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CBO on SS – It’s a Terrible Deal for Most People
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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Aaaaaaaaand it's gone.
Gee, no shit? That is the way it has been for 70 something years Bruce. You are just getting around to realizing it is an equalizer to take care of the working man?
you are the 1% wannabe of all time.
I've know for quite a while that SS is a bad deal. I wrote the article because the CBO confirmed it with their nice analysis.
I wish I was a 1%er.
b
One of my grandmothers collected almost $100,000k from SS (she lived to be 97), and she never put in a single dime. She got my grandfather's benefits who had died a few decades before. I think he put in about $5k during his life. There were the lucky ones. My age bracket (mid-40s now) will be lucky to see anything.
In reality Bruce SS isn't a bad deal for a certain segment of society the low income. Those who were actually forced to pay more then they get back are screwed the most.
Social Security not deal it once was for workers
snip
WASHINGTON — People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It's a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.
Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades.
"For the early generations, it was an incredibly good deal," said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. "The government gave you free money and getting free money is popular."
If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes, and more if you were a low-income worker, as long you made it to age 78 for men and 81 for women.
As recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes, though they didn't do quite as well as their parents and grandparents.
Not anymore.
A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.
Social Security benefits are progressive, so most low-income workers retiring today still will get slightly more in benefits than they paid in taxes. Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration.
Disingenuous bullshit.
This "analysis" is meaningless crap from the get-go, because it does not even attempt to take into account the REAL value of the dollars that were contributed compared to the REAL value of the depreciated later dollars that would be paid out. Apples and Oranges.
This kind of nonsensical, dishonest bullshit drives me absolutely crazy.
Your a loser still living at home w/ mommie and daddie! Do you feel good pounding on the keyboard?
Tell me, is it hard to type while picking your nose and eating your boogers all at the same time?
ah yes....but treasury bonds in trust funds pay 2-4% above inflation...i know they dont now..so this is a cost of zero interest rates with inflation...also...the government, in theory has an investment in every productive, tax paying enterprise in the country..(called "i want more taxes, so you better grow")....these investments are not paper...the treasury bonds in the trust are a mirror imaged book entry of the economies productive assets...well, until governmnet debt gets to be bigger than the market cap of the stock market of aorund what...hmmm $16 trillion...smoke and mirrors...it is clear the money has been taken and government debt issued in lieu of benefits while the actually cash taken is spent on paying salaries and bonuses to bankers and hedge funds and..well you get the picture..it ha sbeen paid to people who dont actually exert physical effort to make money..
Allowing people to opt-out automatically ends the program and almost instantly puts into a death spiral. You don't need to be an actuary to realize that. I also do think there is a discussion about the program being scaled back but there are a lot of people on this particular forum who would end the program entirely and would be completely indifferent to any type of gov't support for the elderly/handicapped/etc.
Reality is that if you look back on American history, we haven't allowed 'people to die in the streets' or 'fare on their own.' This is BS that it isn't supported by facts. The difference is that it was handled at the local/state level with generally less funding & much lower standards.
Yeah,
It was called a 'family' at one time. Grandma ends up with one of the kids instead of
a $4000/mo. nursing home warehouse lying in her own shit.
How horrible.
Reality - There are a ton of people who don't have family members/relatives who would take them and even if they did would not be capable of adequately caring for them if they need. What do you propose we do with them?
U.S. gov't (since its founding one way or another) has taken care of the mentally ill and the elderly who were destitute & had no family members to provide for them. They just just placed them in poor houses and only minimally-funded methods from state & local gov't. It generally wasn't an issue though since the number of people living into their early 70s was limited until before WW2.
How inconvenient.
If I did that, how would I be able to afford the latest iDildo?
Having granny at home simply does not fit into my lifestyle.
Let the government take care of it --- they know what's best anyway.
YES - there was nothing in the Constitution to ALLOW the government (limited powers? what did that mean?) to start SS in the first place. FDR had to argue out both sides of his mouth at once to sell it - to Congress as welfare, to the Supreme Court as INSURANCE, to get it passed in the first place.
In "Fleming vs. Nestor" (sp? Someone correct this) the Supreme Court made some interesting clarifications on SS, to wit:
1) The act that created SS did NOT create a contractural relationship between the individual and the government - you have NO CLAIM on the money you "contributed" to the SS program, there is no "account" with your name on it collecting contributions and interest, and you cannot sue the government to reclaim it.
2) All SS "contributions" are taxes, pure and simple - nothing special about them.
3) CONgress can increase, reduce or eliminate SS payouts at any time, without notice or penalty.
WHAT is wrong with putting the program into a "death spiral"? FDR lied to get it started, it has no real contract basis, it has become unsupportable and will eventually bankrupt the country if it continues.
Here's a deal; you pay me, every paycheck, from first job until you retire. I won't worry about how much you contribute, won't keep real accounts on how the money is spent, won't be liable if I decide to PAY YOU NOTHING when you want to retire. IF I want to, I'll give you some back - as Bruce notices, probably a lot less than what you contributed.
WHY DO YOU WANT THIS DEAL?
Edit; Found it! Flemming v. Nestor, 363 U.S. 603 (1960)
The SCROTUS said SS is a tax. Just like it said obamadeath is a tax. Why do we keep making the same mistakes?
This is why commenting on a lot of these articles on here is pointless You would have very immediate and negative economic consequences and you would almost certainly have a ton of unintended consequences.
Doesn't even get at the basic issues it would have on those seniors and near-retirees that have saved & are counting on this to keep them from poverty and homelessness. Your glib solution is 'Too bad, Screw You.'
"Doesn't even get at the basic issues it would have on those seniors and near-retirees that have saved & are counting on this to keep them from poverty and homelessness. Your glib solution is 'Too bad, Screw You.' "
If this is aimed at me, it missed; I only said we should wind down the system, it wasn't honestly started, doesn't work and can't be maintained - HOW you wind it down I didn't address.
So maybe you pick an age - 55? 50? and say, You're free! Start your own system, fund it however you want, just don't expect the government to help or administer it for you; you lost all your SS to date (to pay off the last of the elders on it now) but you won't pay any more. Good enough for you?
YOUR "solution" seems to be: ride it down the waterfall until you hit bottom. Raise taxes MORE to try and keep an un-sustainable system afloat, just because FDR made a mistake means we have to keep it going. Your unthinking solution is, "It was good enough for Grand-dad, so it's good enough for me"!
As for "unintended consequences", how about the current system: destruction of the extended family (by shipping the elders off to nursing homes at first opportunity), subsidizing that created industry (were there nursing homes before the last century? Mighty few, I'll bet) and using the SS contributions to grow government and pork-barrel projects beyond all previous bounds. Is that your idea of "progress"?
When I was younger, I was told to plan retirement based on a "Three-legged stool"; savings, private pension and SS. Now private pensions are raided by takeover artists and driven to under-fundedness without recourse; idiotic formulas that say if they are "over-funded" based on actuarial formulas and projected-rates-of-return were used as justification for putting that "idle cash" in the pockets of the corporate raiders like Pickens. Nowadays, those actuarial formulas seem to be off; my dad made 86 and my mom just turned 85. Those optimistic rates-of-return are more garbage, now that Ben Bernanke has ZIRPed the world until future notice; I wonder if either of the two (small) private pensions will be there, or if inflation will let them buy me more than beer-and-cigarettes when / if I collect them. And Bruce has just told us how badly off SS is....
So now, a decade or so away from retirement, my three-legged stool only has one sound leg left; maybe I should try to convert it into a unicycle? Obama will probably try to steal that too, soon.....
Folks need to figure out how to plan their own retirement. Winding down Social Security is a good idea. Current contributions should not be used to fund current retirees -- that's where we are now and the foreseeable future.
If I had MY contributions and what my employer contributed on my behalf put in a simple money market account I would be significantly better off than with Social Security when I retire. That's fair.
SOLUTION:
Purge entire Fed govt except for common defense (military), relations with other countries, and common enforcement/maintenance of the Constitution. And that's all it does. Then let the states do everything else and compete against each other.
Next.
Obama's Teleprompter Fails During Important Family Dinner (The ONION)
Pretty wicked shit from the Onion. Loved it.
I just want the government to op-out of my life
Dopey response and is a non-starter. The issue is how much power the federal or state gov't should have and what types of spending (and the amount) they should be allowed to have.
Flippant maybe, dopey not so much. The Federal Government is everywhere; so the desire to op-out of all those things that they do that the Constitution never gave them the right to do seems very rational.
Yeah it is dopey because it is a non-starter which is not realistic or plausible.
Realistic or plausible,?
You know you're posting on ZH right, realistic and plausible idea's are rarely found here.
Emotional feelgood intellectual reacharounds aplenty but rational analysis not so much.
"Opt-outers would have to be much more diligent about their savings and planning for retirement" ... And how is this going to happen. Younger folks are not getting married, not having chidren, having a great time with their parties, iPhones and a million other distractions.
Shelter a fool from the consequences of his actions, and you only guarantee his continued foolish behavior.
I don't understand why you cannot have an exchange of opinions here without calling everyone an idiot.
Have a little class fellows....
Wow! Some of the best exchanges since Saturday Night Live! http://www.youtube.com/watch?v=H3t-DuN8t6U
"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."
That is a big problem, because SS operates like a ponzi scheme. SS is funded by younger workers paying to the system. There is no saving to draw on to pay existing recipients or shortly to be recipients. For now the plan is simply to Let Ben print new dollars to cover the short fall, and this will grow because of the Boomer retirment bulge underway. As it is there are far too few working employees to support SS + Medicare.
Second the biggest block of voters are those planning on entitlements. There is no way any politican is going to kill SS or even change it. This is likely to result in just the opposite plan, where the retirement funds of younger workers are confiscated in order to continue paying out promised entitlements. Congress will find some why to take over existing 401K's, IRAs, and perhaps even pension plans and roll them into the gov't entitlement programs. This is why its silly to continue for younger workers to contribute retirement savings. Either Congress will change the laws, or the nation will go bankrupt making all pre-existing retirement worthless.
FWIW: opt-out for younger workers is nothing new. I recall this being proposed since Bush Sr. and perhaps as early as Reagon, trying to change the system.
There's lots of other places to cut expenses besides SS. Why does Bruce always focus exclusively on SS? I wonder if Bruce has friends on Wall St. or in the Republican party?
Is continuing the warfare/welfare state, paying for the cushy retirements of government bureaucrats or getting the Republican party a "wedge" issue more important than providing a meager retirement to the working class?
Which is it, Bruce?
I still have a few friends on Wall Street. That doesn't matter. Those folks don't give a damn about SS. Nor do they have any influence in the outcome.
I'm a registered Democrat. Have been all of my life. I am very disappointed with Obama. I think he has done a poor job. I will not vote for him.
Go back to my page at ZH and review some of my efforts the past few months. You would see that I want (desperately) to reduce the size of government. You would also see that I want to cut everything, including SS.
I focus on SS because of its size and the trajectory of its growth over the next decade. I also follow it because there is detailed information on a monthly basis. There are clues to how the economy is performing if you study the numbers.
One more thing, 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.
So when you get down to it, I'm a Commie when it comes to SS.
Feel better?
bk
"I'm willing to take money out of my pocket so others, less fortunate, could get what they need. So when you get down to it, I'm a Commie when it comes to SS."
No Bruce, you're only a commie if you empower the politburo & appartchiks to take money out of my pocket. And I know you said that tongue in cheek.
You say TPTB read your stuff and you may (from time to time) point out a comment...have them read this...
"Mr. Speaker – I have as much respect for the memory of the deceased, and as much sympathy for the sufferings of the living, if suffering there be, as any man in this House, but we must not permit our respect for the dead or our sympathy for a part of the living to lead us into an act of injustice to the balance of the living. I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity.
Every member upon this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money. Some eloquent appeals have been made to us upon the ground that it is a debt due the deceased.
Mr. Speaker, the deceased lived long after the close of the war; he was in office to the day of his death, and I have never heard that the government was in arrears to him. This government can owe no debts but for services rendered, and at a stipulated price. If it is a debt, how much is it? Has it been audited, and the amount due ascertained? If it is a debt, this is not the place to present it for payment, or to have its merits examined. If it is a debt, we owe more than we can ever hope to pay, for we owe the widow of every soldier who fought in the War of 1812 precisely the same amount.
There is a woman in my neighborhood, the widow of as gallant a man as ever shouldered a musket. He fell in battle. She is as good in every respect as this lady, and is as poor. She is earning her daily bread by her daily labor; but if I were to introduce a bill to appropriate five or ten thousand dollars for her benefit, I should be laughed at, and my bill would not get five votes in this House. There are thousands of widows in the country just such as the one I have spoken of, but we never hear of any of these large debts to them. Sir, this is no debt. The government did not owe it to the deceased when he was alive; it could not contract it after he died.
I do not wish to be rude, but I must be plain. Every man in this House knows it is not a debt. We cannot, without the grossest corruption, appropriate this money as the payment of a debt. We have not the semblance of authority to appropriate it as a charity. Mr. Speaker, I have said we have the right to give as much of our own money as we please. I am the poorest man on this floor. I cannot vote for this bill, but I will give one week's pay to the object, and if every member of Congress will do the same, it will amount to more than the bill asks." - Representative Davy Crockett
Yes, THAT Davy Crockett.
The bill failed.
Its not known if the other members of the House took up Crocketts challenge/offer for the widow woman (from their own personal salaries)...but I kinda doubt it.
Its very easy to spend other peoples money willy nilly...even easier when those other people haven't even been born yet.
"Go back to my page at ZH and review some of my efforts the past few months."
I've been blowing you up on SS for months and you know it.
"...Wall Street .... [doesn't] give a damn about SS."
Wall St doesn't care about SS? Bullshit. This is the biggest pot of retirement money there is. No, Wall St. wouldn't care about that.
"You would also see that I want to cut everything, including SS."
How about the size and trajectory of the warfare/welfare state?
How about real healthcare reform?
"One more thing, I have advocated a means test for SS. I have done that in writing for four years now."
Means testing would undermine the whole system. No thanks.
"Feel better?"
Every time I set your audience straight.
You really are a Commie you advocate theft from the more productive class. Means testing is just that THEFT either the program should be abolished in it's entirety or those who paid into it should get back the money just like anyone else. We already have welfare programs that do that by your way of thinking you just want one more welfare program.
Bingo. Healthcare inflation costs through Medicare/Medicaid spending are what are going to sink the budget and have been a huge drain on the economy. SSI is 'fixable' from an actuarial standpoint. It just requires compromise from the left & right to do so. Not nearly as easy to control health care inflation
Bruce just wants to setup private SSI accounts administered by Wall Street so their ilk can skim the cream in annual fees, transactions fee, etc. It is not that Bruce or the GOP cares about the spending implications of SSI and its impact on the budget. They don't. They just want to pads their pockets with the last great bastion of American wealth they haven't really tapped into yet.
There are a decent percentage of people on here who just don't give a f@ck about anyone else really or society as a whole. You won't get much/any support for any type of basic gov't support for the elderly or the disabled.
"It just requires compromise from the left & right to do so"
I would be really interested in what you propose would be a compromise.
Haven't I heard that in the next decade or two that taxing everyone 100% won't be enough to cover SS and Medicare, let alone the military and the the bureaucracy and the infrastructure and...?
You think there will still be a federal govt around in a decade or two?
You optimists crack me up.
Physical food and stored energy, all else is TP for my bunghole.
Don't lump SS with medicare. Medicare is a real problem, but it is because the healthcare system is a disaster. The healthcare system is also at the root of many of this nation's economic problems. The health care system needs a serious dose of the free market.
You can't have a free market in some things and not in others. Neither freedom nor markets can be segregated in such a fashion. Only a bureaucrat could suggest or embrace such an idea (somewhere along the slippery slope to tyranny).
Your comment is seriously dumb. I'm tired of teaching you.
I'm tired of being forced to do what others who say they are smarter than me but who really just want to rip me off tell me to do.
Previously I was arguing in my spare time. If you want an argument, you'll have to pay.
Don't be so selfish.
Obviously not a Python fan.
You're a looney.
Were you born yesterday or just completely full of shit? Which is it?
I am an insurance professional and this issue falls within my purview. You and Bruce are a couple of kibitzers with a vested interest that is counter to the needs of the vast number of American people.
That plain enough for you, fucktard?
Your Series 6 doesn't impress me.
Did they teach your dialectics in insurance salesman school?