Social Security not a cause of, and not a solution to, national debt
It’s not, or at least it shouldn’t be, about Social Security.
Social Security is neither the cause of nor the solution to our nation’s financial problems.
Nonetheless, a bipartisan presidential commission looking for ways to reduce our national debt is making noises about dragging Social Security into the squabble. The Republican co-chair of the commission, former U.S. Sen. Alan Simpson, fed that impression in an email last month when he referred to Social Security as “a milk cow with 310 million tits.” Simpson also argued in that email that Social Security is in trouble unless it can be made sustainable and solvent over the long term.
Fortunately, that is an exaggeration of the program’s condition. The facts are as follows:
1.) With no changes in taxes or benefits, Social Security can continue to pay 100 percent of all promised benefits between now and 2036. It can do so by tapping a $2.5 trillion trust fund created precisely to cover the retirement years of the Baby Boom generation.
2.) Beginning in 2037, and for every year thereafter, Social Security would be able to pay recipients only 76 percent of promised benefits.
3.) That post-2037 gap could be closed with relatively minor fixes. For example, raising combined SSI payroll taxes from 12.4 to 14.4 percent would cover the bill entirely. A combination of a slight payroll tax increase, applying the tax to earned income above the current tax ceiling of $106,000 and adjusting scheduled cost-of-living increases could also eliminate the gap relatively painlessly.
If those are the kind of fixes that Simpson envisions — if his goal is to fix Social Security solely for the purpose of fixing Social Security — then that’s a discussion worth having.
However, if Simpson and others are after larger game — if they hope to tap the $2.5 trillion owed to Social Security as a way to address the nation’s larger fiscal problems, for example — they’re going to have an all-out fight on their hands.
Take a look at the chart above, from Stephen Goss, the chief actuary of the Social Security Administration. It documents, as a percentage of GDP, the amount of money collected each year in Social Security taxes above and beyond what Social Security paid out that year.
Note the year 1983. That year, a commission appointed by President Ronald Reagan recommended significant increases in Social Security payroll taxes in order to make the program actuarially sound. The idea, embraced by Congress, was that the additional revenue would be used to build a surplus in the Social Security Trust Fund so that when the Baby Boom generation began to reach retirement age, the money would be there.
Today, that surplus would amount to $2.5 trillion. But notice that word “would.” For more than 25 years, while working people were told that they were paying extra taxes to ensure their retirement security, that surplus tax revenue was actually being siphoned off to run general government operations. In effect, higher Social Security taxes were being used to offset revenue that had been lost to the government when Reagan cut income and corporate taxes, disguising the true fiscal impact of those cuts.
Today, technically, a surplus of $2.5 trillion now sits in the trust fund, ready to be used for Social Security. In reality, the trust fund contains government IOUs that taxpayers today and tomorrow will have to redeem, probably through payeing higher taxes. So here’s the question now before the body politic:
Will taxpayers — and politicians — honor the $2.5 trillion debt that is owed to Social Security and those who paid into it? Or, will they breach that trust by claiming that the debt is too big to be repaid in its entirety, and that benefit cuts will be required?
There’s no question that the nation’s longterm financial crisis is serious. Eventually, it will have to be addressed both through cuts in spending — including entitlements — and through tax increases. However, as long as it is made actuarially sound, Social Security ought to be exempt because it has been and continues to be a self-funding program, requiring no input from the general treasury other than repayment of what the treasury has borrowed.
To repeat, Social Security is not to blame for our financial problems. And it should not be treated as a piggy bank to be raided and not repaid, at the expense of those who count upon it.
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670 comments Add your comment
jm
September 7th, 2010
3:36 pm
HC 3:32 – I do likewise. If you can’t learn to live within a standard of living that permits saving, you’re consigning yourself to future poverty. When winter arrives, only the squirrels who’ve been storing away will make it through.
The Boner's Tan Line
September 7th, 2010
3:37 pm
Hell no! You don’t need any damn Social Security!
Jefferson
September 7th, 2010
3:38 pm
What we pay today goes to the parents and grandparents, it ain’t a savings account. It a social program, the name ought to tip you off. A little socialism goes a long way
Jay
September 7th, 2010
3:39 pm
Your numbers are bogus for another reason too, Harry. Also related to inflation. (I’m surprised it takes a lowly liberal arts major to point these things out to a numbers person such as yourself, but hey…)
By your example, you brag that somebody starting out today at $25,000 a year would possess a nest egg of $838,904 after 45 years. That sounds real nice. However, 45 years from now puts us at the year 2055.
Just how much buying power do you think your $838,904 nest egg would have at that point, 45 years from now?
How much buying power do you think $41,000 a year would have?
Of course, we can’t know for certain what will happen in the next 45 years, but we do have history to draw upon. We know that a dollar today has barely one-eighth the buying power of a 1954 dollar. If that were to continue for the NEXT 45 years, you would need a nest egg of $6.2 million to have the buying power seemingly promised by that $834,000.
Harry Callahan
September 7th, 2010
3:39 pm
Paul…I don’t need to retype it…you need to re-read it…I was responding sarcastically to suggestionfrom Bookman and others that you can’t invest at a rate of return higher than inflation.
Paul
September 7th, 2010
3:39 pm
Harry
“LOL at Paul…I’m supposed to be embarassed for pointing out that Social Security (like all government programs) is a complete joke and ripoff of working people?
We’ll see who’s embarassed on Nov 3.”
I believe that’s called ‘diversion.’ You asserted I wrote something, I asked you to cite, you replied with that.
See, diversion’s one of those things like namecalling. It’s used when the case is weak.
mm
September 7th, 2010
3:40 pm
Just more ignorance from the right. Cut military spending by 50 percent (after we get out of Afghanistan). How? By closing the thousands of bases around the world that we don’t need. Quit making weapons we don’t need. Get rid of this welfare for the military contractors. Leave SS alone.
Paul
September 7th, 2010
3:41 pm
Harry 3:39
Thanks. As RW-(the original) once pointed out to me, given the weakness of the written word, especially on a blog, it’s not a bad idea to add //sarc// at the end of such a post.
And I don’t recall reading where Jay said one can’t get returns on investments higher than the rate of inflation. Could you please provide a cite?
G.W.
September 7th, 2010
3:42 pm
Harry,
Really. I’m not even old enough to draw social security but I won’t turn my nose up to it when I do get old enough. Besides, it would only be about $1500/month if I start taking it at 62 and I already get more than that from my pension.
Jay
September 7th, 2010
3:42 pm
Harry, we are discussing the model YOU created. Not the one you now wish you created.
We aren’t talking rate of return, either, Harry. The much-lower salaries of 45 years ago would dramatically change the PRINCIPLE, the amount of accumulated savings on which to apply the rate of return, right Harry?
jm
September 7th, 2010
3:43 pm
Jay, its also true that Social Security doesn’t exactly produce a great rate of return. Depends on your income level to some degree. Either way, the problem with Social Security isn’t so much “rate of return” as it is about mismatched liabilities and assets as a result of demographic shifts.
The problem is, the funds provided to retirees come from those working today. If the math there doesn’t work out, it blows up. Ergo, demographics are the problem. The only solution to always having the demographic shift problem is to transition to a system where those receiving payments are getting them from their own savings.
God forbid if the US population or economy ever decline over the longer run. Then things get really nasty really quickly…. none of the projections consider this unlikely, but possible scenario.
stands for decibels
September 7th, 2010
3:43 pm
Harry, you’re ducking the truth and you’re smart enough to know it.
Jay, why must you peddle half-truths?
Bruno
September 7th, 2010
3:43 pm
The Bible is the one thing on this earth that doesn’t need ANY help from me !
Still couldn’t shake you, eh, Scout?? I’ll at least give you points for consistency.
BTW, for a good laugh, here’s a quote from Jay’s Jan 1, 2009 column:
“By Taxpayer
January 1, 2009 9:06 AM | Link to this
Happy New Year. I predict that 2009 will be the year of enlightenment.”
How’d that work out for you, Taxpayer?? Were you enlightened??
Jay
September 7th, 2010
3:46 pm
Even your updated numbers — starting salary of $15,080 — are almost seven times higher than they would be “real-life,” Harry.
jm
September 7th, 2010
3:47 pm
FOR ALL THOSE HUNG UP ON THE RATE OF RETURN ISSUE, here’s some reading.
1.32% currently, negative if you’re a minority and / or have a short life expectancy.
http://www.heritage.org/research/reports/1998/01/social-securitys-rate-of-return
Harry Callahan
September 7th, 2010
3:47 pm
Jay…you’re right, a lowly liberal arts major has no business in this discussion.
Current inflation rate is 2.63% annually, see link…
http://inflationdata.com/Inflation/Inflation_Calculators/Inflation_Rate_Calculator.asp
If we earn 7.63% on investments, and subtract out the 2.63% inflation, the real rate of return is…5% !!! Amazing!!!
Also, the long term history of the U.S. stock market shows that buying and holding (what you do in a 401(k) beats 10%.
http://www.stocks-simplified.com/Average-Stock-Market-Return.html
My model is conservative…most will do better…
Paul
September 7th, 2010
3:48 pm
sfd 3:43
I laughed. I shouldn’t have, but dang, that was funny!
A Harry Callahan Admirer
September 7th, 2010
3:49 pm
Are there no workhouses? Are there no prisons?
Harry Callahan
September 7th, 2010
3:49 pm
No ducking the truth by Callahan, Jay. Sorry.
But if y ou’re right, and Socail Security beats the market, how can the government provide Social security payments without increasing the debt? I anxiuosly await your reply Jay. Please don’t duck the truth.
Bruno
September 7th, 2010
3:50 pm
What we pay today goes to the parents and grandparents, it ain’t a savings account. It a social program, the name ought to tip you off. A little socialism goes a long way
Harry–Why don’t you put your mind at rest and simply heed the words of Jefferson above. Whatever the original intent of SSI was, it’s turned into one more wealth-transfer scheme, one more political football to be tossed around. The AARP is one of the most potent voting blocs, so don’t look for any reasonable “fixes” to SSI any time soon. The best we can hope for is that some of the money will still be there when we reach retirement age.
Jackie
September 7th, 2010
3:50 pm
@RW(original)
There are many more of those links that show how The Chamber of Commerce and other so-called conservative organizations conspired to make things difficult for all of us to make a political point for the Repubs.
If you don’t believe, try a web search.
Jay
September 7th, 2010
3:51 pm
Your numbers are garbage Harry.
And you know it.
barking frog
September 7th, 2010
3:52 pm
SS is Old Age and Survivors, Disability Benefits. Not
an Investment but an Insurance Policy. If you pay in
an appropriate amount of time, and get disabled you
get paid. If you die your kids and wife may get paid.
When your wife gets old she can get paid on your
policy. When ‘investing’ you have to factor in an
insurance policy cost to compare.
Harry Callahan
September 7th, 2010
3:52 pm
Have courage Jay…be brave…
If Social security payments are better than the market, how is it possible for Social Security to be anything but a giant Ponzi scheme?
Harry Callahan
September 7th, 2010
3:53 pm
Jay, my numbers are FACT, and YOU know it.
Harry Callahan
September 7th, 2010
3:55 pm
Jay, is it your contention that a 20-yr-old guy making $2,500/year in 1955 was still making $2,500/year when he retired at age 65 in year 2000?
I anxiously await your reply.
Jay
September 7th, 2010
3:55 pm
When did I say that Social Security beats the market, Harry?
I didn’t.
You are desperately trying to change the subject. The subject is your bogus numbers, the “math excercises” you claimed I was ducking.
jm
September 7th, 2010
3:55 pm
Even the Brookings Institute (generally, but not always, considered liberal) recommends SS reform.
http://www.brookings.edu/opinions/2010/0821_security_benefits_pozen.aspx
http://www.brookings.edu/opinions/2010/0722_saving_social_security_rivlin.aspx
Of course, as everyone seems to be aware, the biggest hole is from Medicare. Too little discussion on how to fix that baby because its the messiest government program of all time. And absolutely no one has very good answers. Thanks Lyndon, Master of the Senate and the art of compromise….
Bosch
September 7th, 2010
3:56 pm
Jay,
I’d like to say thank you for not giving the crazy FL man the attention he obviously is craving.
Jay
September 7th, 2010
3:59 pm
“Jay, is it your contention that a 20-yr-old guy making $2,500/year in 1955 was still making $2,500/year when he retired at age 65 in year 2000?”
Again, Harry, inventing words to put in my mouth?
No, that is not my contention, and you know it. You claimed — and built into your equation — that someone starting out in 1955 would be making first $25,000, and then $15,000, when in fact those would have been quite handsome salaries back then, the equivalent of six-digit incomes today.
In reality, people starting out back then made two or three grand. You know it; it’s pretty simple. But you’ve been caught and can’t bring yourself to admit it.
G.W.
September 7th, 2010
3:59 pm
Well, it is not like we really have to worry about inflation too much given the most excellent reset buttons that we have in place these days. What with the stock market resetting itself to less than where it started over an eight year period and housing prices resetting. If only gas and electricity and healthcare and such would follow suit.
Harry Callahan
September 7th, 2010
3:59 pm
Jay…we’re trying to take you seriously, but it’s tough…
The whole point of my spreadsheet model was to prove that the market would beat social security in almost every scenario.
You say my numbers are garbage, which I can only assume means that you dispute my conclusion (that market investments beat social security).
Now you claim that you never said Social security beats the market.
Based on the above, which of my numbers, exactly, is garbage, and even if they are garbage, if social security still doesn’t beat the market then what, exactly, is your point? Do you have a point?
Thanks in advance.
larry
September 7th, 2010
3:59 pm
Hmmmmmmm…….Got another ” Please help me” letter from Paul Broun….LOL!!
10 cents postage………………the other 32 cents subsidized by you know who ?
Poor guy, he must really be in trouble if he is asking ME for help. Its not like ive written him a dozen times telling him how i feel about issues. Of course, there was no response. And now he wants MY help. LMAO!!
I am going to send it back like i did the last time. Pfffffft……vote against a bill banning the selling of animal crush videos.
Harry Callahan
September 7th, 2010
4:01 pm
Speaking of putting words in people’s mouths, Jay, where exactly did I assign a time period to my model? Where did I say that either the $25,000 or the $15,080 starting salary assumption was in 1954?
Thanks in advance.
Harry Callahan
September 7th, 2010
4:02 pm
Jay, please tell us what the average starting salary was for a 20-yr-old in 1954, cite your source, and I’ll be glad to run another iteration of my model.
Thanks in advance.
Harry Callahan
September 7th, 2010
4:04 pm
Jay
September 7th, 2010
3:59 pm
You claimed — and built into your equation — that someone starting out in 1955 would be making first $25,000, and then $15,000″
Time stamp of that post of mine, please?
Jay
September 7th, 2010
4:04 pm
And actually, I have to confess a math error of my own in all this.
You would need $5.74 million, not $6.2 million, in today’s dollars to have the same buying power you would have had with $834,000 back 45 years ago. That further means today’s dollar is worth roughly one-seventh, rather than one-eighth, the previous buying power.
I apologize for the error.
jm
September 7th, 2010
4:04 pm
Ok folks, median HH income was $33,000 in 1967, the earliest I could quickly find info (but only 12 years later than 1955). In 67, there were fewer dual income households than today. Make of that what you want.
Still, this is not the central issue with SS (although it is a small part).
Kamchak
September 7th, 2010
4:04 pm
Tick…tick…tick….
TaxPayer
September 7th, 2010
4:05 pm
Every year is a year of enlightenment for me. Hence, I have no issues with claiming such. Further, I fully expect to be brain dead in any year that I have not been enlightened. That’s just the kinda guy I am.
Harry Callahan
September 7th, 2010
4:07 pm
Jay, still waiting, when did I say that my model assumed 1954 start date? Tick…tick…tick…
Harry Callahan
September 7th, 2010
4:07 pm
Kamchak, are you opposed to socialism? Tick…tick…tick…
jm
September 7th, 2010
4:08 pm
If you’re a single black male that gets shot before 65, your rate of return is negative 100%.
Of course, as someone pointed out earlier, it is an insurance program of sorts. But that’s still food for thought. In some ways, the richest that will live the longest benefit the most from social security, while the poor with low life expectancy get hosed.
How’s that feel if you’re a liberal? It doesn’t excite me too much, and I’m not a liberal.
TaxPayer
September 7th, 2010
4:09 pm
Harry. Come on now. You did state a 45-year income window. So, one can assume that you meant 45 years ago as the starting point or 45 years from now until the end point or anything in between as long as you do not specify.
Pogo
September 7th, 2010
4:11 pm
It’s a good thing that the Federal Government doesn’t have to comply with Sarbanes/Oxley. If they did, there would be hell to pay.
Social Security funds have been plundered by our money spending leaders. Timelines really don’t matter. The truth is that the money has been used for something else and IOU’s don’t buy crap and there isn’t enough money coming in to pay for what is going out. Social Security was another progressive dream that had all “good” intentions (as all progressive programs do) but those pesky “realities” weren’t looked at with a critical eye (as is most often the case with progressive ideas). Roosevelt at least said, (though he probably knew better), “we shouldn’t saddle future generations with the costs of our actions”. Boy, if he could see what Obama and Co. are doing now he would just love it. Roosevelt was the man that wrote the bible on mixing progressivism and politics. He held no special loyalty to either one, only to himself.
And hey, if you want to know what progressivism will get you, try to catch at train in Paris today!
jm
September 7th, 2010
4:11 pm
Seems we should all be able to agree SS returns generally stink, even if you’re the exact “average” person. It wasn’t designed to be a sexy hedge fund investment with great 20% returns. Instead, it was an insurance scheme, of a particularly bad sort.
What people should be discussing is how to fix SS, not whether its good or not. The verdict is already in, SS stinks on most metrics and needs fixin.
barking frog
September 7th, 2010
4:13 pm
social security can provide benefits to each spouse a
person has for 10 years or more. a good argument against
polygamy, from the government’s standpoint anyway.
Jay
September 7th, 2010
4:15 pm
That was the source of my just-discovered error, Harry.
I should have said and figured from 1964, not 1954, using your 45-year working career in your model. In 1964, $3,650 was the inflation-adjusted equivalent of your claimed starting salary of $25,000. $2,680 would be the equivalent of your later number of $15,000.
And jm, that $33,000 median household income in ‘67 is inflation adjusted. In real numbers it was just a fraction of that.
barking frog
September 7th, 2010
4:15 pm
If you are opposed to socialism does that make you opposed
to Happy Hour?
Paul
September 7th, 2010
4:15 pm
Harry
“If we earn 7.63% on investments, and subtract out the 2.63% inflation, the real rate of return is…5% !!! Amazing!!!”
You may want to ask that question of a certified financial planner. The answer just might surprise you.
“The whole point of my spreadsheet model was to prove that the market would beat social security in almost every scenario.”
Many who’ve been here a while will address Jay’s topic – SS and national debt – before venturing off with their pet themes.
Oh, and “Speaking of putting words in people’s mouths, Jay, where exactly did I assign a time period to my model? Where did I say that either the $25,000 or the $15,080 starting salary assumption was in 1954?”
What you wrote was “If you make $40,000 per year (roughly the mediam income in the U.S.) every year from age 20 to age 65.” Jay was simply making it real world point of reference, as you put in a 45-year time span. He made a simple math error and got the starting point off, but no big deal, as it’s the concept he was after.
Harry Callahan
September 7th, 2010
4:17 pm
OK, just because a few of you don’t understand that the 5% assumption in my original model was a lowball assumption chosen for the specific reason of taking inflation out of the equation…
Let’s re-run the model…
Assumptions…
A) a 20-yr-old guy born in 1990 getting his first job in 2010
B) who has a starting salary of $25,000
C) who gets an annual pay increase of 2%
D) who works 45 years and retires in 2055 at age 65
E) who invests 12.4% of his income in a stock market based mutual fund, earning the proven long-term market return rate of 10%
F) but suffers inflation losses of 2.63% annually
This person will have accumulated $3,336,000 by retirement. At that same 10% earnings rate, he can withdraw $336,000 each year to live on, without ever touching the $3.36 million principal, thereby leaving it to his heirs.
Howver, the 2.63% annual inflation rate has reduced the buying power of his $336,000. Based on the formula;
(1 + .0263)^45 = 3.216213, his income is now only worth;
$336,000 / 3.216213 = $103,728
Now, I’m thinking $103K is better than social security, but whatever…
Harry Callahan
September 7th, 2010
4:18 pm
Jay & Paul, I’m anxiously awaiting your analysis to show that my numbers from 4:17 are garbage.
Thanks in advance.
Jay
September 7th, 2010
4:19 pm
Here’s an ACTUAL real-life example, Harry, covering much the same time period we’ve been discussing,
http://www.csmonitor.com/2004/1227/p01s03-cogn.html
jm
September 7th, 2010
4:20 pm
Jay 4:15 – yep, woops, seemed high to me too. Found unadjusted (for inflation) data for anyone feeling the need to continue this discussion:
Avg HH Income in 1993 dollars
1955 4,418
1960 5,620
1965 6,957
1970 9,867
1975 13,719
1980 21,023
1985 27,735
1990 35,353
Harry Callahan
September 7th, 2010
4:21 pm
I took the liberty of re-running the models with all of the same assumptions as 4:17. except a minumum wage startng salary of $15,080. Results are;
$2,012,335 retirement amount
$201,233 annual retirement income
$62,568 inflation-adjusted buying power in year 2055 of the $$201K
I anxiously await your responses, as always…
jewcowboy
September 7th, 2010
4:22 pm
Harry Callahan,
Seeing how anxious you’ve been on this blog today, may I suggest:http://www.healthcentral.com/anxiety/find-drug.html
Harry Callahan
September 7th, 2010
4:23 pm
I can already smell smoke from Paul & Jay’s heads exploding as they try to refute the updated model…
“But Harry, inflation is more than that…”
“But Harry, nobody earns 10%…”
1) If inflation is higher, wages go up by more than 2% annually also.
2) 10% is the long-tern yield on the stock market.
Read ‘em and weep, boys.
Jay
September 7th, 2010
4:23 pm
Actual REAL-LIFE inflation rate, 1913-2007: 3.42 percent, which of course compounds over time.
http://www.inflationdata.com/inflation/images/charts/Articles/Decade_inflation_chart.htm
TaxPayer
September 7th, 2010
4:25 pm
Seeing how anxious you’ve been on this blog today, may I suggest:http://www.healthcentral.com/anxiety/find-drug.html
I was anxiously awaiting to see who would post something along those lines myself.
Harry Callahan
September 7th, 2010
4:25 pm
OK, I re-ran the model from 4:21, with the exception of assuming 3.42% uinflation as opposed to 2.63%.
Same $2.01 million retirement amount
Same $201K annual income in retirement
Buying power reduced from $62,568 to $44,309
Still better than Social Security
Jay and Paul still lose.
Harry Callahan
September 7th, 2010
4:26 pm
My numbers still garbage Jay? LOL
Harry Callahan
September 7th, 2010
4:27 pm
You want me to email you the Excel file Jay so you can learn how to do financial analysis?
jm
September 7th, 2010
4:27 pm
Jay 4:23 – of note, last paragraphs:
Advocates of privatization point out – correctly – that Logue’s analysis compares theoretical stock returns with what the Social Security Trust Fund earned – not what he himself would get from the system.
From that perspective, the investment approach looks better, they argue. Over the long run, a typical worker can expect to earn 4.6 percent a year (after administrative costs) on a diversified portfolio of stocks and bonds and only about 2 percent or less from Social Security, according to federal estimates reported by Michael Tanner of the Cato Institute, long a proponent of privatization. Hypothetically, someone earning $30,000 annually would at the end of a 40-year career receive nearly twice as much under the investment approach ($344,000) than with Social Security ($185,000).
jm
September 7th, 2010
4:27 pm
correction, meant to be Jay 4:19…
Harry Callahan
September 7th, 2010
4:28 pm
By the way, my model only assumes a 2% annual pay increase, which is les than the 3.42% inflation adjustment, which menas that my income numbers are WAY low. In real life, the model would make SS look even WORSE…
Paul
September 7th, 2010
4:28 pm
Harry
You pay 12.4 percent of your income in SS taxes? (”who invests 12.4% of his income”)
“earning the proven long-term market return rate of 10%”
So thought a lot of near-retirees until the last crash, right before they were to retire, cut their stock-based savings in half. Now you have to rerun the model showing withdrawals at that time and the time to recovery.
“earning the proven long-term market return rate of 10%” You may want to do a sensitivity analysis on that.
“Except that the city is on the hook for all the promised benefits. Taxpayers will have to pony up hefty contributions for years, even generations, and the city may have to cut services to afford it. The pension for city employees is currently projected to pay out $432 million more than it brings in over the next 30 years.
And that’s the optimistic scenario. If investment returns average 7 percent, rather than the dreamy 8.5 percent in the assumptions, the unfunded liability could approach $1 billion.”
http://www.star-telegram.com/2010/09/04/2445012/fort-worth-pension-bubble-will.html
45 years of assumptions with a then-year difference of just over a hundred grand? Even at a current year amount that’s quite problematic. Especially if you die in five, ten or fifteen years and leave kids. But I’m sure you’ve worked in the value of life insurance premiums to account for that.
“I’m anxiously awaiting ”
You’re quite anxious a lot, aren’t you? Relax. It’s just ideas.
TaxPayer
September 7th, 2010
4:28 pm
Now, I’m thinking $103K is better than social security, but whatever…
What if someone had the bright idea of adjusting social security payments for inflation.
Jefferson
September 7th, 2010
4:29 pm
Median income is a bogus number, just mean half the sample makes more, half less.
Average is bogus – if you have one foot in fire and one in ice, on average you are ok.
Truth you have a lot of people that can’t afford to save if they want to eat, have a roof over their heads and cloth the family, not to mention pay for health insurance.
Haves and have nots, the haves never understand.
RW-(the original)
September 7th, 2010
4:30 pm
Jackie,
It was your charge and it should be incumbant on you to provide the proof of this evil plot by the Chamber of Commerce. I won’t be going off on a wild goose chase on your behalf.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Interesting debate on the nest egg model. If someone started out in 1954 with the small number that Jay B states then doesn’t the rate of annual increase have to be adjusted way upward from the modest annual increases Harry built in to the equation?
Harry,
Just for kicks why don’t you adjust the annual increase in wages to accurately reflect the last 56 years and then project that over the next 45? (I’m not sure why Jay B is going forward 45 and back 56 years though)
Harry Callahan
September 7th, 2010
4:30 pm
Paul, please purchase “Stock Market For Dummies”
As you approach retirement, you begin moving out of stocks and into less volatile instruments. Get a clue.
Global Warming Deniers Club of America aka GOP
September 7th, 2010
4:31 pm
We need someone with your assumptive skills.
jm
September 7th, 2010
4:31 pm
Paul – “Relax. It’s just ideas.” You’re right, they’re just ideas that affect the future prosperity of this country and everyone in it. In which case, I’m beginning to believe I need to move somewhere people have sensible ideas, not crazy ones.
RW-(the original)
September 7th, 2010
4:31 pm
Note to self: Next time copy your work and see if all your items have already been addressed before posting….
Harry Callahan
September 7th, 2010
4:32 pm
TaxPayer
September 7th, 2010
4:28 pm
Now, I’m thinking $103K is better than social security, but whatever…
“What if someone had the bright idea of adjusting social security payments for inflation.”
I already had that bright idea. The $103K is adjusted down from $336K so as to be measured in today’s dollar, and thus directly comparable to the $20K or whatever you currently get from SS.
LOL, try again.
G.W.
September 7th, 2010
4:32 pm
As you approach retirement, you begin moving out of stocks and into less volatile instruments. Get a clue.
You mean like things that earn a rate of return more like treasuries? But, wouldn’t that impact your calculations too.
Harry Callahan
September 7th, 2010
4:32 pm
Taxpayer, congratulations, that was the most clueless post on this topic yet.
Paul
September 7th, 2010
4:32 pm
Harry
“You want me to email you the Excel file Jay so you can learn how to do financial analysis?”
Oh, puhleeze. I don’t mean this snarky. Maybe. But you really call that example “financial analysis?”
As I said, take it to a certified financial planner and ask him/her if that qualifies as ‘financial analysis.” Be sure to tell him/her no matter what the response, you won’t be back to spend more money.
Then wait for the answer.
Don't tell USinUK
September 7th, 2010
4:33 pm
Beer guzzling, belching, hideous dress sense – and that’s some of the nicer things the rest of the world said about British women.
The nation’s females were lambasted when asked which country had the ugliest women in an international poll.
Votes poured in, with people from around the globe eager to point out how overweight, unladylike, and generally foul British women are.
Read more: http://www.dailymail.co.uk/news/article-1308985/Female-Brits-abroad-branded-ugliest-world.html?ito=feeds-newsxml#ixzz0ysTrlmvs
Jay
September 7th, 2010
4:34 pm
I feel no need to refute those latest numbers, Harry. They are finally within the realm of possibility, now that you’ve been forced to redo them.
But as Paul points out, Social Security is an income insurance program, not an investment club in which you might certainly do better, but you also might certainly do a lot worse. Again, check out the real-life example cited earlier.
jewcowboy
September 7th, 2010
4:34 pm
TaxPayer,
“I was anxiously awaiting to see who would post something along those lines myself.”
I was anxious to find out if I would be the first to post about Harry’s anxiety. But now I am anxious to find out if anxiety over Harry’s anxiousness will cause more anxiety in the anxious prone.
Hillbilly Deluxe
September 7th, 2010
4:35 pm
This really doesn’t have anything to do with Social Security. They’ve been taking money from it to pay for other things for years. The chickens are heading home; it’s about roosting time. Follow the money.
TaxPayer
September 7th, 2010
4:35 pm
I already had that bright idea. The $103K is adjusted down from $336K so as to be measured in today’s dollar, and thus directly comparable to the $20K or whatever you currently get from SS.
But you were not talking today’s dollars given that your scenario involved a person starting his or her 45 year career in 2010.
Harry Callahan
September 7th, 2010
4:37 pm
G.W.
September 7th, 2010
4:32 pm
“You mean like things that earn a rate of return more like treasuries? But, wouldn’t that impact your calculations too.”
Yes, you would earn less as you approach retirement, but as stated above, my 2% annual raise number is way low too. It is what it is. Get over it. Social Securtiy is a joke.
TaxPayer
September 7th, 2010
4:37 pm
I was anxious to find out if I would be the first to post about Harry’s anxiety. But now I am anxious to find out if anxiety over Harry’s anxiousness will cause more anxiety in the anxious prone.
QUIT THAT! You’re making me get hot flashes and I’m a guy! Maybe it’s that Monsanto corn I’ve been eating.
Jay
September 7th, 2010
4:37 pm
“For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?
He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).
To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.”
http://www.csmonitor.com/2004/1227/p01s03-cogn.html
Pogo
September 7th, 2010
4:38 pm
And Jay, kudos to you for apologizing about an error. Though the piece earlier today on America’s cult of personality was pretty interesting. Though I am not a Beck fan, I must say, for the most part his inclusion into the list (by you) of the media darlings was obviously politically driven. He is not in the same league of meaninglessness (not sure if that is a word) as Lady GG and the idiot lawyers idiot daughter. Beck is a showman but he is also an astute observer of what is going on. And make no mistake, for many, many Americans who can see through what is showmanship and what is truth, he does ring a bell. I have as of yet to hear one thing that Beck has said that they liberals can truthfully say is a lie and I think that is what galls you liberals the most. I think most American’s (at least the non-black ones) at this point do believe that Obama is prejudiced against whites (which is the big one that liberals like to lodge against Beck as being a loonie). I mean, what do we have to judge Obama by? His attendance for 20 years in Wrights anti-white congregation? The Black Panther voting case? His response to his professor buddies irrational behaviour against a white police officer? Maybe Obama’s problem is that he isn’t all that proud to be black. Hmmmm.
Paul
September 7th, 2010
4:40 pm
Harry
“Paul, please purchase “Stock Market For Dummies”
As you approach retirement, you begin moving out of stocks and into less volatile instruments. Get a clue.”
Oops, you did it again.
I asked a couple questions about your assumptions, and that’s the response?
Lots of namecalling, overt as well as passive-aggressive, but no answers.
Diversion, diversion, diversion.
G.W.
September 7th, 2010
4:40 pm
Yes, you would earn less as you approach retirement, but as stated above, my 2% annual raise number is way low too. It is what it is. Get over it. Social Securtiy is a joke.
But what about the 5% annual return every year for 45 years. Are you anticipating that treasuries will be paying that much 40 years from now.
Harry Callahan
September 7th, 2010
4:41 pm
Jay, I think your 4:34 is a fair and level-headed response, and I’ll try and take the high road as well.
I don’t think my numbers were garbage. I do this for a living. Social Security is in no way, shape or form a decent investment fro any working person.
If you look up the historic SSI tax rates, when the program began the tax was like 1% capped on the first $2,000 you made per year. It was great for the first retirees, because, like all Ponzi schemes, the people who got in at the bottom got back 10 times more than they ever paid in.
But now, unfortunately, we’re at the point where the music is stopping and there are no more chairs. We’re hosed. Social Security is a bankrupt joke.
Harry Callahan
September 7th, 2010
4:42 pm
G.W….where did I advocate buying treasuries?
jm
September 7th, 2010
4:44 pm
Jay 4:37 – what’s funny is that the government didn’t pay him out based on that. That was based on the returns the “fund” earned on its IOU’s. What he actually got out (or what anyone on average would get out) is substantially less. As the article points out at the end, returns have historically been around 2%. Obviously not great, not awful for what is supposedly a “guaranteed” investment.
Fact – SS returns are not great.
Fact – SS returns are not awful considering its a “guaranteed” “investment”
Fact – the biggest problem with SS is demographic (birth rate and life expectancy)
Fact – the demographic problem will drive the US into bankruptcy or hyperinflation if not addressed
Fact – either way, SS then become worthless
Fact – therefore, something has to be done to fix SS
larry
September 7th, 2010
4:45 pm
Actually, the 2% per year annual raise is about right, that was the average over the past ten years. But 10% rate of return over the next 45 years maybe a bit optimistic.
Actually 5% to 7% rate of return is more realistic.
jm
September 7th, 2010
4:46 pm
HC 4:41 – very true.
RW-(the original)
September 7th, 2010
4:46 pm
To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.”
I’m not sure why anybody would invest in just the Dow, but if he died a few months after turning 65 how much would his family keep out of these two amounts?
Paul
September 7th, 2010
4:47 pm
Jay 4:37
Now add in longevity increases over those 45 years….
And Harry
I just assumed in my earlier post some things were self-evident. Like the comparison of your 10 percent return compared to a local gov’t entity calling 8.5 ‘dreamy.’ Or the concept of a sensitivity analysis – varying an input and seeing what effect it has on output, especially to see if the input has a greater effect than other variables or what was expected. Like increasing an investment return from 7 percent to 8.5 percent, giving far rosier projections and leading to horrendous consequences when life doesn’t follow the plan.
Jefferson
September 7th, 2010
4:47 pm
Simply remove the ceiling on SS and raise the rates and it will go another 100yrs.
Harry Callahan
September 7th, 2010
4:47 pm
Jay
September 7th, 2010
4:37 pm
“For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?
He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).
To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.”
See my 4:41…
If he retired in 1994 after 45 years, he began paying into SSI in 1949.
The initial rate was 3%, as compared to 12.4% today, and capped at the first $3,000 of income;
Year Social Security Tax Rate
1950 3%
1960 6%
1970 8.4%
1980 10.2%
1990 12.4%
2000 12.4%
2008 12.4%
source… http://www.justfacts.com/socialsecurity.asp#Taxes
G.W.
September 7th, 2010
4:48 pm
G.W….where did I advocate buying treasuries?
You said that you would move money into less risky areas as you approach retirement so that would be something that would preserve principal. I merely used treasuries because that is what many people rely on to do just that and the downside to moving money into treasuries is that you give up the potential for high returns. If you prefer passbook savings or a checking account or even a money market fund, that’s fine too.
larry
September 7th, 2010
4:49 pm
I still say lifting the income cap from 106,800 to 500,000 or 1 million would fix the system
Why should the middle class have to have all their income taxed for SS and the wealthy just a fraction.
Harry Callahan
September 7th, 2010
4:50 pm
So yeah, Mr. Defense Industry Analyst and his employer paid a combined 3% on the first $3,000 in 1949.
3% of $3,000 is $90. So yeah, I guess contributing $90 per year and getting $261K back out was a pretty good deal.