Skip to comments.Social Security: The Unsustainable Promise
Posted on 10/18/2013 9:41:16 AM PDT by Kaslin
I have written numerous times about pension problems in the US. Let's cross the Atlantic and take a peek at the setup in Spain, then let's compare the two setups.
Via translation from Libre Mercado, please consider The Chart That Will Shake Future Pensioners.
Workers vs. Pensioners
Given that eight million people age 65 and 16.7 million workers cannot sustain the current pension, imagine what will happen in the coming decades as the differential goes back even closer.
Pensions today promise Social Security payments of 100% of the average wage in the last 25 years for those with 37 years of Social Security contributions. Such payments are absolutely unsustainable. The relative income of pensioners relative to the average income of the society will sink (without massive tax looting of active workers).
Immigration could partially alleviate the problem, making the demographic transition somewhat smoother, but if new rights accrue to future pensions, immigration only delays the problem. In any case, it might be a good idea to allow free immigration to Spain in exchange for not accrue rights to Social Security.
The most important practical advice to draw from the above chart is simple: save and invest. If you trust your retirement to politicians, you will end up poor and feeling cheated.
Total Annual Cost of Social Security 1967-Present
Social Security Beneficiaries vs. Total Non-Farm Employment
Ratio of Workers to Social Security Beneficiaries
Social Security Benefits Analysis
The system is currently running a deficit. Trends say that deficit is going to worsen with each passing year unless benefits are cut and/or taxes are hiked.
The next chart is courtesy of Reader Tim Wallace in a January 11, post.
Social Security Burden on Non-Farm Workers
Social Security Cliff Reading
Tip of the Iceberg
Unfortunately, Social Security is just a tip of the unsustainable payout promises problem. Public union pensions are trillions of dollars underfunded and several cities in California have gone bankrupt over those promises.
Detroit went bankrupt for the same reason as did Central Falls, Rhode Island (see Central Falls Set to File Bankruptcy Exit Plan; 50% Pension Reductions, 40% Slash in Police and Fire Budgets Coming Up).
Vallejo Round Two
Vallejo, California went bankrupt about two years ago and is headed there again because it did not shed pension promises in bankruptcy: Vallejo, Mired in Pension Debt Again; Lesson for Stockton and Detroit - Shed Those Pension Obligations Now!
As I said in the above link, Stockton and Detroit have a choice. They can cut pensions now, or cut them later in a second bankruptcy, just like Vallejo will.
Pension Promises Not Sacrosanct
Yet people keep emailing me that pension are guaranteed by law. Tell that to residents of Central Falls. Their pensions were cut 50% in bankruptcy.
Here's reality: haircuts are coming. Unions need to negotiate benefit cuts now, in a sensible manner (with the highest beneficiaries taking the biggest cuts). The alternative is across the board benefit cuts à la Central Falls.
Meanwhile please consider the solid advice from Libre Mercado:
"The most important practical advice to draw from the above chart is simple: save and invest. If you trust your retirement to politicians [or promises], you will end up poor and feeling cheated."
Those IOU’s SS holds are essentially worthless because to make good on them Treasury has to sell new debt to redeem them.
It may get down to just what “Entitlement” we want to save as we can’t have them all. So take your pick.
It’s all been funny money since we went off the gold standard. Redemption of the SS bonds actually lowers the national debt-it’s all done with accounting entries.
The main point is that the Administration can choose to send out the Social Security checks by combining the current inflow with redemption of the bonds, and it doesn’t require the raising of the debt ceiling to do so.
Hence, any such decision would indeed be totally the decision of the spite house for no other purpose but political blame. It’s an easy accusation to make because most people don’t understand the actual situation.
They have heard for years that politicians have stolen the money and left a bunch of IOUs, so that a raise in the debt ceiling is necessary-it ain’t necessarily so.
I understand well the sentiment regarding the “theft” and the IOUs etc. However, just accepting that mantra, makes it easier for Dems to manuver stuff their way. I choose not to allow that latitude.
The redemption of the bonds already started during the Obama Administration - ahead of schedule. Not much is made of it, other than to note that Social Security is no longer receiving an excess.
The only time there is a big hullabalu is when the Dems want the debt ceiling raised. It’s just another example of them making misleading statements to influence and scare an uninformed group of the electorate, so that they can get their way and continue on the march to serfdom.
It has been interesting for me to watch and observe in the past 10 years the amazing "private sector" that thinks it is so holy and pure. Restaurants all across American are driven by Social Security checks. I was training as a military officer to serve overseas, and the condo I was staying at in Florida had an Olive Garden outside. They had a "Social Security Nite" sticker outside and on that night the place was packed.
There are millions currently spent by WalMart and grocery shoppers to up the Food Stamp bill beyond the $135 Billion currently spent. Without that money, many grocery chains will go bankrupt, and that is a fact. I also am sickened by it.
The US Govt is way to big and intrusive, that we agree upon. But people who think spending is unrelated to local and national economy's are delusional.
Oh, I forgot to mention, without Federal money, most hospitals would go under. Our obscene spending on Medicare and Medicaid are outrageous. I had a nurse who went off on how she was "independent" of anyone, and when their Medicare reimbursements were reduced she was fired. But she was a "private sector" fire.
This is one of the problems that Obamacare was designed to resolve.
By killing off a lot of old people through the death panels, it will go a long way toward accomplishing that.
Its governemnt...Government pensions at all levels are literately economically gang banging the American private sector.
BTW, did ya know there are now more unionized government employees than exist in all of private sector America?
It has been interesting for me to watch and observe in the past 10 years the amazing "private sector" that thinks it is so holy and pure.
That's a really odd response....
Restaurants all across American are driven by Social Security checks
Was that not the money government confiscated from them in the first place?
Critical access hospitals rely on federal money quite directly. Medicare pays very little of what true costs are, but they do pay I suppose.
If you jump to Obama’s tunes correctly, they will pay.