Here is the number 1 reason that Social Security struggles with solvency, year in, and year out: People keep living longer and Social Security is not adjusted to reflect that. When Social Security was created, the average life expectancy was 62, and the retirement age was 65. Thus, it was intended to benefit only the people who lived far longer than average; most people never collected a penny. The average life expectancy today is about 79. Suppose they moved the retirement age up to 83? That would certainly solve the problem, and Social Security would be solvent. I kind of doubt that anyone here likes that idea, yet, ask yourself, why has life expectancy gone up 17 years, yet the retirement age for full benefits has only gone up 3 years? How does that work, without ending up insolvent? It doesn’t.
My suggestion is, raise the age for retiring with full benefits to about 73. Allow people to still retire at 62, but at an even larger reduction. If people are willing to work past 73 without drawing, pay them increasingly more up to 80. We already it up to 70, why not higher?
Here is my simple explanation of how the trust fund works. Say I’m a worker, barely getting by, and I want to start saving money. I take my weekly pay, and I put $100 in my left pocket as my savings, and use the rest for expenses. When I run short o my money before my next check, I “borrow the money”. I put a an IOU for $100 into my left pocket, and move the cash to the right pocket. At the end of the month, I have saved $400, because I have 4 IOUs for $100 in my pocket.
StukiMoi
2 years ago
“Pretend it is. “
In every way. Social security being nothing but one of an almost infinite array of symptoms of pure, undifferentiated rot.
Even the recently much-ballyhooed-by-the-stupid-pliant-and-well-indoctrinated nonsense, that “our” armies of homeless-or-thereabouts cubicle concubine debt slaves are somehow better off than fertile women i freer countries, being nothing more than simple illiterate pretense. Even that.
And for everything else, it’s just downhill from there.
TCW
2 years ago
I expect the RMD age will be brought down so folks are forced to use tax deferred funds sooner rather than later.
LarryK
2 years ago
Two things….. In your commentary towards the end, the current payroll taxes are NOT 3.36%, they are 12.4% (6.2 paid by the employee, and 6.2 by the employer when they file), The proposal is to raise this 3.36% TO 15.76%.
Second, sadly, the most obvious (ie politically expedient) way to “fix” social security, is to do the same thing that literally every socialist (and SS is a socialist program) country has ever done….and that is to nationalize all 401K and pension plans. That is a giant pile of cash out there that individuals generally dont have control over, as they are held by custodians. Dont tell me if there isnt some law passed, and uncle Sam goes to Fidelity and says turn over all 4001K monies now….they will do just that.
We have a VERY dark future ahead of us when it comes to finances…the US is a wreck.
You forget one very important thing. Government employees are NOT in Social Security. Do you think that government employees and politicians will favor taking money from themselves to give to those that worked in the private sector?
That’s wrong. Federal employees are under the ss program, social security is included and they pay ss taxes. The CSRS ended back in the 1980’s although a few legacy employees may still be around. My wife worked for the state and SS taxes were included along with a state pension.
Webej
2 years ago
In most other OECD countries, at least the more prosperous, they have been tinkering around with retirement ages.
The knife cuts two ways, people who work longer pay premiums longer and cash benefits for shorter.
However, in most countries they started about 10 years ago.
The interest rate has absolutely sacked private, public, but government pension funds as well, and SS income is no exception.
Hypothetical: What would have happened if the SS money had been invested (in what?) — it would have driven the price of assets even higher!
RonJ
2 years ago
The Great Reset will solve everything. Except for the elites, the people will own nothing and be happy.
Interesting… There was a book that is eerily accurate in what is going on now. The whole banking scheme could be for the elites to own title to everything in the end, not to own “money”. Like the old saying, they want to destroy first by inflation, then by deflation – and holding title in the end.
The site is old, but is very much an interesting read:
The as-of-a-week-ago Afghan “government” did just that. Heck, some of them, like their enablers, still sit around foreign capitals pretending they were/are some form of “elite”, and that “the country” somehow “needed” even a single one of useless, worthless little them. For something other than target practice, even… (talk about delusion…)
As long as people are sufficiently sentient to treat government with exactly the respect all government deserve, things will work out well in the end. It’s only when people shirk that duty, that talentless idiots get to ply the only trade they are capable off: Crass, simple theft.
Bungalow Bill
2 years ago
Ah just in time for my first year of eligibility. I just want to thank the baby boomer generation for having no fiscal discipline whatsoever noting it is the baby boomer generation of Americans who have bankrupted this country, both red and blue.
I paid in since I was 15, and I helped fund three generation of Americans and obviously MY MONEY is long gone.
Merica! Where redistribution of wealth is the norm.
“it is the baby boomer generation of Americans who have bankrupted this country”
Pfffft!
No, it is the US Congress who bear the blame, along with the Executives who pissed away all the money on wars that netted us next to nothing. And the Fed, for making it possible for the legislative branch to have a checking account with an unlimited balance.
Individual baby boomers have been swept along with very little recourse, actually, and the current trends started in our parents generation anyway. Playing the blame game might make some people feel better, but it’s really not the case.
What were we supposed to do? Did we vote to bail out the banks?
Russ Feingold ( boomer), along with John McCain (silent) tried to get soft money out of politics, and they failed miserably, because the political class didn’t support it. We’ve had corporate control for a long time, and us plebes are just along for the ride now. We have very little power to change anything.
Fed has enabled the pols. I always said real men don’t do QE.
But I have also always maintained that when historians look back on the decline of the US, they will be able to identify one failure of the Founders as the primary cause. That failure is the lack of term limits. Simple matter of incentives. If you can stay forever in the seat of power with great (ok decent) pay and great benefits, you will do whatever it takes to stay, meaning get re-elected. That sets the stage for taking as much money from whomever will give it to you. And there is a network effect in politics that also stacks the deck in favor of incumbents.
OTOH, if your terms are limited, that incentive is blunted and you might think more about doing what is right for those you represent, rather than for yourself.
Sadly, the SCOTUS, which gets almost everything wrong, killed Term limits. There is a problem with piecemeal limits state by state (which is what they struck down), as the ones who implement will then be at a disadvantage to those who do not. To fix this will require a Constitutional Amendment. The route that goes THROUGH Congress will be nigh on impossible. So you are left with the Constitutional Convention route. According to the national archivist, this has never happened before. Ever. link to archives.gov
Our Founders did it right by requiring folks to own land to be able to vote. You had to work to obtain your voice. Since that was done away with we could just make it so that only taxpayers can vote. Term limits won’t help because losers will still vote for losers.
As long as you have a central bank handing all wealth, hence all influence, to useless leeches; useless leeching will, as is presently demonstrated, be the one and only “skill” possessed by those dull enough to fancy themselves non-losers.
The baby boomers have primarily run the government for decades racking up trillions. It has been baby boomers in key leadership positions in the government both in Congress and in the Oval Office who all have a part in taking tax dollars from citizens and spending them. It is baby boomers who have had the largest percentage of voters for quite some time that have continued to vote for both parties as they rack up trillions. The Baby Boomers softness to have everytyhing right now when their parents, often of the depression did without. Clearly there was a shift in this country.
It isn’t the baby Boomers who created Social Security and Medicare. When Social Security was created, no one knew there was going to be a baby boom, which would create a pig through a python effect.
Redistribution has been the norm since 1933, well before the baby boom.
Even when those programs were developed, both parties did try to practice some form of fiscal sanity. It is the baby boomer leaders of our country in both Congress and the Oval Office that have decided it is best to spend trillions and trillions we don’t have and push the problems further down the road for future generations.
There was only an illusion of fiscal sanity. Johnson was not a baby boomer and ran a guns and butter government policy. It was Nixon, also not a baby boomer, who took the U.S. off the gold standard.
My point in this is baby boomer leadership in this country put Johnson style spending on steroids and made any hope of managing this massive debt nearly impossible. It is future generations of leaders beyond the baby boomers who are going to be left to pay for the sins of the trillion dollar deficits baby boomer leadership in this country made the norm.
Of course, a large portion of baby boomers will have enjoyed the system and taking wealth from future generations of Americans all the way to the box, while offering no solutions to fix this mess as they continued to vote for baby boomer leadership that put us over the edge.
Some boomers will have taken wealth from other boomers. And from those other boomers’ offspring. While handing it to their own dilettante offspring. Time machines don’t exist.
Money printing does one thing and one thing only: It redistributes wealth. From those who produce(d) it. To useless leeches closer to the money printer.
It has no other effect whatsoever.
(
The only wealth which matters, is real wealth. Productive land, factories, resources, patents, knowhow etc. Printing Washington’s head on paper pieces, has zero effect on real wealth. No matter how much you print, rivers won’t carry more fish etc..
Also, all real resources are, at all times, claimed by someone. Just as printing Washington’s head on paper does not add oil in the ground, neither does it magically go into the future and fetch minerals from some guy who will mine an astroid in 2221.
Aggregate wealth is all the same. Nothing is added out of thin air by printing, and nothing is transported from the future. It’s all the same.
The printing is pure, 100%, direct redistribution:
-To those who benefit from the printing: “Asset” owners, money changers, “finance” yahoos, all manners of “brokers” and other middlemen taking a cut of the flow of stolen wealth being redistributed by the printing, ambulance chasers and other grifters loitering around in “courts” getting cuts from quarreling over who “has the right” to the stolen wealth Etc., etc.
-And hence, by simple arithmetic necessity since total wealth does not change: From everyone else. That would be those who produce(d) the wealth in the first place.
)
(
The illusion that printing somehow redistributes inter-temporarily, arise only on account of differing time preferences between those who are productive, and those who live off of what is effectively welfare funded/stolen from the former. Productive pursuits, hence productive businesses and productive people, favor stability. Since productive pursuits almost invariably end up needing stable access to capital. Hence, productives save for a rainy day.
Something which leeches living off of central bank theft from others, don’t feel the need to do nearly as much of. After all, as long as someone else saves, the central bank will simply steal those guys’ savings in order to bail the leeches out, so why save?
With the result that more wealth, meaning more seedcorn, ends up being burned when wealth is transferred to leeches, than what would be the case if productive people were left in control of the wealth they had created.
So, in aggregate, you do end up with higher spending today, hence less to spend tomorrow, as a result of printing. But only as a side effect of redistribution of current claims/current wealth. No magical transfer from future generations.
The printing is, again: Pure, 100% redistribution: From the productive, to the connected. “Connected” meaning: Those closer to the printer, along economically relevant dimensions. There is nothing else.
)
tbergerson
2 years ago
That which cannot continue wont. BUT like the Soviet Union it can last a LONG time. Things are getting pretty ridiculous now. I was doing debt analysis comparisons with Japan 6 years ago and it was bad then. Things have gone WAY off the rails since then. At some point there is a psychological phase change. That is when markets move to reflect the new perceived reality. With many on both sides living in delusion-land (much worse on the Left of course) one can speculate when that phase change occurs. You will know it when you see it but for now who knows.
I mean, in point of fact the Fed has been monetizing Treasury debt for years now, buying securities that have been in the secondary market for hours and days (to avoid the proscription against monetization with the barest of fig leaves). Japan for decades. But it hasnt mattered. It will matter when it matters and not before. But the further into insanity we travel, the more painful the ultimate resolution. And the more violent. The time for a peaceful resolution has long passed.
Eddie_T
2 years ago
Remember when Kyle Bass was buying nickels? He bought them (famously a million bucks worth) when the melt value was 6.8 cents….and it promptly fell below par……but now it’s back above par…..and I expect it to stay there, and go much higher, with the current moves toward renewables being wha they are.
The Treasury asked him why he wanted so many, and he is said to have replied, “I like nickels.”
I like nickels now too. Kyle Bass is my leading indicator. He’s brilliant, but always too early.
Captain Ahab
2 years ago
Most countries with public pensions means test the recipients. The limit to receive benefits will start with high-income/high asset retirees and gradually creep downward.
Not to worry. With a major market crash, 401Ks with be worth less.
Eddie_T
2 years ago
Things I think will happen.
Means testing.
Higher taxes on retirees who make enough to have taxable income.
Fewer exempt (3rd bucket) income streams.
More taxes on SS benefits.
Slightly higher payroll deductions, mostly on the backs of employers, rather than workers.
Some new Ponzi that somehow makes US workers put some money in UST’s
Further incentives to keep working, so more people will die before they recoup what they lost by not taking retirement at the earliest possible age.
As a boomer, I don’t think this will affect us as much as it will the Gen X’ers.
No, not really. But they don’t have the same priorities that bring old people to the polls to pull the lever.
In general younger Americans are favorably disposed to making sacrifices (paying taxes) to provide various entitlements. I doubt they will really all wise up, all at once, before people like me take the dirt nap.
I disagree. To me it seems that the young want far more stuff than Boomers wanted. They want UBI. They want free college. Free healthcare. Low cost energy. Carbon neutrality. I agree that they aren’t looking for long term benefits, such as Social Security (yet). They definitely want stuff, and they want it now.
Nonpartisan
2 years ago
How could SS not become insolvent? In the past three decades, the number of Americans who are on disability has skyrocketed. The rise has come even as medical advances have allowed many more people to remain on the job, and new laws have banned workplace discrimination against the disabled. Every month, 14 million people now get a disability check from the government.The federal government spends more money each year on cash payments for disabled former workers than it spends on food stamps and welfare combined.
I think there are very few cities and towns where you do not have lawyers dedicated to disability claims.
OSAI and DI (for disability insurance) are actually two separate trust funds that are maintained. OSAI is projected to be exhausted in 2034 and DI is projected to be exhausted in 2056. So DI is in a much better position than OSAI.
These assumptions are based on there being no recession ever so in real life the exhaustion dates will be pulled a few years ahead when (not if) a recession happens this decade.
Practically, 2021 is the first year when cost will exceed income for both these funds. This means that government will have to fund the shortfall (aka the OSAI fund money that is invested in government securities will have to be redeemed). Which means that starting this year, SS will start to take money from government rather than funding the deficit like it has been doing for the last few decades. This will actually start causing budget pain starting this year and I expect “fixing” this issue will be on the table in the next few years.
Funding the SS gap will become very painful starting this year. It will be interesting to see how this is handled.
Always cracks me up to go into Wal-Mart and see fat white people in mobility scooters in their 30s and 40s as political rhetoric always suggest its other races sucking off the system.
America is going to need new tax slaves, especially as American birth rates decline. I wonder how that certain political movement feels about that when it comes to deciding between immigrants and getting their government checks.
Yooper
2 years ago
Seemed incredible when he famously said it so long ago, (2005)
“The United States can pay any debt it has because we can always print
money to do that. So there is zero probability of default”
“We can guarantee cash, but we cannot guarantee purchasing power”
Casual_Observer2020
2 years ago
This will lead to more people retiring outside of the United States.
JeffD
2 years ago
To be clear, the 15.76% increase in payroll tax would result in a 7.18% employee portion of the payroll tax, up from the current 6.2%. A small price to pay for lifetime retirement income, especially considering that 1/3 of retirees are poor decision makers with $0 retirement savings.
In the oldest age cohorts studied, one third of workers ages 62 to 66 have zero in retirement savings and roughly 20% of 63- to 73-year-old workers have nothing.
Bbbbbbb
2 years ago
We can’t afford to retire because it was important to bail all those corporations out, give them free money to speculate with on the stock market, cut their taxes, and increase inequality. Oh, and the unnecessary wars that lined their pockets and kept their stock prices high.
Felix_Mish
2 years ago
Nice post @Mish
We should not be confused between SS accounting and how it really works. SS was and continues to be sold as a save-and-spend pension. It’s not. SS is a simple, pay-as-you-go system and always has been.
The workers-per-SS-person chart has always been interesting. Workers productivity gains over the years might even match SS benefit increases close enough that the workers-to-SS chart reflects reality well.
It might be instructive to see an historical chart showing what percentage of US gov spending is SS. I’d expect the percentage to go up a bit, given that old folks are living longer, medical advances are not cheap, and the baby boom bump is now passing through the system.
anoop
2 years ago
is it possible to print some money to solve this problem?
It is actually possible. CPI is measured in a way that understates the real inflation.
As long as there is no runaway inflation, this can be managed.
Most of current debt has to be inflated away (both government and corporate debt). There is no other viable option. The challenge is to this in a controlled way.
I agree. It is known that the only way you can end up with hyperinflation is when you have a debt that is tied to something other than current currency values. Thus, SS debt is not, because it is indexed to inflation. Similarly, inflation adjusted bonds are indexed to inflation. If these grow in proportion to the total debt, they increase the potential that at some point in the future you could have runaway inflation. We aren’t anywhere near there, yet, but it’s not impossible for us to get there.
Call_Me
2 years ago
The trust fund exists, it is safe in the lock box, and they have been looking for the key for a couple decades-
Yes, especially if Covid really accidentally leaked from a lab.
It mostly kills the old (those on social security) and if it hadn’t leaked it might have been fine tuned to be much more deadly to old people in another few iterations. Solves the social security issue and for not just America.
Note: I don’t actually believe that but I’ve seen the idea floated around in plenty of places.
Yes, but it sounds like social security would need about a 20% reduction in beneficiaries, or around 10 million people. Covid only got 500,000 so far, but it probably also killed about 100k people who were still paying in.
Covid seems to have seriously harmed SS, not hurt it. Yes, a number of people over 65 died earlier than expected, which is a benefit to SS. However, these have been more than offset by several negative effects:
1. A number of people have applied for permanent disability due to long covid
2. A far larger number of boomers than expected retired this year
3. I don’t have data, but I suspect that hours worked declined, resulting in less contributions than expected
4. The FED’s campaign to reduce interest rates to negative real rates made the income on bonds held by SS have negative real return.
Prior to Covid, the expected date for Covid to run out was 2037. Now it is 2034.
If, as many believe, the CPI understates inflation, then boomers retiring on SS are experiencing a standard of living that is not high to start with, and which will decline each year. That’s a contrast to the generation before, that overstated the CPI, resulting in massive increases to the standard of living for those on SS during the 1970’s and 1980s. Long term care facilities in the 1960s were sad places where people went to die with minimal care, but thanks to the booming standard of living under SS, they became beautiful, well kept places to live, with great care. If you want to blame someone, blame the generation before the boomers for pillaging SS to such an extent that benefits will need to fall for all subsequent generations.
Stay Informed
Subscribe to MishTalk
You will receive all messages from this feed and they will be delivered by email.
I paid in since I was 15, and I helped fund three generation of Americans and obviously MY MONEY is long gone.
Merica! Where redistribution of wealth is the norm.
The baby boomers have primarily run the government for decades racking up trillions. It has been baby boomers in key leadership positions in the government both in Congress and in the Oval Office who all have a part in taking tax dollars from citizens and spending them. It is baby boomers who have had the largest percentage of voters for quite some time that have continued to vote for both parties as they rack up trillions. The Baby Boomers softness to have everytyhing right now when their parents, often of the depression did without. Clearly there was a shift in this country.
America is going to need new tax slaves, especially as American birth rates decline. I wonder how that certain political movement feels about that when it comes to deciding between immigrants and getting their government checks.
money to do that. So there is zero probability of default”
* Put a 3% tax on inheritances over 300,000