. If this burden were eliminated, the economy would thrive. Unemployment would drop as the extra take-home pay works its way through the economy. As the economy expands, tax receipts would rise.

Opt-outers would have to be much more diligent about their savings and planning for retirement.


In a society dependent on over consumption, are the two statements above mutually exclusive? 

If you are overconsuming, how are you going to be diligent by saving? 

The nanny state certainly is not diligent about saving (deficits) so why would the populace be?

riphowardkatz's picture

no one said the populace would be, the populace can no more save for itself than it can digest a steak dinner for itself. Individuals would be free to save, some would some wouldnt. Allowing people to choose what to do with their money and life is called freedom. It is the onlymoral and practical solution to todays problems.

or continue with force and fraud and end with death and destruction. the choice is yours. 

ebworthen's picture

Right Bruce, so people should be paying in as little as possible by making as little as possible (at least of "visible" wages)

Tic tock's picture

...and this (SS) is exactly the fiscal issue that is causing an epic failing of Western Democratic Finance... current Banking architecture is utterly powerless to change,. More than enough time has been given to the so-called educated elite to fix the system in some way.  ...instead casting about for a war... but, perhaps more interestingly, how does one imagine the so-called judiciary are going to remain relevant once a conflict arises between the spawn of Central Banks and populist economic measures, or the creation of Aggregate Demand.

sumbitch's picture

SS is pure theft. My goal is to quit working so I don't have to pay it anymore. Let me out bitchez.

harleyjohn45's picture

Opt out, lets see.  All the younger workers will not pay in, they will not save one penny. 
They will eventually get old, and here they will be on food stamps and living in subsidized housing.

Does anyone think they will plan for the future, sure they will, maybe 10%.

I don't know the answer, but it is not opt out, unless we are prepared to say no to them.


Go Tribe's picture

That is exactly what we need to do: Tell them that no individual is too big to fail. In the same breath that we say the same to banks. It's time we said: "Hey motherfuckers, happy first birthday. You are responsible for your life."

SmallerGovNow2's picture

"They will eventually get old, and here they will be on food stamps and living in subsidized housing. Does anyone think they will plan for the future, sure they will, maybe 10%."

And your odds of getting anything out of the current government run system are any better?  Where's the money then?  There is no fund only a bunch of IOU's.  The fact that opt outs would have to still pay for current benefits to others show just what a broke dick system the government has run.  So no SS is just as good if not better than current program - but at least with no SS you don't have a gun to your head forcing you to "participate"....

billwilson's picture

You obviously need to take a statistics course. Your conclusions are NOT supported by the data. An absolute farce of a post. 

Tyler you need to set some minimum standards. This one was a huge embarrassment 

SanOvaBeach's picture

Your a joke!  Set some standards, fuck you.  Is that a swazi on your sleeve you fuck'in jack ass......

SanOvaBeach's picture

I don't give a fuck!  It is the young vs the old.  Got another 25yrs, to live. Nuke the Whales and fuck the enviroment.  Don't give a fuck about future generations.  Just like Congress..  My bag is full. fuck you....

nah's picture

ive been saying that for years that SS is a cash cow.... most people looking to collect seem to die before 70


alot just croak when they stop full time work, probably too much fucking fun for most geezers

My Days Are Getting Fewer's picture


your heart is in the right place on this one.  But, it is a tough call all the way around.

Persons like my dad (died at 94 in 2003) got into the system on day one and only paid in a pittance.  As my dad said:  "I never asked for this money".  When he died, he was collection about $1,200.00 a month.  I doubt if he put more than $5,000 into the system.  So, like all Ponzi schemes, my dad made out great.  


I am 69.  I paid in the maximum required (matched 100% by my business) for more than 35 years plus the max prior to that - started at about age 20.  So, my annual gross pay-out is about $30,000 + $15,000 (for my wife) = $45,000.  Now subtract about $10,000 for Medicare insurance and we net out about $36,000.  Pay tax on 80% of the gross benefit. Ok, I will at least breakeven.  But, I am still working full time and paying in the max ever year.

Like my father, I never asked for this system and I never asked for these "benefits".  I practice savings as a religion and have always underspend my income.  So, I do not need the government to require me to save.

Unfortunately, most overspend their incomes and have nothing left.  SS provides them with something. 

SS and Medicare are Wage Taxes - if you get a W-2, you can not avoid these taxes.

Now, the biggest rip-off today - if you are into gaming the system - is disability.  I know a logger - he is 62 and has been collecting disability for the past 25 years - claims to be physically disabled to the extent of 40% of his full capacity.  I don't see anything wrong with him - he totes a 16 pound Stihl chainsaw and hook up logging chains to logs and drives a large bulldozer.

I know another guy bagging disability.  He is a painter and swings a mean paint brush on a 3-story ladder.

So, fall 20 inches off of your stool at work and have your iPhone bonk you on the head - then, claim migraine and bag 20% of your working capacity as permanent disability.

Eventually, the general public will get wise to all of this - SS and Disability are transfer payments to the public - just like food stamps - just bones with little marrow - the well-connected bag much richer transfers.  Eventually, the cumulative weight of all of this will buckle the system.

I am staying safe with PM and wish everyone good luck. 

etresoi's picture

And, I paid the minimum possible for the minimum time and net after taxes more than this poor schmuck, go figure.

SanOvaBeach's picture

Amen brother.

I know a bunch of retired pigs anf fire-boys that did a spike just before they retired.  There whore's.  Talk about limiting gov. but have their mouths at the public trough.

riphowardkatz's picture

there is no honor in being a martyr

mumbo_jumbo's picture

we live in bizarro world, you keep talking about what a bad deal SS is and you'll only get 50% of what you put in yet you start out the article calling this an entitlement??  sounds more like theft to me

mumbo_jumbo's picture

how they hell can something i PAY INTO for 40 year be called an entitlement?  WTF? i like how this verbiage is now becoming common place. i figure it as a way to get the sheeples mind around the fact that government already gave that money to wall street.

maximin thrax's picture

Because that's how it's set up. As a recipient, you are entitled to money the government takes from the working population. Not one penny of your contributions went unspent. You elected the politicians who spent all your SS contributions, and in your retirement you will require money be taken from every paycheck of those workers much younger than you who weren't of voting age, or even born, when politicians made those decisions. Truly, SS contributions are taxation without representation.

mark mchugh's picture

And what are government-backed mortgages & student loans, unfunded wars, and fed-debt purchases? 

OHHHH, because you stuck future generations with the bill, it's all good, right?

SmallerGovNow2's picture

No it still sux.  Get rid of the federal social programs, endless wars, and all the useless "departments" starting with the fucking nazi EPA...  Let states address these issues.  Don't need a federal overlord...

mark mchugh's picture

Gotcha.  I just can't resist poking fun at people who only concern themselves with the taxes they have to pay TODAY.  The deficit is a deferred tax, so it's not real to them.  It'll all get real soon enough.

(And yes, I understand I'm preaching to the choir).

Bicycle Repairman's picture

Anybody who thinks that they will opt out of SS and then get to keep their SS contribution is smoking whacky weed.

This issue and the attendent "generational warfare" are just bogus issues created by the political class to keep you hypnotized.  Think "abortion" or "prayer in school".

riphowardkatz's picture

the issue of money being taken from me without my consent is generational warfare? the fact that one group got 150% of what they put in while another will get 50% is generational warfare?

Makes no sense. this is just people being mad that their life is being taken from them. The whole point of the article is that every generation from this point forward is being damaged. When you add in inflation to the above that will occur over the next 10 years the numbers will be way worse.

Instead of thinking "abortion" or "prayer in school" You should just start thinking period. 

Bicycle Repairman's picture

Rip, they're always putting in traffic lights that stop you from moving forward.  Anyone ask your permission on that?

riphowardkatz's picture

I can choose not to go on public roads. I cannot choose to extricate myself from SS or other taxes. 

You are a control freak whose solution is to use a gun to obtain what you want.

In my world we only need guns to protect ourselves from looters like you.  On the otherhand your world requires you to put a gun to my head to accomplish your goals. Sick!

Why are you so enamored with using FORCE? Why not get people's voluntary cooperation to accomplish your vision?  Instead you prefer to get a MOB together and do a hold up. Genius.


Bicycle Repairman's picture

You could choose to be a government employee, a house spouse, Amish or emigrate and opt out of SS.

If you don't use public roads, what is your plan?  Hot air balloon?

Did I mention guns or force?

riphowardkatz's picture

if you advocate sending me or my employer to jail if we do not pay social security then you are mentioning guns and force. If you are for social security then you absolutely are for the use of force. It is the only way it works. If you dont penalize or threaten jail lots of people wouldn't do it. 


riphowardkatz's picture

Regarding public roads... I realize you are narrow  minded person. People whose first inclination to every problem is to get the government to force people to do stuff often have very limited imaginations. There is zero reason to believe that a privatly owned road system would not have been more efficient and created much more wealth than the worrn down broken down system of public roads we have to today.

California has billions in backed road maintenance and the state is nearly broke. Portland Oregon is delaying millions and millions of road needed maintenance because of budget issues. An f'ing bridge collapsed a few years ago. 

If there was any claim to government largess fame it miight be public roads if they were not such a major cluster.



Ned Zeppelin's picture

Send all the money to insurance companies and buy annuities.  Give a guaranteed payout and all will be well. EXCEPT: let's face it, SS is a just another source of tax revenue used to pay the bills now, and an IOU is handed back to the hilariously named "Trust Fund."   The payout is deferred and the House, excuse me the Govt, hopes it takes in more than it pays out.

jomama's picture

I've been paying into it for over 20 years, with over 300 bennybux towards it just in this last paycheck alone- and I don't count on ever seeing a dime back.

ebworthen's picture

U.S.S.A. = Ponziconomy Roman Circus

Where is my SOMA?

mark mchugh's picture

You guys are adorable:

"The Tooth Fairy's Bullshit, but Santa Claus is real!!!"


Tell you what, playas, if any of you can find the money flows explaining how corporate equities should be valued at $25T (up $9T in the last four years!!!), you can shut down SS tomorrow as far as I'm concerned.

We've already borrowed and spend far more preventing price discovery in stocks, bonds and houses....



nmewn's picture

"If you opt-out, you will get a net 10% pay raise for the rest of your life. Your income will go up by 12.2%, but you will get hit with a 2% tax that goes out the door. You will not get SS benefits when you retire."

Count me in, been sayin it since I was 24yrs old.


"If there were an opt-out, there would be consequences:


1) *The size of the government’s role in society and the economy would decline over time.

Not seeing a down side here...lol.


2) *The opt-out would result in a near-term stimulus for the economy as forced savings is converted into take-home pay and consumption.

Not really, I could always save it, on a lake bed ;-)


*As SS has a source of revenue and no long-term liability (the 2% tax/no future benefits) the actuarial solvency of SS would remain about the same.

The old farts grankids can thank me later.


3) *Opt-outers would have to be much more diligent about their savings and planning for retirement.

See number two above.

b_thunder's picture

If you opt out in 1981 -  you'll catch 18-year mega-bull market, after which you won't have to worry about anything.  If on the other hand you opt-out in 2000, and catch a what looks to ba a 18-year bear market, than thanks to lack of compounding gains in the 1st 18 years, you'll never "catch up" without taking extraurdinary risks. 



shovelhead's picture

You can understand why the socialist types love SS. It's the perfect system that suits their philosophy.

Everybody loses except the very lucky few on the bottom who will live long enough to go in the black.

A perfect capital destruction machine with the only winners the unionized State employees who administer it.

MrBoompi's picture

I have a much better plan, give your money to Wall St to invest it for you, stupidass.

maximin thrax's picture

Again, math eludes. Wall Street will lose 50% every now and then pretty handily. But the government spends everything you contribute to SS, which is an instantaneous 100% loss, and then relies on ponzi economics to pay you your benifits.