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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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Just get bent.
So you're just talking your book. Now I get it. You can stop begging not to be thrown in the briar patch.
I'm "talking the book" of the vast majority of working Americans. If I were a life insurance salesman, I'd want SS dead.
See how that works?
Right. It's not like the insurance industry makes boatloads of cash from government regulation. As an "insurance professional" you have no reason to suck up to big government.
The industry makes zero off of SS. It loses. Outside of health insurance, big government is not the industry's friend.
The state forces me to buy auto insurance from state regulated insurers. Are you suggesting that that is some sort of charitable, nonprofit activity?
Dude, you're just looking for debating points now. You are almost completely ignorant on the topic.
You said that the insurance industry does not profit from government regulation except in regard to health insurance. I then pointed out an obvious example showing your error and somehow that is supposed to make me the ignorant one?
Hold on now, I havn't wrecked a bike in almost 30 years, yet I PAY dearly each year so you can get your pick me up on at my expense. Shit head!
Yes, I'm a "bicycle repairman" and you are a jack o lantern.
Its actually much worse, the money they take, they use to import and subsidize more tax parasites to vote for more parasitic programs.
You pension is being used to subsidize a hostile foreign invasion of your own country.
You don't "pay into" anything. Congress could abolish SS benefits tomorrow and it would not affect your FICA tax by a cent.
Bruce, the money that goes 'out the door' to SS is going directly to old people, many of them no longer able to work at any job. But, yes, if this "burden were eliminated", the economy would thrive.
If you are recommending that we eliminate all "unproductive" burdens, why stop with old people? Why not eliminate the 'burden' of vet benefits? How about students who don't perform well enough in school to justify the "burden" of teaching them? I'll propose my own favorite: trust fund teat-suckers. Eliminate their unproductive burden and you get a "two-fer": they stop eating at the common trough and their wealth gets added to the trough via a large estate tax.
First story:
When my aunt and her husband were alive, her husband had need of one of those motorized scooters. Everyone reading this paid for the scooter via some God-forsaken subsidy. After her husband passed, my aunt fretted about selling the scooter to get some money out of it.
Scooter cost over $7k about 12 years ago. Indeed, she sold it and made some good cash on the deal. Thanks, taxpayers!
When my aunt passed the Freemasons inherited over $1M. Yes, they were proud members of the Shriner so-called "Million Dollar Club" wherein Shriners take a solemn oath to pass $1M to the Shrine (cosmetic charity branch of Freemasonry, AKA bastard branch of Judaism, Freemasons every bit as sexist, possibly less racist than Judaism but maybe not) upon their death.
I thank God we got a little something, but it was a mere trifle compared to the above. Oh, they owned two homes clear too, one in Albuquerqe's top gated community, the other in a nice Santa Fe area. Freemasons also got the Albuquerqe home, his alma mater got the Santa Fe home.
2nd story:
A friend's retired mom and dad have several hundred thousand saved and home paid. This whole family of Republicans hate those free loading Democratic voter types collecting all kind of hand outs. Dad went into the hospital and needed some special care or machinery, possibly like the scooter above, and got it, paid for by government subsidy.
Anyone thinking the inmates don't run this asylum is nuts themselves.
An aunt in my extended family took a fall and broke her hip a while back. Got helicoptered to the hospital. Myself and another who were discussing the situation added her total care costs up to $2 million. Do you think she paid that out of the family trust? No of course not. The fucking taxpayer (me and everyone else who isn't 106) did. Of course, she was a red blooded Republican her whole life. Name hidden for her ungodly sake
Oh yeah, this was when she was 80 and she was dead by 82, so me and you paid all that for two miserable years of rambling around the house by herself
I hate getting this personal, but here goes. The business I was in led me to be in the classroom training for EMS personnel of a major US city. I can't say how much I regret not making note of the source. Anyway, an inside primary source, something like a national EMS magazine article is on one of the glassed bulletin boards.
The sum total point of the article is that no ambulance ever accomplished anything (such as saving a life) that could not be accomplished by a station wagon. I mentioned the article many times to industry professionals but few if any heard of it. I was a professional in this field. I tend to think it's false, but it might be true.
Can you believe they published it?
Why not show true compassion and help the old folks and other needy people whom you meet in your own life. Ask the government to stop taking half of every penny you earn and you could do a lot of good.
Because private donations in no way would cover the cost and contrary to your opinion gov't has taken care of the elderly destitute with no family members/relatives since the country's founding. It was just done at the state/local level with the minimal funds and methods typically and wasn't a large issue because of the limited numbers of elderly people.
Government gets "its money" from productive individuals. They don't earn it! So how is it possible for government to "have" enough money to be charitable while private individuals do not?
Why not revisit the "disabled" every couple of years, or better yet have random spot checks?
Without looking for such people, I've known two SS disabled critters (back injuries). Helped both of them move furniture. One was a runner. Find me a fucker with a bad back who likes to run. Getting serious about criminal prosecutions would take all the fun out of that.
It makes perfect sense. SS is a program which takes money from you to give it back to you later. Basic math and common sense indicates that any program which takes my money will come with administrative costs which will decrease my return, fundamentally.
Nevermind all their investment strategy, government security, blahblah nonsense.
They take from us, take their cut, use it as a political tool, and finally give us back the crumbs left over.
And your homeowners, liability and auto insurance "programs" differ in what way?
They are not used as political tools for politicians to bribe gullible votors, fund wars, etc.
Also, as it may be screwed up by the government, insurance companies still have to operate in some form of a market.
Government just takes. And if you got a problem, there will be guys with guns/prison cell to remedy the problem.
You are right --- they are, fundamentally and mathematically, a net drain on society as well.
I am coming to the conclusion that "insurance", as we know it today, is one of the biggest scams inflicted on modern society, right up there with fiat currency and fractional reserve banking. It is certainly no coincidence that more and more forms of "insurance" (extortion) are being mandated by the Omnipotent State.
People just don't use their noggin.
Any city. Who owns the tallest skyscrapers?
Yup, insurance co.s and bankers.
I'm starting to think that my astroid earth impact insurance might be a rip-off.
In a free society one could set up nonprofit insurance collectives which would operate as transparently as the shareholders wished. Pay a few admins a reasonable salary and keep the books open for all to see.
Yep, but sadly most people now do not even know what true capitalism is, particulary concerning its calling for all actions to be voluntary. Most would agree with Romney the other night when he said something to the effect of 'regulation is a requisite for the free market.'
It's unfortunate that, for most people, it's a given to them that these problems require .gov to step in, and with that out of the way, it becomes about which central planner to get behind. Just like in my econ classes, in which the Fed is described as this obviously needed entity to smooth out the 'market failures', and with that out of the way and a foregone conclusion, the prof can move onto which IS/LM intersection or level of QE is needed to achieve desired output, of course referring to Okun's law along the way.
The students never even hear what the true free market would call for. Instead, the Fed gets introduced in a section in the textbook, most students still wouldn't know it is a private bank/who its shareholders are, and then it is on to central planning/ redistribution of wealth 101 And in an 'intermediate' econ macroecon class last year, the textbook already had QE in it as one of the 'vocabulary'/boldface terms. May the good Lord help us to restore freedom back to this country that has been overtaken for quite some time now by a cabal of banking crooks and their useful-fool lackeys, among them of all these Keynesian Phds./profs.
Very true, but unfortunately we do not live in a free society.
This is the most ludicrous criticism of SS I have ever seen. It is an INSURANCE program you freeking idiots, not a PENSION fund. Do you feel cheated by your homeowners insurance when your house never burns down? Hell, according to Bruce's logic, for most people that's about $100 a month just thrown down the toilet. How about auto insurance? Is he telling me to cancel it because over 90% of the people who buy it never get into an accident that costs more than the total amount of premiums they paid?
SS is insurance against outliving your retirement savings. There are very few of us, no matter how careful we are with our money, who could save up enough to support us for 25 years of retirement and end of life medical care.
So, a combined 10.4% rate on income for an insurance policy. Sounds kinda pricey, no?
Whether it is a pension or insurance is irrelevant to the main point. The main point is that it is FORCED on everyone by thugs with guns and badges. The cut that the enforcers must take to support themselves makes sure that the program is doomed to pay out less than it collects. If people want to "retire" they should save. For most of history, people worked for their entire lives. There is no reason why that could no longer be done. I personally would rather have my money now, and continue to work as long as I need to, IF I even live long enough for it to be an issue.
For the crowd that wants to retire at 62, condo on a golf course, and live another 25 yrs w/great healthcare, yeah their estimation of effort to do that is so far off the mark it's not funny. Not gonna happen.
However, working past "retirement" age is discouraged by employers, who want younger, cheaper labor. So there isn't always a choice in these matters. And if you have a physical job (construction, fire, etc) even making it to 60 is a miracle. I suppose 'retirement' would be getting in some big life insurance policy on yourself, and if you pop your clogs at work, at least you know your spouse 'n kids can go on OK. But no so pleasurable for yourself.
At one level, yeah, I know I'm getting screwed and I'd like to opt out. Of course, I know how to trade options and futures so I don't worry about investments as much. The avg schmuck would be toast with sharks like Goldman "looking out for their needs"--I doubt that GS would do better than SS for avg American, really. The reality is that lifespans will drop, hard, when that's implemented. Imagine the scenario where, retired/injured/whatever, this person is out on the street. And, as the joke goes, if they commit a crime, they'd at least get a cot and 3 meals a day. No joke, I think it could get rather Mad Max out there without some kind of easing out. Sadly, I don't think there's an easy answer either way. We either end up in some (high wage) libertarian dream, or all grey Soviet style 'equality'.
Wrong. People worked until they were physically/mentally able to and in most cases because most occupations invovled some form of physical labor they became either an issue for their family/relatives or a community poor house set up for the elderly & infirm.
2 things. First, this really isn't a good analogy. For it to work, SS would only be paid to those that did outlive their savings (house burned down). Obviously that is not even close to reality so let's just agree never to use this stupid of an analogy again, ok? Good.
More importantly: "There are very few of us, no matter how careful we are with our money, who could save up enough to support us for 25 years of retirement and end of life medical care." Oh my god, how did anyone ever survive before FDR saved us all? This is a perfect embodiment of why the world is in the shitter. No one can take care of/responsibility for themselves.
Krasting, what is the point?
I know you have a problem with people who aren't Wall Street speculators like yourself. Clearly, your idea is to have everyone over 50 yrs of age work until they die with 40% or more of the young perpetually unemployed.
Social security is a payment schedule made to the elders so that they might give their jobs to their children.
Social security is totally supported by goverment borrowing, not taxes. As long as the government can borrow it can pay SS. If the government does not want to borrow, the Treasury (not the central bank) can simply 'print money' (issue US notes) and pay seniors directly. This process would not be inflationary because the funds in question would ultimately be used to extinguish both debts AND the currency issue itself.
What would you have the public do? Die conveniently in the gutter to 'support' the sanctity of finance? Good grief!
Krasting, you must know the hated Federal deficit is the amount that services private sector debt, mostly taken on by 'innovators', 'entrepreneurs' and 'financiers' to enrich themselves. Justice would be for the government to do what reactionaries so desire above all things and run a surplus. A few years doing so would collapse the massive overhang of private sector debt, ruining the wealthy first of all.
Then the children and the elders can get together and beat, burn, flay and break upon the wheel the wealthy ... like they so roundly deserve.
How did you come to this opinion of me? By reading my articles? I would think not.
This article is about a CBO report. Don't shoot at me for that.
b
I call BS on that: you''ve produced a series of articles going back at least two years smashing Social Security, not the least referring to it as a Ponzi scheme (which it is not). Go ahead and hide behind a report. The conclusions were a) yours, and b) clear.
Social Security is the definition of a ponzi. Early recipients do well (taking out a multiple of what they put in). The money accumulated in the "trust fund" is used for other purposes. Leaving the late recipients with insufficient funds to fund their distributions. That accurately describes Social Security and a ponzi scheme.
You do know there is no money (zero) in the "trust fund." The federal government spent it on other things. It is gone. 100% of current FICA tax collections are going to fund current retirees. None left for others in the future.
You are an idiot. If SS is paid by government borrowing (which i agree it is now because they have raided the money that WAS in the trust fund) then SS is now nothing more than a tax. That being said, idiots like you want to raise taxes on the so called wealthy--married couples making $250k are going to pay more than Warren Buffet and they don't live his lifestyle. You want to raise taxes on those people to almost 40% Federal, add in state, local, property taxes etc, and then the SS tax that people won't be able to claim, and you are well over 60% probably approaching 70% of those people's income. WHY WORK?
I'll solve Social Security today, right now. Heres the plan:
You dont get ONE THIN DIME MORE out of SS than YOU PUT INTO IT. SIMPLE. If you outlive your fund, then you better have a fallback plan. If not, its the snowbank for you. Im sick and tired of all of these old people crying and complaining they don't have any money---go look around a casino sometime. ITS ALL OLD PEOPLE ON SS. Gambling away MY money. Social Security wasn't meant to live off of anyway, it was meant as a suppliment. If you wasted all your savings on trinkets and you run out of SS, I don't feel sorry for you.
And Ayn Hole is your savior, so what else do you want to steal from the people that do the work around here?
There are some real issues with SSI but moral callousness towards others is pretty appauling. Do you have the same attitude towards become disabled or are born with a handicap?
Let's talk about the system for the masses (those not diabled or handicapped).
Shaping sweeping programs around the smallest of minorities is a favorite of those in favor of massive government.
Hopefully you are personally giving large double digit percentages of your income annually to charity to support those you claim to care so much about - lest you be a big hypocrite.
Charity is not charity at the point of a gun.
No, you are the idiot, at least for this comment: "they have raided the money that WAS in the trust fund".
As Bruce and others have exhaustively explained, prior to the Greenspan Commission there was no "money" set aside. It was always a "pay as you go" program, i.e., this year's payroll taxes paid for this year's retirees -- no more, no less.
Obviously, the boomer demographics made it impossible to continue the program when the boomers retired unless the program was CHANGED to put away some additional money. So boomers raised SS taxes on themselves so that they began to collect much more each year than that year's retirees received in benefits.
Okay, you're with me so far, right? Well, what should the SSA have done with that extra money? Invested it in stocks? Bonds? Gold? They did what turned out to be the most financially prudent thing they could have done: they invested it in interest bearing treasuries. In the early years, those treasuries earned well over 10%, substantially extending the life of this trust fund.
So, please, stop listening to Hannity and other idiots claim that the trust fund was "raided". It was invested in the only way legally allowed by the legislation that created it: into non-marketable treasuries.
You're so stupid it must hurt.
The SSA [Trust Fund] invested it [the money] in interest bearing treasuries.
No, they did not! They invested it in non-marketable Treasury securities. Which means they cannot redeem the m in the free market. Which by extension means there is no free market price for them, so the gov't can assign any value it wants to them.
And at the same time the gov't can pay as much or little "paper" interest on them as it wishes.
The interesting point is what happens when the SSA Trust Fund wants to redeem a larger amount of those non-marketable Treasury securities. Where does the gov't take the money to pay out to the SSA??
From the fabulous returns it got on the laws, regulations, and subsidies it enacted with the excess money the boomers and others paid in FICA in the 80's?
Or more from higher taxes, mostly on people in working age, either as open tax increases or hidden through inflation due to money printing?
Those excess FICA payments were in effect raided.
Promises to be able to tax the next generation more is no valid replacement for an investment strategy.
Dats a fact...plus 67 trillion.
"No, they did not! They invested it in non-marketable Treasury securities. Which means they cannot redeem them in the free market. Which by extension means there is no free market price for them, so the gov't can assign any value it wants to them."
I prefer to call them non-marketable IOU's...meaning...completely worthless, without the issuance of even more government debt to cover them by an already insolvent, broke, indebted government.
There is no Trust Fund...only a shell company.
Your comment while factual in nature will get a tons of thumbs down.
What needs to be done is for everyone that opts out he/she will have to mandatory contribute 3% of their income into a special savings account.
In this savings account the only thing you can buy is "retirement savings bonds" issued by the federal government. These bonds will pay 3% interest or 1% interest plus the annual inflation rate whichever is greater.
A win/win to all
A win/win to all
You got to be freakin shitting me !!
Stay behind after class you muppet
YOU BLITHERING IDIOT!
Having witnessed the failure of SS, the endless deficit spending by the FedGov, the ballooning national debt, the unstoppable growth of government, the limitless waste, fraud, abuse, bailouts of cronies, and more, YOU WANT THE GOVERNMENT TO ISSUE BONDS FOR YOUR RETIREMENT? Just how stupid can one human be?
SAVE FOR YOURSELF, outside the banking system, in fixed assets like gold, silver, platinum, crude oil, copper, and other things the government cannot print, devalue, dilute, "redefine" and degrade. Or pay the consequences.
"These bonds will pay 3% interest or 1% interest plus the annual inflation rate whichever is greater." Then the government will define "inflation" as "whatever fake number we like today", just like CPI, unemployment, and all the other fake numbers they put out now.
"A win/win to all" Only those with no memory, understanding, or grasp of the infinite greed, power-lust and ambition of government employees.