Social Security

In February, the SS rolls added 120k people….up from January’s 103k, but down from February 2013’s 159k add. February is typically the largest add of the year, so no real surprises here.

The above chart shows the TTM change starting in 2007 with an annual rate of about 700k, spiking to 1.6M in 2009, and trending down since. We are still well above 1M at 1.138M, but we have 4 months of decline…note that this is just a decline in annual additions…we are still adding at a historically high rate, just not as high as the peak of the recession. That said, the 4 month trend does look steeper than anything we’ve seen since the peak. Perhaps Boomers close to retirement are deciding to stay in the labor force a bit longer….holding the rate down for now, and ultimately increasing their payouts.

Looking to the cash outlays on the DTS, YOY growth comparing this trailing twelve months to the prior shows about an 8% growth which is made up by growth in population, COLA increases, and by an increase in average payouts….driven by new enrollees having higher monthly payouts than the existing population….for example in a given month an 85 year old recipient with an $800 monthly payment passes away and a 66 year old recipient files for the first time with a $1500 per month payment…..population stays the same, average payout goes up.

The primary reason I monitor this is to spot the early stages of a new recession driven spike in enrollment…. If anything we see exactly the opposite, which is the same sign we are getting from surging tax revenues for going on 2 years straight. Very curious….

This report was finally released yesterday…about a month late for some reason, but at least we have it now. So…just to recap, The umbrella of SS covers about 58M individuals. 38M are retired individuals, about 9M are disabled workers, and the balance are generally spouses/widows/children of retired or disabled workers.

Each month, obviously we have new people retiring, some say 10k per day….and of course we also have people passing away each month. Note that retirements especially are seasonal, and I suspect to some lesser degree, so are deaths, so it is important to compare the current month vs the prior year as this is far more relevant than the prior month.

I track this monthly because SS is a huge piece of the federal budget, and secondly, I am on the lookout for a substantial increase in retirements at some point over the next few years, and I believe that this report will provide evidence of this in real time.

Fortunately, the January 2014 report does not have any evidence of an impending spike. Traditionally, January usually has a large increase in retired workers….I guess people try to retire near the end of the year, and get all of their paperwork completed by January.??Personally, I’d choose to retire probably in the fall….depending on where the tax brackets were in relation to my income, but that’s just me…maybe I’ll cover it in a “fun with math column” when I retire…in about 35 years:)

This January was no exception, with an increase in retired workers of 150k, but 21k under Jan-2013’s 171k, but right in line with Jan-2012 at 153k. Annualized, we are adding 1.15m people per year to the retirement program…roughly the same pace as last year. So while there is no spike…yet…we are still adding a huge number of people to the program.

Quick math…adding 1.2M people, at $1300 per month….So divide 1300 by 12.4%(ss withholding rate)….and you get that it takes an additional $10,484 of monthly income by a worker to support each new retiree. So if for each retiree, we added one new job at 126k per year, we’d be more or less ok right?  Well, there probably aren’t too many of those…so scratch that. If you happen to believe the federal jobs report, we added 2.2M jobs over the last 12 months, including 113k in January. So if we pencil this all out….we need each marginal worker…all 2.2M of them to contribute $8500 per year to cover the 1.2M new retirees. again…divide by 12.4%….If they all can just average $69k of pay, we’ll be fine. Still a stretch huh?? One last try. How many minimum wage employees (assuming Obama’s new $10 rate passes) do we need to add per year just to pay for the additional 1.2M retirees? “Only” 7.5M….per year indefinitely.

So while the long run still appears to be hopeless, that’s been known for a few decades now. There was some good news in the report. For the first time since 1997, the number of disabled workers actually showed a month over month drop falling 12k to 8.930M from last month’s record 8.943M. Drops elsewhere pulled the consolidated number to only +100k overall vs last year’s 146k January total increase. That’s a pretty big drop….it will be interesting to see the February report…..is this just a blip, or could our trend actually be headed down a bit?

Just a refresher to start off…the Social Security Program covers nearly 58M people with an average monthly benefit of $1184 per month based on my calculations. Of the 58M, 38M are retired workers, 9M are disabled workers, and the rest are generally spouses and children eligible for some form of derivative benefit.

The recently released December numbers show additions of 62k people, 57k of which was the retired worker program, with most of the other categories more or less netting to zero. Compare this to last December, when 59k were added to the retired 99k were added in total. So retired workers are more or less flat, but still running at a 1.172M pace not far off the 1.240M record set back in 12/2009.

In the remaining categories, the biggest story is that the disabled worker category, for all of the headlines about record levels, only added 924 people for the month, though obviously setting a new record. The annual growth rate is now down to +115k, down to about a quarter of the record 416k pace set back in  11/2010. Now granted, it’s definitely not a good thing that we have nearly 9M disabled workers, but at least for the time being, the growth rate has dropped from 5% to 1%….a small victory, but we’ll take it. More or less, it seems that aside from retired workers, the rest of the SS population has stabilized…for now.

Retired Workers TTM Growth:

You will probably want to click on this chart to make it bigger, but it shows the annual rate of change in retired workers starting in 2000 when the rate was 227k all the way through December 2013. The primary reason I track this data series is because we all hear that there is a huge wave of boomers that will be retiring over the next 10 years or so. We are already adding enrollees at a very high rate…I want to see when/if the rate starts growing and I think this chart will be the alarm. Since this is the largest piece of spending in the federal budget, understanding growth in this program is critical to forecasting future outlays. For now, we remain on a high plateau adding nearly 1.2M people per year with no noticeable change in December.

Looking ahead, it turns out that a lot of people historically retire in January…last January the rolls added 171k people… nearly 3X as in December. It will be interesting to see if this trend continues, or if our “booming” economy and stock market convinces some of those people to put off retirement.