Social Security?

[IronWing]

OP-the "research" you did assumes that Congress will make no changes to the Social Security program between now and 2041. Granted Congress in the past decade plus has been abysmally inefficient but to assume they will revise/reform the SS program is pure silliness.

This same sort of thing has come up several times in the past and Congress has acted.

This is the sort of Chicken Little thinking that so-called libertarians delight in.

I think it is a case of politicians who are ideologically opposed to the whole concept of Social Security trying to undermine support for the system by convincing younger folks that the system won't be there for them and working to create a self-fullfilling prophecy.

 

[Ken g6]

This same sort of thing has come up several times in the past and Congress has acted.

Remove the $100k cap on earnings tax.

:thumbsup:

The problem is that more taxes need to be raised for Social Security to keep working. Which I don't mind, but some people do. What happens when older voters (an unstoppable force) meet the Taxpayer Protection Pledge (an immovable object)?

 

[dullard]

I'll use an example that probably applies to many of Anandtech posters: single male born around 1980. On average this group gets the about the worst possible return on their social security dollars, ~1.5% after inflation. The only group doing worse is the ultra-high earning single males.

Suppose you pay in $1000 now and will retire in 32 years. That $1000 will grow to $1610 (inflation adjusted to today's dollars).

But, here is the kicker, social security if unfixed will run out of enough spare cash by then. So, it can't pay the full $1610. It can only pay about 75% of that. You'll only get $1207.

So, in essence, you didn't lose money (your $1000 became $1207). But what you lost is what you were promissed was $1610 and you only got $1207. This is all inflation adjusted, so don't bring up that issue, you still gained. True, you possibly could do better investing on your own. But nothing is stopping you from doing that too (there are tons of tax benefits for doing so).

 

[vi edit]

Remove the $100k cap on earnings tax.

You talking about the limit that you no longer pay FICA? Yeah that hasn't been 100k for years. It's at 118.5k now and going up at a rate of about $1,000 a year.

 

[edro]

Ratio of Social Security Covered Workers to Beneficiaries
Calendar Years 1940-2010
http://www.ssa.gov/history/ratios.html

Currently @ 2.8 Workers to 1 Beneficiary

Projection
http://www.ssa.gov/oact/tr/2014/II_D_project.html

 

[mizzou]

You need to start pumping out babies....now.

 

[dullard]

By the way the cause of this is the growing income inequality. Reagan fixed social security so that at the time it was assumed that it will never run out of money to pay it's promisses. But that assumed that ~90% of wages would be covered by FICA taxes. That hasn't happened. As the rich got richer and the poor/middle class stagnated, suddenly far less than 90% of wages were covered by FICA. The formula that they used when Reagan fixed it is now inadequate.

The fixes are to lower promissed payouts, raise taxes, raise retirement age, dramatically increase immigration, or go back to the ~90% of wages being taxed by FICA (raise the cap on income that is taxed). These are all easy fixes theoretically. But they are all political death wishes. Thus no politician wants to fix it.

 

[IronWing]

Ratio of Social Security Covered Workers to Beneficiaries
Calendar Years 1940-2010
http://www.ssa.gov/history/ratios.html

Currently @ 2.8 Workers to 1 Beneficiary

Projection
http://www.ssa.gov/oact/tr/2014/II_D_project.html

The ratio of workers to beneficiaries is not important. The ratio of income subject to the SS tax to benefits is the important metric. No need to crank out babies to fix SS; we just need to appy the tax to income that used to be subject to the tax that now isn't.

 

[edro]

The ratio of workers to beneficiaries is not important. The ratio of income subject to the SS tax to benefits is the important metric.

Right, so I wonder if there is a stat for:
$ In / $ Out

That has to be a pretty standard metric for something like SS.

What is that ratio and how has it trended?

 

[dullard]

Right, so I wonder if there is a stat for:
$ In / $ Out

That has to be a pretty standard metric for something like SS.

What is that ratio and how has it trended?

See chart #1 and #2 here:
http://www.ssa.gov/policy/docs/ssb/v73n1/v73n1p83.html

A lot more income been placed in the non-taxable category for social security (chart #1). So in 1950, 95% of the income was potentially taxable, and in 2010 just over 80% of the income was potentially taxable by social security. Basically, more and more compensation is in the form of non-taxable benefits. Hypothetical example: instead of being paid $40,000 cash and $5000 for health insurance, now people are being paid $35,000 and $10,000 for health insurance. The company may pay the same amount ($45,000 a year in both cases) and the employee may get the same amount of cash+benefits ($45,000), but the social security collects less ($35,000 is taxed vs $40,000).

Out of the smaller bucket of income (80% of total), more and more of that is above the social security income cap (chart #2, light grey line). That means that while it was the right kind of income to have been taxed, it wasn't taxed because that person made too much money to be taxed. Chart #2 (light grey line) needs to stay above 90% for social security to be solvent.

 

[kranky]

I took a look at how much of what SS pays is for traditional benefits (old age, widow, dependent children, etc.) and how much is for disability.

When SS got "fixed" in 1983, 10% of all SS payments were for disability. Today it's 17%. Traditional SS payments have gone up 373% since 1983 (not adjusted for inflation), while disability payments have gone up 708% in the same period.

What I don't know is how much those skyrocketing disability payouts affect the overall solvency of the system. I strongly suspect that the SS disability system is being fleeced like a boss.

The fix to SS will have to include deferring benefits until a higher age. People are simply living longer and a system that once paid benefits to people for less than 10 years on average can't work the same for people who are expected to draw benefits for 25 years after retirement.

SS is not going to go away but everyone needs to save for their own retirement if for no other reason than to be in control of your own income.

 

[MetalMat]

SS is just a glorified ponzi scheme and everyone knows it.

 

[vi edit]

SS is just a glorified ponzi scheme and everyone knows it.

Can't you say the same for just about any defined benefit pension account?

 

[IronWing]

SS Disability has become the support system for lots of mentally ill people who used to be covered by other programs. Cost shifting by the feds to the states and then the states to SS disability puts a strain on the system. Likewise, cost shifting from workers comp to SS disability is also hammering the SS disability program. It would be nice to see Congress push back against states that allowed employers to dump their legitimate workers comp cases onto S disability. Won't happen, but one can hope.

 

[IronWing]

SS is just a glorified ponzi scheme and everyone knows it.

So fix it. Raise taxes to cover the benefits.

 

[dullard]

Can't you say the same for just about any defined benefit pension account?

And if you go there, then stocks too are a ponzi scheme.

The reason that these aren't ponzi schemes is that real income is coming into the system from outside. It isn't me getting 5 other people to pay me (who each get 5 other people to pay them, etc). Instead it is me getting 1 other person to pay me and I get interest from the social security investments.

 

[Nograts]

SS Disability has become the support system for lots of mentally ill people who used to be covered by other programs. Cost shifting by the feds to the states and then the states to SS disability puts a strain on the system. Likewise, cost shifting from workers comp to SS disability is also hammering the SS disability program. It would be nice to see Congress push back against states that allowed employers to dump their legitimate workers comp cases onto S disability. Won't happen, but one can hope.

What covered them before?

 

[dullard]

What I don't know is how much those skyrocketing disability payouts affect the overall solvency of the system. I strongly suspect that the SS disability system is being fleeced like a boss.

The fix to SS will have to include deferring benefits until a higher age. People are simply living longer and a system that once paid benefits to people for less than 10 years on average can't work the same for people who are expected to draw benefits for 25 years after retirement.

I agree with the above completely. Imagine a world where medicine gets even better and we live to 100, 125, 150, etc. Can we really expect to work for ~45 years and mooch off of society for 100+ years?

 

[Blackjack200]

I'll use an example that probably applies to many of Anandtech posters: single male born around 1980. On average this group gets the about the worst possible return on their social security dollars, ~1.5% after inflation. The only group doing worse is the ultra-high earning single males.

Suppose you pay in $1000 now and will retire in 32 years. That $1000 will grow to $1610 (inflation adjusted to today's dollars).

But, here is the kicker, social security if unfixed will run out of enough spare cash by then. So, it can't pay the full $1610. It can only pay about 75% of that. You'll only get $1207.

So, in essence, you didn't lose money (your $1000 became $1207). But what you lost is what you were promissed was $1610 and you only got $1207. This is all inflation adjusted, so don't bring up that issue, you still gained. True, you possibly could do better investing on your own. But nothing is stopping you from doing that too (there are tons of tax benefits for doing so).

I was under the impression that Medicare spending was a much bigger problem anyway.

 

[B-Riz]

Why Social Security can NEVER go bankrupt

:thumbsup:

Good article.

 

[HendrixFan]

I agree with the above completely. Imagine a world where medicine gets even better and we live to 100, 125, 150, etc. Can we really expect to work for ~45 years and mooch off of society for 100+ years?

People's diet and exercise are correspondingly getting worse. We as a country fail to keep up with lifespans of other developed countries. I don't see that changing anytime soon.

 

[s0me0nesmind1]

By the way the cause of this is the growing income inequality. Reagan fixed social security so that at the time it was assumed that it will never run out of money to pay it's promisses. But that assumed that ~90% of wages would be covered by FICA taxes. That hasn't happened. As the rich got richer and the poor/middle class stagnated, suddenly far less than 90% of wages were covered by FICA. The formula that they used when Reagan fixed it is now inadequate.

The fixes are to lower promissed payouts, raise taxes, raise retirement age, dramatically increase immigration, or go back to the ~90% of wages being taxed by FICA (raise the cap on income that is taxed). These are all easy fixes theoretically. But they are all political death wishes. Thus no politician wants to fix it.

Hasn't congress taken money that was previously for social security and used it for other programs? Thought I recall hearing previously that's another reason the bank is low.

What was previously an investment account is now a redistribution of current assets. I completely agree with your comment on raising the cap.

 

[kranky]

By the way the cause of this is the growing income inequality. Reagan fixed social security so that at the time it was assumed that it will never run out of money to pay it's promisses. But that assumed that ~90% of wages would be covered by FICA taxes. That hasn't happened. As the rich got richer and the poor/middle class stagnated, suddenly far less than 90% of wages were covered by FICA. The formula that they used when Reagan fixed it is now inadequate.

The fixes are to lower promissed payouts, raise taxes, raise retirement age, dramatically increase immigration, or go back to the ~90% of wages being taxed by FICA (raise the cap on income that is taxed). These are all easy fixes theoretically. But they are all political death wishes. Thus no politician wants to fix it.

One more death-wish option: means-testing of retirement benefits. Probably the most radical option, but it has the appeal of only penalizing "the rich."

 

[TwiceOver]

I really wish both me and my employer could opt out of the 7% paid in. What a waste.

 

[edro]

SS Disability has become the support system for lots of mentally ill people who used to be covered by other programs. Cost shifting by the feds to the states and then the states to SS disability puts a strain on the system. Likewise, cost shifting from workers comp to SS disability is also hammering the SS disability program.

hmm... interesting.
I know this first hand since my mother works with the mentally ill. They are ALL on SS, even the kids.