Skip to comments.Social Security Cliff in Sight
Posted on 01/18/2013 12:57:10 PM PST by Kaslin
In response to my post Making Social Security Actuarially Sound in a Business-Friendly Manner I have been exchanging emails and phone conversations with Jed Graham at Investor's Business Daily.
Jed thinks benefit cuts will happen, and I agree. However, Social Security cuts are considered the "third rail" in politics.
If you are not familiar with the term, it means anyone espousing cuts cannot be elected.
Retirees Will Outlive Trust Fund
Graham's current position on the viability of Social Security can be found in his January 14 article New Social Security Retirees Will Outlive Trust Fund
For the first time since Social Security's cash crisis in 1983, the program can't afford to pay full benefits for its youngest crop of new retirees through life expectancy, government data show.
The hastening of the Social Security Trust Fund's demise to 2033 means that workers just becoming eligible for Social Security at age 62 face steep future benefit cuts if they live to the average life expectancy, now about 84.
Those abrupt benefit cuts of about 25% a year for today's 62 year olds and workers nearing the early retirement age would come at an especially bad time late in life when savings have dwindled and health care bills are on the rise.
Old Contract Invalid
While the trust fund's nonmarketable Treasuries really IOUs from one branch of government to another have no value to offset the cost of benefits, they provide Social Security the legal authority to run cash deficits until they're spent.
Under current law, a worker who just turned 62 would face a 25% benefit cut once the trust is spent in early 2033.
Workers now 55 would, on average, lose two full years' worth of benefits, the equivalent of a 9.2% cut in lifetime benefits.
Why don’t we ever hear about similar need to cut welfare, food stamps, and other freebies, government handouts and subsidies?
Especially those for moochers, able bodied malingerers and illegals.
At least social security recipients paid something into the system.
Most of the recipients of government habdouts and feebies paid nothing - they just take and take and take.
2.) Social Security will soon be little more than “phantom income” due to the means testing and higher premiums for upper income people, on Part B and Part D of Medicare.
You will get taxed on your Social Security benefits even if you don't see any benefit in your checking account, due to the very high Medicare premiums we will face in the future.
This will get “solved” with tax hikes.
-Wall Street transaction tax
-Remove the cap on payroll tax (perhaps up to every last dime)
-VAT or some type of sales tax
There is simply no political will to address the situation any other way.
****For the first time since Social Security’s cash crisis in 1983, the program can’t afford to pay full benefits for its youngest crop of new retirees through life expectancy, government data show.****
But, but the SS system was supposed to NEVER go dry! Here is the promise from 1964!
“The program is designed so that contributions plus interest on the investments of the social security trust funds will be sufficient to meet all of the costs of benefits and administration, now and into the indefinite future—without any subsidy from the general funds of the Government.
Both the Congress and the Executive Branch, regardless of political party in power, have scrupulously provided in advance for full financing of all liberalizations in the program.”
Raising the retirement age to 70 is not a practical solution.
The consequences should be obvious...
(1) An explosive increase in SS Disability claims.
(2) An explosive increase in Work Injury claims.
(3) An explosive increase in Age Discrimination lawsuits.
(4) An explosive increase in government agencies and laws that will allegedly “protect” and “retrain” older workers.
In addition, pensions for all the federal employees could be converted to Social Security upon retirement.
The peckerheads in government won't even address the issue because a) they are afraid or b) they are benefiting from the threat of default.
My joke is "Give me a 40 in Yellowstone Park and I will release you from the obligation you forced me to accept."
Thanks Buckeye for making this point.....SS is not going to default. They will do a VAT, national sales tax, get into our 401ks, or whatever, but there’s ZERO chance of SS going away.
How about limiting payout to what was paied in plus interest?
Could also subtract any welfare or unemploymnet paid out from waht was paid in.
Fleming v Nestor settled the question of whether or not there ever was any “social contract”.
A waste of breath. Obama voters — “I got my new Obamaphone! He gonna pay my rent, my taxes, he gonna pay my gas from his stash!” — have a six-week thought horizon. Not until they actually suffer a money loss will they care.
From a Social Security pamphlet in 1936....
“You and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year ($48,000 inflation adjusted).”
“That amount is the most you will ever have to pay.”
“From the time you are old and stop working, you will get a government check every month of your life.”
“This check will come to you as your right.”
“At least social security recipients paid something into the system.”
They did not. There is no “system” into which one can pay. Also, in our country there is no connection between who pays taxes and who receives benefits. That’s what the rich paying their “fair share” is all about. From each according to his ability to each according to his need.
If we wanted what you’ve earned to count toward what is let for your retirement, we’d let you keep it.
I don’t even understand what this article is about. No, there was no trust fund. SS is not self-supporting. It’s already in the red. What are we talking about, it being more in the red? Look, they can use allow the funny accounting they want. Why should we pretend it’s meaningful?
We do hear about that, by the way. SS gets more press first because it’s bigger: it alone eats up about as much of the budget as defense. Second because unfortunate souls like you pretend they’ve “paid into the system” and won’t allow the problem ever to be fixed.
The premims paid for Medicare Parts B and D only pay for 25% of the annual costs of the programs. By law, the other 75% comes from the General Fund. In FY-2011 this amounted to $222 billion. These costs will continue to increase as 10,000 people a day retire for the next 20 years. Medicare Part A has been running in the red since 2008.
Don’t you love how they call taxes “contributions”? Kinda like how the Germans told certain guests of the government “Arbeit macht frie.”
The current Social Security full retirement age is 66 and will gradually phase to 67.
From memory, I think we start one month per year phasing to age 67 in 2014.
The idea that 70 year old workers will be generally competitive against younger workers is really foolish, especially for those who work in blue collar jobs.
America is already experiencing an explosion of SS Disability claims - most of that from workers over 60 years of age.
It is not a pretense - I have paid into the system - I was forced to by the federql government.
And unless you have never held a job or always worked of the books you have paid into the system as well.
I don't support the system that is imposed on us because it is nothing more than a Ponzi scheme.
But I do say that Social Security should not be cut until all the moocher programs, freebies and handouts are cut for people who never contributed a cent to those programs.
As a nation, are we to kick our parents and grandparents out into the street so we can continue paying fpr welfare, housing, food stamps, free medical, Obama Phones, etc., etc. to moochers and illegals?
1. Raise retirement age
2. Raise or eliminate the cap on payroll taxes
3. Cut benefits
4. Collect Social Security on personal income
5. Implement a Tiered Cap structure
6. Means Testing
Or to summarize:
1. Cut benefits
2. Raise taxes
3. Cut benefits
4. Raise taxes
5. Cut benefits
6. Cut benefits
This is a problem with no solution. The shortfall runs in the tens of trillions of dollars. We can’t tax out way out of it. On second thought, there MAY be a solution after all. Unfortunately, the solution happens to be soylent green.
Here is how SS works. It is a pay as you go system where today's workers pay for today's retirees. The payroll tax is used to raise revenue to pay for benefits.
For many years SS ran a "surplus" where more revenue was collected than benefits paid out. The "surplus" was deposited into the General Fund and Treasury issued non-market, interest bearing T-bills in the amount of the surplus and deposited them into the SS Trust Fund. Currently the SSTF has $2.7 trillion in T-bills.
SS has been running in the red since 2010 and will do so permanently from that point onwards. In order to make up the shortfall, T-bills from the SSTF are redeemed by the General fund so benefits can be paid in full. Based on the Trustee's report, SS will exhaust its T-bills in the SSTF around 2031/2. After that point, by law, SS can only pay benefits based on the revenue collected thru the payroll tax. It will require an estimated cut of 20% for all beneficiaries.
Source: CBO Combined OASDI Trust Funds; January 2011 Baseline 26 Jan 2011.
Note: See Primary Surplus line (which is negative, indicating a deficit)
The $2.7 trillion in the SSTF is part of the national debt and held under "Intragovernmental Holdings" rather than under the publicly held portion of the debt. Here is how SS describes the T-bills in the SSTF:
"Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government."
The reason that SS and Medicare are going bankrupt is not what is or is not in the SS or HI trust funds. Rather, it is a matter of the demographics of a aging society, which has been compared to a pig going thru a python. In 1950 there were 16 workers for every retiree; today it is 3.3; and by 2030 it will be just two. And by 2030 one in five in this country will be 65 or older--twice what it is now. SS is a Ponzi scheme where those at the top of the pyramid are receiving much more than they ever contributed to the system. Those at the bottom will not be that lucky.
And for those who say that SS is not contributing to the national debt problem, they are wrong. In order to redeem those T-bills in the SSTF, the General Fund must come up with the money, 42 cents of which are borrowed for every federal dollar spent. This is why Obama is correct that if the debt ceiling is not raised, SS payments could be affected. Unwittingly, he is telling the American public that we must borrow the money to pay SS benefits. I wish some Rep would make that point.
“The payroll tax is used to raise revenue to pay for benefits”
That’s simply untrue. That tax raises revenue to be spent on whatever it is the feds spend money on, along with what they borrow, what they sell, and what they counterfeit.
I see you put quotes around surplus, probably because, like I said, there was no system and therefore is no such thing. The federal gubmint hasn’t been in the black since, what, Andy Jackson? How could there possibly be a surplus, unless SS funds were segregated, which they weren’t.
So this supposed fund of profits off SS money which we supposedly can draw until the 2030s is “the system” which everyone’s always talking about and which supposedly isn’t broke yet. But that’s absurd, because we have a freaking 16 trillion dollar debt and annual trillion-plus dollar deficits. The idea that there’s this seperate thing called SS with its own fund and which, unlike everything else, people are somehow still getting what they pay for, is ridiculous. It insults our intelligence.
Obama is correct, yes. This is so because SS isn’t special and is paid for like everything else. It is also so because I’m sure they’d find a way to spend money leftover after the instant balanced budget of the debt ceiling in the most painful manner possible.
You were forced to pay a tax, yes, just like you presumably paid an income tax and any number of other taxes. What this has to do with SS benefits is almost nothing. Point is, there is no “system.” Payroll taxes end up in a big pile with the rest of federal revenue. The gubmint as a whole is broke, obviously, and therefore so is SS.
It is like a Ponzi scheme, but not exactly. They made it sound like you were paying into a system at first. They even called taxes “contributions,” the program “insurance,” and said you had a right to benefits. They’ve since admitted otherwise. When private ponzi schemers admit it’s a scheme they go to jail. When gubmint does so, it stops being a scheme and becomes simple theft.
“At least social security recipients paid something into the system”
Sorry, but wrong, wrong, wrong, wrong.
Remember when clintoon “ended welfare” back in 1997?
Change the Social Security disability rules back to what they were in 1993 and see how much better the Social Security situating gets.
The bent-on “ended welfare” by hiding it in 80 different government programs. And Social Security took it big time. And no, many of these newly ‘disabled’ workers didn’t pay squat into the system.
“Social Security should not be cut until all the moochers programs, freebies and handouts are cut”
Oh, that’s perfectly rational of you. “My program is the important one; all you other guys are the problem.” This is exactly why government will never, ever shrink. Because everyone defends their goodies. Welfare for me but not for thee.
Democrats checkmate Republicans every time by threatening their babies, like defense. And there’s something to pubbies’ whining, as at least defense is actuallly in the Constitution. But how much moeny spent in its name actually has anything to do with defense? And what does it matter, anyway, when cuts to the other stuff will never, ever happen the way you want it?
There seems to be some credence to what you say about those who worked for it deserving federal goodies more than freeloaders. But dealt it’s an argument for why they should have kept it in the first place. There is no principle whereby he who earned it gets redistributed wealth. That contradicts the entire philosophy of the Welfare State, actually. It’s like the Soviet Union introducing glasnost and perestroika. Good things, but deadly to a regime which lives off secrecy and terror.
You are doing the same thing others do when trying to conflate Social Security retirement with welfare.
Like it or not, there is a difference between Social Security retirement as compared to disability, welfare and other non-contributory government handout programs.
People who receive social security upon retirement, who worked through life were forced to contribute to social security. So you are the one who is "wrong, wrong, wrong, wrong".
Can't you see the difference between social security, that the government forced working people (snd their employers) to contribute to, and programs that are pure handouts?
How can you equate some welfare queen or drug user on disability with men and women who worked all their life and were forced to contriibute some of their weekly pay to a program they did not necessarily choose to belong to?
Certainly social security is a Ponzi scheme, but it was forced on working people and it is wrong to lump social security retirees with pure moochers.
have you ever had a job?
You really sound quite daft.
Now you are being silly. According to the laws that set up SS, the payroll taxes raised must be used to pay benefits for SS.
The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds. These funds are accounts managed by the Department of the Treasury. They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets. These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.
By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.
I see you put quotes around surplus, probably because, like I said, there was no system and therefore is no such thing. The federal gubmint hasnt been in the black since, what, Andy Jackson? How could there possibly be a surplus, unless SS funds were segregated, which they werent.
The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."
Most likely this myth comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no affect on the actual operations of the Trust Fund itself.
So this supposed fund of profits off SS money which we supposedly can draw until the 2030s is the system which everyones always talking about and which supposedly isnt broke yet. But thats absurd, because we have a freaking 16 trillion dollar debt and annual trillion-plus dollar deficits. The idea that theres this seperate thing called SS with its own fund and which, unlike everything else, people are somehow still getting what they pay for, is ridiculous. It insults our intelligence.
The T-bills held by the SSTF are just as much of an obligation as the T-bills held by the Chinese, which is why they are included as part of the $16.4 trillion national debt and affect the debt ceiling. The payment of this debt is dependent upon the good faith and credit of the USG to honor them. It is as simple as that.
I am not saying that SS does not represent a huge unfunded liability or that the program is solvent. I specifically stated that the USG must borrow money to redeem the SS T-bills so SS can pay full benefits. SS is in the red from now until 2031/32 and will need to continue to redeem the T-bills to make up the growing shortfall. Once the T-bills are exhausted, SS will no longer be able to pay full benefits as promised. It is limited by the revenue it has coming in. Without reform, SS benefits will be reduced for everyone.
Again, I strongly emphasize that SS is contributing to our growing national debt. Pelosi and the Dems have said that is not the case, but as I just demonstrated, they are wrong.
The shark attorneys are all over this SSDI gig trolling for clients. TV commercials are pervasive, especially during Maury and Springer. So you know there’s big money at stake.
I got a cold call today here in Indiana from a New Jersey law firm asking if I was interested in applying for SSDI. I asked them how they got my name and they wouldn’t tell me.
“Can’t you see the difference between social security, that the government forced working people (snd their employers) to contribute to, and programs that are pure handouts?”
Hate to break your heart, but you better check who Social Security has been paying money to since 1997, under the guise of ‘disability.’ Yes sir, “pure handouts” who have some of the most bogus disability claims imaginable. Kick all of those loafers off, and Social Security won’t be in as bad of shape. Of course if you kicked them off of all the 80 programs and put them back into what they actually are - welfare - you’d actually find that welfare payments exceed social security, medicare, and the military. And they darn near exceed any two of them combined.
If you want to find out how many federal programs are polluted with hidden welfare costs, check out:
Do not send me any private e-mails asking me to replace your keyboard or monitor if you check that website out.
The people that had paid into social security and medicare their whole lives are getting screwed!
Even if your Part D plan costs the average or middle income client ZERO dollars (yes that is possible with a Medicare Advantage Plan) -— those how make more than $213,000 (Individually) will now pay $66.40 PER MONTH for the same Part D Prescription drug plan.
That same person will pay $349.00 for Part B of Medicare.
This is a total of $415.40 PER MONTH for Medicare services for the top brackets.
I am telling you that there is NO limit on what Congress will charge, for Part D and Part B services, in the future, for the upper income groups.
Again, this is my business, but if you want to check my work go to Medicare.gov, all the tables are there for you.
I understand how they are changing the premiums for Medicare Parts B and D. I am on Medicare. But even raising the rates on those who are 65 and older and make more than $213,000 (individual) a year will cover just a small part of the total costs. Here are the 2013 rates. There are very few seniors making that level of income.
What you appear to be missing is that the premiums for these programs only cover 25% of the total costs. The rest of the costs must be funded by the General Fund. From the 2012 Trustees Report:
The Trustees project that Part B of Supplementary Medical Insurance (SMI), which pays doctors bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, will remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next years expected costs. However, the aging population and rising health care costs cause SMI projected costs to grow rapidly from 2.0 percent of GDP in 2011 to approximately 3.4 percent of GDP in 2035, and then more slowly to 4.0 percent of GDP by 2086. General revenues will finance roughly three quarters of these costs, and premiums paid by beneficiaries almost all of the remaining quarter. SMI also receives a small amount of financing from special payments by States and from fees on manufacturers and importers of brand-name prescription drugs.
If you go to the table showing what were the sources of income to the Trust Funds in 2011, you will see that SMI (Medicare Parts B and D) received $222 billion from the General Fund and $65.4 billion from premiums. These costs will continue to rise as 10,000 people a day retire every day for the next 20 years. And Medicare will eventually consume the entire federal budget if not reformed.
Yes, the USG has been gradually changing the premium structure for Medicare Parts B and D since I started on the program five years ago. It is becoming more of a means tested program, but it has been under the radar since very few people are affected by the fee structure. It is worth remembering that one-third of retirees depend on SS as their sole source of income and for two-thirds of retirees, it is more than 50% of their retirement income. The vast majority of people will pay $104.90 for Medicare Part B in 2013.
I would also note that 9 out of every 10 Medicare recipients pay for supplementary insurance or Medigap.
You are naive.
Every bond sold by the Treasury, to the public or to the SS “Trust Fund” moves money to the GENERAL FUND!
EVERY DIME in the “Trust Fund” has, therefore, been SPEND by the government, through the General Fund.
You are still not understanding my point, you are talking past me but not really refuting me.
I state, clearly, that Social Security is TAXED as a benefit even for those who see little or no Social Security Check, in my line of work.
This is due to the fact that high income retired people OFTEN now pay a great deal for their Medicare benefits.
I predict that this will only get worse.
Social Security is turning into PHANTOM ICOME, income on which people are taxed but they do not ever see that income!
You are ill-informed and don't understand how SS and the trust funds work.
Every bond sold by the Treasury, to the public or to the SS Trust Fund moves money to the GENERAL FUND!
Yes, they incur a debt by borrowing the money. Interest must be paid on the debt and the bonds can be redeemed by the holder for dollars. When a T-bill is sold to the Chinese, we must pay them interest on the bond and they can cash them in for dollars any time they want. The more bonds we sell, the larger our debt becomes. The only reason people buy our debt is because it is guaranteed by the good faith and credit of the US to honor that obligation.
EVERY DIME in the Trust Fund has, therefore, been SPEND by the government, through the General Fund.
And EVERY DIME of the T-bills held by the Chinese has been spent by the government through the General Fund. What's the difference?
“You and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year”
that’s what it was when I first paid into it.
By 1978 I had 27 years paid in in full and quit paying into it until I retired at 65 in 2002.
at this point I think I have gotten everything paid in, both halves, plus interest.
I would echo that sentiment. You are missing my point. The premiums paid by Medicare recipients for Parts B and D cover only 25% of the costs of the program. The other 75% must be funded, by law, from the General Fund, which means that we must borrow 42 cents of every federal to pay Medicare benefits for those programs. The taxpayer is subsidizing it directly.
I state, clearly, that Social Security is TAXED as a benefit even for those who see little or no Social Security Check, in my line of work. This is due to the fact that high income retired people OFTEN now pay a great deal for their Medicare benefits.
I understand that quite well. I receive both SS and Medicare. I see the premiums being deducted from my SS check and I know that my SS is also being taxed. Why is that such a major revelation?
I predict that this will only get worse. Social Security is turning into PHANTOM ICOME, income on which people are taxed but they do not ever see that income!
Of course it will get worse. Duh. The taxation of SS benefits started with the 1983 Faustian bargain Reagan struck with Tip O'Neill to save SS. It also raised the age for full benefits from 65 to 67 and forced all federal workers hired from 1983 onwards to contribute to SS.
China can show the US Treasury bonds THEY hold as EQUITY or Assets, on their books!
NO government agency can honestly show inter-agency debt on its books as a Positive Asset, it makes no sense.
You can not loan yourself money and neither can the government.
Yet many claim it’s their money because they paid into it, the money is long gone...stolen, and if your insurance won’t cover the theft you will be lucky to get anything at all back.
It makes sense if you understand how trust funds operate. The $2.7 trillion held in the SSTF are assets for the fund, but they represent debt for the federal government, hence their inclusion in the $16.4 trillion national debt.
The various US trust funds account for about $5 trillion of the total debt. They are held as Intragovernmental Holdings as distinct from the publicly held debt. You can ascribe adverbs like "honestly" to the accounting, but the reality is that it is quite transparent and open. The SSTF has been operating the same way since its inception in 1939, i.e., all receipts of revenue must immediately be deposited into USG securities.
It is a positive asset for the trust fund, which uses them to make up the shortfall in revenue to pay full benefits. The Federal Government honors them by redeeming them for dollars that are then paid out to recipients. When they talk about SS being solvent until 2031/32, it just means that full benefits can be paid out until then because of the T-bills held in the SSTF to make up the shortfall. After that, by law, benefits must be reduced to just revenue available.
You can not loan yourself money and neither can the government.
The government can and does. To deny that, denies reality.
The real problem with SS is not the trust fund or the accounting. The fact is that it is actuarily unsound and unsustainable. There is just not enough revenue (actual and projected) to continue to pay future benefits as promised. It is a huge unfunded liability that must be addressed either through increased taxes or decreased benefits or some combination thereof. In 1950 there were 16 workers for every retiree; today it is 3.3; and by 2030 it will be two.
FYI: The largest holder of T-bills is the SSTF followed by the Federal Reserve, which currently buys about 70% of the T-bills offered for sale. The government can print money., which is something an individual cannot do.
THERE IS NO TRUST FUND!
There is NO MONEY in the Trust Fund, since every “credit” is offset by a “debit” -—
You are in fantasy land.
Denial just ain’t a river in Egypt. Your are the one living in a fantasy land. I tried to educate you, but you prefer to wallow in your own ignorance. If there is no trust fund then why is it included in our $16.4 trillion national debt?