Won't Come Back from Dead Man’s Curve - (Templeton curve in Soc. Sec. reform)

INSTITUTE FOR POLICY INNOVATION ^ | MARCH 15, 2005 | Staff

[CHARLITE]

Just around the Templeton Curve can be found the best argument for reforming Social Security now.

The Templeton Curve, a contribution to the Social Security debate by Dr. John Templeton, Pennsylvania philanthropist and chairman of Let Freedom Ring, illustrates two starkly different futures for the Social Security system. And does it so clearly that it makes the issue perfectly understandable for the average American who is bombarded with mountains of rhetoric, much of it misleading.

As you can see by clicking here, http://www.nationalreview.com/moore/moore200502160842.asp, there are two parts to the curve.

The first part shows what will happen to Social Security if no changes are made. There will be small surpluses through about 2018, as the system takes in more in payroll taxes than it pays out in benefits. After that, it will begin to pay out more in benefits than it receives in payroll tax revenues. By 2080 or so, the deficit will be roughly $8 trillion. Let’s call it Dead Man’s Curve.

The second part is a near mirror image of the first. It begins with small deficits that run through about 2030, caused by the federal government borrowing $2 trillion over 15 years to fund transition costs to help pay for modest personal accounts (6.4%), from which future retirees will draw their retirement incomes. By drawing from their personal accounts, they won’t be pulling down Social Security benefits.

At about 2030, the deficit turns to into a surplus that is projected to be more than $1.5 trillion by 2080 – the same year Social Security will have an $8 trillion deficit if Congress does nothing.

If opponents successfully block reform, Washington will have to make up that shortfall somehow, by borrowing, hiking taxes or, what has become all the rage among some Republicans, benefits cuts.

Isn’t it better to borrow $2 trillion now rather than $8 trillion later?

Sen. John Sununu and Rep. Paul Ryan plan to introduce Social Security reform legislation that will initiate the second part of the Templeton Curve. If Congress refuses to take this step, well, as the 60’s duo Jan and Dean said, “Won't come back from Dead Man’s Curve.”

[Choose Ye This Day]

[Yo-Yo]

The very best part of the President's SS reform plan is that your account is yours after you die, and you can pass it along to the next generation. Currently, if you retire at 62.5, and die at 63, your estate gets nothing. (In fairness, your spouse does get survival benefits.)

[M. Dodge Thomas]

To decide if such predictions are accurate - or even reasonable - you have to know what the underlying assumptions were (they are unstated in this example). For instance you can produce quite large changes in the areas under those curves by making quite small adjustments in just two of your assumptions: the relative real rates of return, and the rate of economic growth. So IMO you have to look very carefully at the details of any such proposal – and without those details, no proposal should be taken seriously.

[DManA]

Why the big inflection point at 2057 on the bottom graph?

[lotusblos]

"Isn’t it better to borrow $2 trillion now rather than $8 trillion later?"

Unfortunately, we've already borrowed the money and used it to by liberal votes. It's just getting more expensive and the liberal establishment still wants to spend that money on those liberal votes.

[M. Dodge Thomas]

The very best part of the President's SS reform plan is that your account is yours after you die, and you can pass it along to the next generation. Currently, if you retire at 62.5, and die at 63, your estate gets nothing. (In fairness, your spouse does get survival benefits.)

The president hasn't really submitted a concrete proposal, so it's hard to tell exactly how this would work. But the most common suggestions is that at retirement participants would be required to purchase an annuity in an amount calculated by assuming that contributions to the “private” portions of their SS plan had earned a specified rate of interest (most often 3% is suggested). This annuity would not be transferable to their heirs, while amounts accumulated in excess of the annuity amount would become part of your estate. This arrangement is quite different from the common assumption that the entire amount accumulated in the private portions of an account would be passed on, the devil of all these plans is in the details.

[oldbrowser]

Unfortunately, we've already borrowed the money and used it to by liberal votes. It's just getting more expensive and the liberal establishment still wants to spend that money on those liberal votes.

I believe that is one of the reasons why the dems are fighting so hard to coverup this little financial pickle we have gotten ourselves into.

All the "funds" in the trust fund were spent on LBJ's "great society" and other subsequent social engineering pipe dreams.
We have been living over our heads using the "trust fund" money for years.

Now the "trust fund" is about to go cashflow negative and Bush wants to address it and the dems want to ignore it.

[Woodworker]

Look here for more detail:

http://letfreedomring.com/fileuploads/TempletonCurvesset1.pdf

[Woodworker]

More yet here:

http://www.swissamerica.com/article.php?=SID&art=01-2005/200501180930mn.txt

"The Templeton Curve plots the cash flow impact of any Social Security proposal. The span of time measured is seventy-five years. The basis for the Templeton Curve is the cash flow analysis portion of the Financial Effects studies performed by the Office of the Actuary of the Social Security System. To date, two reform Social Security reform proposals have been scored according to this system by the Office of the Actuary: the Ryan-Sununu bill, also known as the Social Security Personal Savings and Prosperity Act and the Kolbe-Stenholm proposal, also known as the "Bipartisan Retirement Security Act."

[M. Dodge Thomas]

Thanks for the links.

I didn't see any direct cites there, but I THINK this may be what being referenced:

"Estimated Financial Effects of "The Progressive Personal Account Plan":

http://www.ssa.gov/OACT/solvency/PFerrara_20031201.html

If so the question is: can we reasonably expect both continued equities returns in the 6.5-7% range AND relatively low rates of economic growth? (This is what usually underlays projections of outcomes like those presented above.)

Hopefully, the authors of this estimate will make the underlying assumptions clearer.

(BTW, the link above has a reasonably clear explanation of how most such proposals, including the "ownership" component, would work.)

[Woodworker]

Here are the reports including the cash-flow analyses:

http://www.ssa.gov/OACT/solvency/PRyan_20040719.html

http://www.ssa.gov/OACT/solvency/Kolbe_20010824.html

Perhaps I'm denser than average, but I don't immediately see the "cash-flow" analysis in either report.