SOCIAL SECURITY GADSDEN: Social Security Cliff in Sight; Retirees Will Outlive Trust Fund; Ramifications of Nonmarketable IOUs and Privatization .

Tuesday, February 24, 2015

Social Security Cliff in Sight; Retirees Will Outlive Trust Fund; Ramifications of Nonmarketable IOUs and Privatization .

Social Security Cliff in Sight; Retirees Will Outlive Trust Fund; Ramifications of Nonmarketable IOUs and Privatization .

In response to my post Creating Social Security actuarial Voice in business-friendly manner I have been exchanging emails and phone conversations with Those in Investor's Business Daily.

They think cutting benefits that will happen, and I agree. However, cutting Social Security is considered as a "third rail" of politics.

If you are not familiar with the term, it means that there can not be selected to carry out cutting.

Retirees will outlive Trust Fund

Graham current position on the viability of Social Security can be found in the January 14 New article Social Security retirees will outlive Trust Fund

    For the first time since the Social Security cash crisis in 1983, the program is not able to pay full benefits for new retirees youngest plants through life expectancy, government data showed.

    The death Accelerate Social Security Trust Fund for 2033 mean that the workers only become eligible for Social Security at age 62 face steep cuts in future benefits if they lived with a life expectancy on average, now around 84.

    They are cutting benefits suddenly about 25% per year for 62 years of age today and workers approaching retirement age will arrive early at a very bad time - at the end of his life when savings have dwindled and health care bills are rising.

    Old Contract Invalid

    While Treasuries nonmarketable trust fund - actually IOUs from the other branches of government - has no value to offset the cost of benefits, they provide a Social Security statutory authority to run a cash deficit until they spend.

Social Security Cliff in Sight; Retirees Will Outlive Trust Fund; Ramifications of Nonmarketable IOUs and Privatization .

    Under current law, a worker who just turned 62 will face benefit cuts 25% after the trust was spent at the beginning of 2033.

    Workers now average age up to 55 years, will lose two full years worth of 'benefit, equivalent to 9.2% cuts in lifetime benefits.

"Nonmarketable IOUs"

They and I 100% agree that the alleged "trust fund" that is nothing more than "nonmarketable Treasuries - actually IOUs from the other branches of government" that has no real value.

For Which They say, IOUs provide the Social Security Administration "law officials to run a cash deficit until they spend."

The key points are as follows: There is no lock box, no funds, no deficit, and IOUs in the piggybank pretend not the same as precious bond.

Amusingly, I got into an exchange with the reader only a few days ago through the concept of IOU. Elliot reader writes "You do not seem to understand the bond. They just IOUs. China gives us a $$, we give them IOU, and then we spend a dollar."

Obviously, one of the main differences is the trust fund has nonmarketable IOUs, not the precious bond.

I respond to Elliot that "you can not owe money itself and it is even more ridiculous to put an IOU in the piggy bank and pretend to collect interest on it."

Elliott was not sure. Discussions with Elliott proves that some people will continue to believe whatever nonsense they want, no matter how carefully the facts presented otherwise.

One thing I did not realize before exchanging emails with Them, that the payroll tax cut is not really contribute to the current deficit of Social Security (SS does not charge for payroll tax reduction). Instead, cutting only added to the public deficit, funded as a temporary stimulus.

Thus, the current deficit is real, not imagined, no matter how one sees it. Payroll tax cut is not exaggerating while problems.

Simply put, Social Security is bankrupt if it ignores the interests transferred to the jar imaginary imaginary. Only pretend, to calculate the interest owed to oneself in a piggy bank that does not even exist, is Social Security solvent.

Elliott's side, they showed pretend IOU universally understood by the CBO, the administration, etc. Unfortunately, Congress ignored the issue for political reasons.

Clearly, there is something that needs to be done to shore up the system. And because something has to give, by definition it would be. I outlined six possibilities, none of which have universal appeal.

Six Possible Ways to Make Social Security actuarial Voice

    Raising the retirement age
    Improve or eliminate the cap on payroll taxes
    Cut benefits
    Collect Social Security on personal income
    Implement tiered structure Cap
    Means Testing

All of the above may be as listed in the Social Security actuarial Make Voice in Business-friendly manner

For more on Social Security trends please see ...

    January 8, 2013: Social Security Trends: Recipient, Total Cost, Number of Employees, Labor Ratio to Beneficiaries
    January 11, 2013: Social Security Payments Per Worker; Accrued interest accrued Promise; Imagination

Investor's Business Daily.

They invited me to enter some personal thoughts. Thoughts that do not always reflect the views of Investor's Business Daily, they also do not reflect mine.

However, for the sake of further discussion ...

They wrote the 2010 book A Well-Tailored Safety Net. He proposed a new approach to reform the so-called "Old Risk-Sharing".

In the approach Jed, cutting the maximum benefit will come in the first year of retirement; cuts will be smaller for the lower receiver and cuts will phase out over 20 years to maintain a strong safety net in very old age.

You can read about his views in his post What I Told Obama's Fiscal Commission On Social Security.

Reflection Mish

In the link above, Jed wrote ... "If we want the Social Security system that maintains the promise of income security at the end of his life, cutting additional benefits applicable in very old age should be off the table"

I have to ask: What would we want? My second question is: If so, how do we expect to pay for it?

It's much easier to come up with a wish list, rather than a means to pay for it. People always want things, unless and until they have to accept a tax increase to pay for them.


Philosophy redistribution of income from tax increases to support Social Security Libertarian beliefs contradict myself a minimalist government.

Pieces Coming, Regardless of Confidence

However, and in spite of my point of view (or you), injuries of this kind without a doubt the actuarial required as fewer workers supporting more retirees.

The only way to cut away may now be combining cuts with tax increases. Politically speaking, however, the Democrats are not going to accept cuts, and Republicans will not accept tax increases.

However, if the cuts eventually came (and demographically speaking they should be), then it may be phased-in approach suggested by Jed is a pragmatic starting point for discussion, whether or not certain that the stated objectives "guaranteed income security" is a socialist silliness.

Once again, I try to separate my own personal belief of something that may be more politically feasible.

Two Of It

    The road we are on an unsustainable
    Bury one's head in the sand as the third rail of Social Security only make the problem worse

Safety Net Discussion

I have spent an amazing amount of time this post already, maybe 14 hours. I think I finished yesterday, but I did not.

Yesterday evening I realized that I did not fully address the concept of what constitutes a "safety net", and how much time it takes for the average worker to collect one.

Jed was doing a little research on the subject, so I decided to ask.

Jed respond ...

"I think because we are talking bare bones safety net w / SS that people can not do without, it makes sense to use a risk-free (some might argue with" "risk free) Treasury level. The rule of thumb is that to overcome the 10% benefit cuts , the average wage earner (now about $ 45ka year) must save 1% of wages (assuming the return of Treasury and life annuity). For new entrants face a labor force roughly 25% cut in benefits, such as the Romney plan, which means about 2.5% of the annual salary. "

The key word is "average earner". In a telephone conversation with Jed, he admits things are not so simple. Someone making minimum wage needs to save much more in percentage. They make $ 100,000 a year should contribute much less in percentage.

For the calculation of its safety, Jed using risk-free "real" rate of the Social Security Administration, is projected to be 2.9% in 2022 and beyond.

Currently, the real return on 10-year treasury is negative. "Real" 30-year cash refund is around 1%. I recommend the real return will not be returning to the long-term average for a long time, probably longer than many social security recipients live.

If the "real rate" is lower than the Social Security Administration project, the required savings rate will rise.

The problem does not stop there because we did not start from scratch. What about the "average earner" who is now aged 40?

Jed noted that people may need to contribute 5% of his salary for minimal return.

It still does not cover all the bases because they think everyone fund their own plans.

Self fund a new idea? Or the original intent of the Social Security (Minimum pension income support regardless of how much of the contribution) is still intact?

Regardless of your answer, they make minimum wage will not be able to meet reasonable "safety net" objective, on its own accord.

I do not champion the idea that Social Security is a "true". It is not. Instead, I am just stating the pure mathematics of the setup.

Funding Your Own Way

I have a close friend who objected to the "Means Test" that point six of Six Possible Ways to Make Social Security actuarial Sound, such as those listed above.

He suggested that what he puts into the SS should be his or heir, and no one else.

Ideally, I agree.

However, if money is hers (and your money) I ask a simple question: Is the government included in "income security" business at all (take your money just to get back some part of it later)?

If so, why? If not, then let's stop Social Security altogether.

It is certainly a valuable debate, and the answer determines whether or not there should be a "safety net".

Social Security Privatization

In a follow-up telephone call me to discuss the privatization of Social Security with Jed. He never supported partial privatization, but that when Social Security ran a surplus. He does not support now.

Let's discuss this from the standpoint of my friends saying "What I put into the SS should be mine, no one else".

The negative impact of privatization

To create a real "lock box", not an imaginary lock box, with imaginary flowers, we need to privatize Social Security, do not send money to Washington to be seized for the current desire.

Assuming that is politically feasible, and ignore everyone is fully committed to the current system (retired), and they were half-way (that in 40 of them), what are the consequences of privatization?

Before answering, please note that Social Security income in practice used for general expenditure. Simply put, if the payroll tax funds transferred to private plans, the deficit will soar.

Such a move would require massive tax increases or massive cuts across the board in a place (I will choose the massive cuts across the board, especially the military budget cuts).

Then we still need to do something about the partial funding and those who have retired. Finally, we need to discuss those restrictions would like to take advantage of the SS fund before retirement.

For a discussion of tapping retirement money, please consider More than 25% of 401Ks Tapped Pay Bills now; Dead-Fish Housing Assets; Walk Away Yet again.

You can still see us back to the basic question "Whose money it anyway, and why the government should dictate what I do with it?"

Frank Discussion Problems Needed

Regardless of your point of view about what should or should not be done (Jed has ideas, I got mine, my friend had hers, and you have you), it is long overdue for an open discussion about the issues.

The solution can only occur after recognition problem. The starting point for the discussion is a simple entry that Social Security and Medicare are both bankrupt, that the promises that have been made which may not be stored.

Without a doubt the country needs an honest discussion "safety net" and how they should be financed, as well as discussions on Medicare and rationing health.

Unfortunately, if there are some politicians who are willing to admit the truth or discussion, for fear of losing votes.

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