Guest Post: Social Security Has A Real Problem

Tyler Durden's picture

Submitted by Lance Roberts of Street Talk Live,

The Social Security Administration made an alarming announcement recently that they will exhaust their funding capability by 2033 which was several years earlier than originally projected.   According to a recent article from Reuters"Unless Washington politicians, who have been at war with each other over government spending priorities and federal budget deficits, can decide how to put Social Security on a sound footing, retirees' pension checks would start running out in 2033, according to an annual report. 

The baby boomers - those 78 million Americans born between 1946 and 1964 - started retiring last year. With 10,000 of them expected to retire every day for the next 19 years, according to the Pew Research Center, they will increasingly strain Social Security." 

As millions of baby boomers approach retirement more strain is put on the fabric of the Social Security system.  The exact timing of this crunch is less important than its inevitability.  The problem that Social Security has is "real" employment.  I say "real" employment simply to sidestep the ongoing arguments about the validity of government employment survey's from the Bureau of Labor Statistics.  The question we want to know is if we are creating jobs and what types of jobs are we creating?  The answer to those questions tells us much about the strength of the underlying economy.

The Federal Government receives income from the Social Security "contribution" from employee's paychecks.  The chart above shows the annual levels of employment as reported by the BLS versus the receipts of social security contributions.  As you can see while there has been a negligible increase in the number of non-farm employees - social security "contributions" have decreased sharply by almost $70 billion from its peak.

This is due to two factors.  The first is that the number of "real" employees, while growing, is in lower income producing and temporary jobs. Since social security contributions are calculated as a percentage of income - lower income levels produce lower contributions.  We have written about this previously on the "real" employment situation.  However, in a recent interview Richard Yaramone spoke specifically to this issue stating "I'm fortunate enough to travel and speak to chambers of commerce with 300 to 500 people in the audience. They all tell me, 'Hey, listen, I am letting go of workers. I'm hiring them back at a fraction of what I used to pay them.  You hear from the other side, 'Hey, I finally got a job after two years of being unemployed. I used to make $100,000 (each year), now I'm making $45,000 or now I'm working part time.' Or (you hear), 'I used to make $500,000 and now I'm making $200,000 or making $125,000.'...."

Here is the key statement and something that we address often in regard to the NFIB survey's:  "So you are actually seeing this collapse, contracting on a real basis, of real disposable personal incomes. If you don't have the money, you can't facilitate expenditures. So that's the core of the problem. That's what's really going on in the US economy.  You don't listen to what all of these bigger numbers coming across the screen tell you. You talk to the people who are running the country. 99.7% of all employer firms in this country are small businesses. So when they speak, you have to listen."

The second factor is that a larger share of personal incomes is made up of government benefits which does not affect social security contributions. The chart tells the tale in this regard.  Since the financial collapse government support of personal incomes spiked from just over 25% of incomes to almost 35%.  This also does not include the 45 million plus Americans also collecting nutritional assistance, or "food stamps", from the government.  

The dependency upon government for financial support is a long term economic problem because it reduces economic prosperity.  However, the problem that Social Security faces is that the program's annual cash surplus continues to shrink due to lower receipts from working American's.  The problem for Social Security, and the U.S. in general, comes long before 2033.  In 2017 or 2018, just 5 to 7 short years from now, Social Security will begin paying out more in benefits than it receives in taxes.  It could come even sooner.   As the cash surplus is depleted, which is primarily government I.O.U.'s, Social Security will not be able to pay full benefits from its payroll and other tax revenues. It will then need to consume ever-growing amounts of general revenue dollars to meet its obligations--money that now pays for everything from environmental programs to highway construction to defense.  Eventually, either benefits will have to be slashed or the rest of the government will have to shrink to accommodate Social Security.

As millions of baby boomers begin to retire another problem emerges as well.  Demographic trends are fairly easy to forecast and predict.  (My friend Doug Short has done some excellent work in this area)  Each year from 2008, when those born in 1946 reach Social Security's early retirement age of 62, until 2025 we will see successive rounds of boomers reach the 62 year-old threshold.  There is a twofold problem caused by these successive crops of boomers heading into retirement.  The first is that each boomer has not produced enough children to replace themselves which leads to a decline in the number of taxpaying workers.  It takes about 25 years to grow a new taxpayer.  We can estimate, with surprising accuracy, how many people born in a particular year will live to reach retirement. The retirees of 2070 were all born in 2003, and we can see and count them today.

The second problem is the employment problem.  The decline in economic prosperity, that we have discussed extensively, caused by excessive debt, reduction in savings, declining income growth due to productivity increases and the shift from a manufacturing to service based society will continue to lead to lower levels of taxable incomes in the future.  Furthermore, with unemployment in the U.S. remaining stubbornly high, the longer that all-important 25-35 year old person remains unemployed the related loss in relevant job skills leads them to becoming unemployable.

This employment conundrum is critical.  Back in 1950, as the baby boom was just beginning to start, each retiree's benefit was divided among 16 workers. Taxes could be kept low. Today, that number has dropped to 3.3 workers per retiree, and by 2025, it will reach--and remain at--about two workers per retiree. Each married couple will have to pay, along with their own family's expenses, Social Security retirement benefits for one retiree. In order to pay promised benefits, either taxes of some kind must rise or other government services must be cut.  The chart shows this relationship between social benefits paid out in total (including social security, Medicaid, Medicare, etc.,) and the burden upon each non-farm employee.   Back in 1966 each employee shoulders $555 dollars of social benefits.  Today, each employee has to support $17,387 of benefits.  The trend is obviously unsustainable unless wages or employment begins to increase dramatically and based on current trends that seems highly unlikely.

The entire social support framework faces an inevitable conclusion and no amount of wishful thinking will change that.  The question is whether our elected leaders will start making the changes necessary sooner, while they can be done by choice, or later when they are forced upon us.

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sangell's picture

No means testing. Cut benefits across the board and let the grasshoppers deal with it. We ants want our fair share!

sessinpo's picture

sangell                   2378509

Cut benefits across the board and let the grasshoppers deal with it. We ants want our fair share!



I agree with you. Though I would say cut benefits to zero. The big question is, what is the cut off age. I know I have paid in and will probably never see a dime. Unfortunately, life isn't always fair. I would gladly give up what I have contributed if I could stop contributing right now and invest it myself with my own account that no one could touch (though I'm sure congress would tax me even more to death.)

Bicycle Repairman's picture

Hello.  We were ants, too.  We supported our parents/grasshoppers.  BTW who's tax dollars provided your K-12 education?  This ant.  Guess why we did it.

tarsubil's picture

I hate to break it to you but you got ripped off with a phony retirement fund and a phony educational system.

Bicycle Repairman's picture

Hate to break it to you, but the check will be in the mail.  The political class responds to the votes.  A large cohort of aged boomers have the votes. Every boomer I talk to liberal, conservative or confused all agree, rabidly, they're getting paid.  If there is anything that is clear about the future, it's that.  Only a complete systemic breakdown would change this.


Rubbish's picture

61 months to go and counting...keep working youngens. I have more doubt everyday I just won't make it. The landscape is turning brown.

Banksters's picture

Who in the govt. do I sue for stealing my money?

Winston Churchill's picture

Just return to the initial framework.

Retirement two years AFTER ave life expectancy.

No Medicare.

Problem solved.Politicians hanged.Twofer.

my puppy for prez's picture

We won't make it till 2033!

tarsubil's picture

Yeap. That prediction relies on all kinds of rosy scenarios. Even if SS goes tits up in 10 years instead of just falling short in 20, the dollar will probably collapse before that so it is a mute point.

in4mayshun's picture

If the Gov is making these calculations for 2033, then it means SS will be bankrupt by 2019.

ThaBigPerm's picture

"As the cash surplus is depleted, which is primarily government I.O.U.'s, Social Security will not be able to pay full benefits from its payroll and other tax revenues. It will then need to consume ever-growing amounts of general revenue dollars to meet its obligations"

Methinks you don't understand what an I.O.U. is... it isn't cash on hand to spend.  It's already been spent, a Treasury Bond put in its place (the aforementioned "I.O.U.").  Aside from Obamacare, you cannot spend the same money twice by merely declaring the IOU to be "cash reserves".  In order to convert that IOU to cash, it must be redeemed either out of (then) current tax revenue or by issuing a new bond to another sucker, er, buyer, and those procedes used to redeem the old bond and pay benefits (I suppose they could sell the not-yet mature bonds on the open market as well, and the Fed could always print the $ to buy them in an increasingly saturated market).  Both options, by the way, being the same options available to the government if they'd never gone through the shell game of issuing itself IOUs in the first place and simply spent the money and worried about funding it later.  Crazy, I know.

SamThomas's picture

The bonds in the Trust Fund are called Special Issue bonds.  They are non-negotiable Treasurys which can only be redeemed by the Treasury itself.  Right now, Social Security is still in a positive cash flow when you include the interest paid into the Fund by the Treasury on these bonds, and when you include taxes on Social Security incomes of higher-income taxpayers.  But this will not last forever and eventually Social Security will start to run in a net deficit.  That is when the bonds in the Trust Fund will be presented to the Treasury for payment.  They will have to be refinanced, as you point out, by issuing regular Treasurys at auction in order to raise these monies.  And this is where I think the trouble will start, since this new supply will put pressure on the Treasury market and compound the overall fiscal situation of the Federal government--higher interest rates will cause higher government interest expense, and this will both have to be financed itself, or spending will have to be reduced in other areas accomodate it.  The budgetary pressure will be extremely difficult.  The easy way out will doubtless be pursued, since the problems are so large and intractable, meaning that the Fed will conspire with the Treasury (and Congress) and add billions of Treasurys to the Fed's balance sheet.  This monetization will have awful consequences in the near future as it translates into inflation and a lower standard of living.  Americans really have no clue what is going to hit them. 

Vince Clortho's picture

Everyone needs to relax.  Benny and the Laser Jets can print whatever amout of FRN is needed.

SS is saved.  We can lower retirement age to 19.

Be prepared to enter a new golden age for mankind.

And never forget, we owe it all to Ben freaking Bernanke and his uber-intelligent associates.

Bicycle Repairman's picture

They will print to fund lots of things, military, food stamps, disability, section 8, Columbian hookers, etc.  And SS.

engineertheeconomy's picture

unemployment, postage, disability, etc, etc. printing is the gdp

BandGap's picture

Wow, there's a jolt. I was going to support myself with SS and a bait shop. You know, collecting a check while selling six packs of Blatz beer and nitecrawlers.

Damn, way to burst my fucking bubble. I guess I'll have to try my luck at over 50 exotic dancing.

sessinpo's picture

BandGap                 2378623

I was going to support myself with SS and a bait shop.



I guess you'll be the Master baiter?


worbsid's picture

From about 1934 till 1957 my grandmother lived exclusively from renting boats and selling worms.  There was a lot of family help getting the boats ready by Memorial Day and taking them out in September.  The rest of the year she traveled ... from one kid to another until spring.  She didn't live very high on the hog but she lived and we all helped.  I cleaned boats and gathered worms for three summers.   

Bobportlandor's picture

I'm taking online classes to become a pimp.

Dburn's picture

If that doesn't work out, try the training for entry level job as an assistant crack whore.

bobert's picture

Just hang around the Secret Service detail. That's where the real money is.

BandGap's picture

I can jerk beef and venison, too, if they sit real still.

Good Lord, let's get on with the fucking collapse. 


Weisbrot's picture

an easy fix - 1> remove the cap on the fica tax

                   2> NO $ out if you never put $ in

                   3> no $ out if you are truly financially secure


or perhaps I have an overly simplistic point of view.........



zot23's picture

How fucking dare you insert a sensible, logical solution amack in the middle of a perfectly good panic attack!  Some damn people, I tell ya...

yogibear's picture

This pozi scheme lasted a long time. Sorry about all that money the Johnny come lately s will loose when it collapses.

Oh, you also made Apple shareholders a lot of money by buying all that I-stuff.

Eventually both go down.


Tom Green Swedish's picture

It was 2041 2 years ago. WTF happened?

BandGap's picture

Oh geez, you didn't get the memo. See, as the spin state of the earth flips time will be compressed. It has to do with our individual magnetic fields (we are all driven my electrical impulses after all) coupling with the overall magentic field of the earth. As this drifts towards anisotropy, time - as we perceive it, is compressed.

Or, they pulled these numbers out of their ass and now they switched the asses they pull the numbers out of.


TBT or not TBT's picture

Where did you study electromagnetic fields?   Clearly this has to do with hysteresis losses.

StychoKiller's picture

It always comes back to Hysterics, don't it? :>D

Seasmoke's picture

sounds just about right ......any suckers born 1965 or later are not in the boomers frat and will be left holding the bag

engineertheeconomy's picture

so, let me see if i got this...

A Ponzi scam is a good thing if the rich benefit, a bad thing if the working class benefit...

how bout we end the bankers ponzi first

Pancho Villa's picture

In political terms, 2033 is pretty much equivalent to "the end of time". Nothing significant will be done until failure is only a couple of years away.

But they keep pushing forward the estimates of when SS will run out of money. It wouldn't surprise me if the actual date turned out to be 2025 or even 2020.

i-dog's picture


"Nothing significant will be done until failure is only a couple of weeks away."

There...fixed it for you. (A couple of years is somebody else's problem).

No forecast, plan, budget, promise or action that is outside the current fiscal quarter is remotely believable (and even some within the current quarter are subject to "change due to unforseen circumstances", or "external factors").

What a fucking joke central planning is!

TBT or not TBT's picture

Exactly.   The going broke process goes gradually for a long while then happens all at once, as we are going to see in cascade in Europe this year.

OrestesPenthilusQuintard's picture

A gov't program going bad?


Not according to my TV.

Jason T's picture

The average baby boomer thinks something along these lines.  They think they have $400k in their IRA ( SS fund) but they have $3 million in debt from boats, kids college educations they paid for, the vacation home, all those dinners out racked up on their credit cards, etc.

What they fail to understand is, all those gov't deficits that were rung up for the military industrial complex, bailout of the banks, war on drugs and whatever the hell else big gov't blew all them trillions on, that them SS checks are going to have to go to service the debt instead of paying for the bills.  

Best investment strategy is to go galt.  

zot23's picture

So can we stop issuing payroll holidays?  Since this is obviously super-nova hyper critical to solve?  

TBT or not TBT's picture

Um, because 2033 is in the FUTURE, and congresscritters need to get elected in the PRESENT.

jarrollin's picture

So, social security is going to run into some problems?  File that under no shit Sherlock.

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    dirtbagger's picture

    So what happened to the money.   After contributions were doubled under the Reagan Admin SS fix, that was supposed to build a large enough surplus to take care of all of the boomers.   I think the plan was to also reduce the contribution rates after the boomers starting dying. 

    Granted contributions have decreased in recent years due to lower paying jobs and higher unemployment,  but you have to wonder if the Social Security Admin used unsustainable economic growth rates in their projections.   I've been contributing the full amount on both sides for over 3 decades, and want to see some return on my investment.

    TBT or not TBT's picture

    ....and want to see some return on my investment.

    SS became a slush fund for current spending, to buy off voters in the present, back in the past.   Your ROI will be very poor, unless some miracles in human longevity and/or productivity arise.

    TBT or not TBT's picture

    Bring out your dead!

    El Gordo's picture

    Like there is any money in there in the first place.  We're 15 trillion in debt and someone is worried that SS will run out of money?  We ran out of money a long time ago, and that includes the SS contributions that were looted and spent as well.

    Peter Pan's picture

    When they talk about two workers to every retiree in 2025, they are talking about chaos. You may as well send grandma and grandpa on a six week luxury cruise when they turn 65 and then put them out of their misery with a needle. It might sound shocking but the alternative might be even more shocking. The mathematics are just impossible to overcome even with all the goodwill in the world.

    Disenchanted's picture



    Separate the SS monies from the general funds as was intended originally.


    Stop using the SS taxes that I and my employers have paid in on mine and others behalf to fund your goddamn wars, bailing out international banksters, and propping up Israel, Pakistan, House of Saud, etc.,etc....also known as 'foreign aid' or known to me as tax dollars(particularly SS money) subsidizing war profiteers, Zionist foreign policies, banksters, and corporate cronies.

    And no I don't give a flying fuck that 'foreign aid' is only 1% of GDP or any other bogus statistics or numbers someone wants to pull out of their ass to justify any of the previously mentioned misappropriations of our SS funds(or my tax dollars in general).

    Fuck you all very much.

    One more thing, put all the Federal employees and especially the politicians back into SS and everything else We the People have to deal with and take away their special retirement/health care plans. Then we'll see more serious discussion about 'fixing' SS and Medicare/Medicaid problems. As long as they have their separate and special plans those in charge do not give a real damn about what the 'little people' face with SS/Medicare.