Tag

Social Security

Jun 27
0

Social Security-Annual Change In Retired Workers

By | Commentary

I know it was just yesterday I did a post on Social Security. Today…the SSA released  the June updates…among other things revealing that the number of people in the Retired Worker program increased  97k to 37.4M. This is not unexpected, though there is seasonality involved (more people seem to retire in Jan-Feb) 100k per month in additions is about where we are…though the trend is headed up. Just for fun…I charted the YOY additions (which eliminates the seasonality…and it shows a very interesting picture.

06-26-Social Security Beneficiaries

We start all the way back in 1995 adding about 350k people to the SS rolls a year. It moves around between  a 200 and 400k pace before spiking right around the dotcom  bust. After that it drops back around 350k before heading steadily up to about 600k per year in June 2008. Then…it takes off like a rocket topping out in December 2009 at an over 1.2M rate before declining back to about 1M at the end of 2011. Since then, we have seen a steady increase in the rate…likely driven by the demographics of Boomer retirement.

So the question is….what will this chart look like at the end of 2015? As we chug along in 2013 with a not so terrible economy, we are adding to the program at record rates and the demographics only get worse from here. Even a mild recession could cause a huge spike in early retirement…so just as revenues are being squeezed, we would start adding huge numbers to the Social security program. Just some quick math, adding 1.2M retirees, at $1,267 per month is about $18B per year. (I know yesterday we said $60B…that’s the entire program…not just retirees, and it includes the annual COLA on the entire population.) Each retiree… assuming the same $1267 payment and 20 years on the program….will draw in $304k of payments…ignoring inflation/COLA ect…

So… lets go out on a limb, and assume that of the current population of 37.4M, the average life expectancy is 13 years. (wild ass guess…got some 62 year olds and some 95 year olds). Pencil that out, and if we eliminated SS (retirement only) tomorrow for everyone not on it….we would still be on the hook for $7.4T…roughly (still ignoring inflation).Someday I’ll add in the rest of the population. But as we know…it won’t be eliminated….and there are 60M boomers waiting in the wings.

 

Apr 16
0

Social Security: Crappy Deal…Getting Worse

By | Commentary
CNN MONEY reports
“Up until now, Social Security has been a windfall for many retirees: They collected far more in benefits than they shelled out in taxes.
That’s changing. Many of those retiring will have paid more into the coveted entitlement program than they will get back.”

and

“The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits.”
Let me translate this…basically, the Ponzi scheme that is Social Security, now 78 years old, is now in its death throws. I’m not predicting it will actually end anytime soon, but this is definitely the beginning of the end. Someday, the young will begin questioning why they are paying so much and getting so little and revolt…or, maybe they won’t and it will simply go bust because the math dictates that it will.
Just a quick thought before I forget…what does it say about our society…that rather than taking personal responsibility for our own retirement, and as a backup depending on our family units..(kids, grandkids, nieces nephews siblings ect..). we have instead chosen to entrust our livelihood in old age to universally despised politicians who usually poll somewhere around 20% or so. That’s pretty messed up….just sayin. What the hell are we thinking?
Moving on to the numbers…I’m pretty sure it is actually way worse than what this report suggests because they more or less ignore the opportunity cost of holding on to your own money. So let’s look at a person who makes $50k per year He pays 6.2% as does his employer….don’t be fooled by Uncle Sam’s accounting funhouse.. you pay for both in the form of lower wages. So our average wage earner pays $6200 per year in Social Security Taxes, from 22 until he retires at 67. For simplicity, let’s ignore inflation…in his wages, and in his payout…they should more or less wipe each other out anyway.
So over this persons 45 year career, he pays a total of $279k into the program. When he hits 67, he is now eligible for ~14k per year….for the rest of his life. If he dies at 70….obviously this was a really crappy deal. If he makes it to 87, he more or less breaks even…that is…he could have literally put $6200 under the mattress (or maybe in a non-Cypress bank account) for 45 years and done just about as well as social security. If you happen to live longer than 87…still ignoring any other investment options you could have done with that $6200/year…maybe you start to get more than you paid in.
Yes…the math is terrible idea for just about everybody…which of course is why they have to force you to participate. Now, imagine if our worker, rather than stuffing that money in a mattress, decided to instead use that money to pay off his mortgage early. So, at 22, he decides to purchase a house for $125k(2.5x his annual income) with a 5% 30 year mortgage. His monthly payment is $671, which he makes, plus $6200 per year of extra payments. By the middle of year 12, his house is paid for…completely. He saves about $80k in interest, has a paid off house at 33, and now, has ($671*12+6200) over $14k per year…which he can now start stuffing under his mattress. If he does this for the next 18.5 years (when his mortgage would have ended), then proceeds to only save the 6200 per year until he is 67, he will have about 360k under his mattress, which would fund him at social security level payments until he was almost 93.
And remember, this is assuming all he ever did was pay off his mortgage early, and stuff the rest of the money under his mattress. No stocks, bonds, or even cd’s and saving accounts in this portfolio. So one wonders why this program exists at all. I touched on that a bit in Uncle Madoff Sam’s Trust Fund. Basically, I believe the program was created as an excuse to create a new source of government revenue. It gave them the ability to tax a broad base at a relatively low rate…in exchange for the promise to take care of you when you got old. Of course, back then, you were probably dead before you hit 60…and if you did happen to make it to 60, you were lucky to have a few years left. So of course government pocketed the taxes, and was happy to pay out a few $ here and there to those who managed to live long enough to “retire.” Social Security became a huge cash cow…and continued to be until just recently. By the end of this decade, it will instead be a huge cash drain.
This huge sham of a program simply needs to be scrapped, perhaps in a phased manner, and responsibility for retirement needs to be shifted back to individuals and their families. Problem Solved. In the meantime…the only thing for certain is that there will be pain.
Apr 11
0

Social Security Demographics Guarantee US Bankruptcy

By | Commentary
From money.com

“I cannot afford to have my Social Security cut by one penny! Plain & simple.”

and

“I doubt that one government official can begin to live on what the average senior citizen does,” wrote one 77-year-old woman. “I hope that Pres. Obama truly understands the dire straits that his plan could cause senior citizens.”

As discussed a few days ago the latest discussion to fix the deficit has to do with changing the annual inflation adjustments from regular CPI to “chained cpi”, which supposedly runs a few fractions of a % under CPI. Both numbers are laughably bogus…CPI has been running around 2% or year….gasoline has more or less doubled in the last 4 years…you do the math. Actually…the government gets to do the math, and make the number whatever they want anyway…not sure why they need to pretend about using a different made up number, but I digress. That we are even discussing such miniscule cuts and pretending they will save us is a testament to the rampant financial stupidity present in DC.
Back to the article, which basically has a bunch of seniors discussing whining about the potential impact of losing a few dollars a year…you know, throwing them back into poverty ect… They are all pretty pissed at Obama for even allowing the discussion. This is one of the main reasons I firmly believe we are incapable of fixing our problems….In a democracy, it is possible for a powerful voting block to demand, and get free stuff from a weaker voting block. And please don’t send me anything about how you paid into Social Security so you are owed. The truth is, every penny you ever paid into social security was stolen and spent years ago by politicians you elected…
Regardless, with 300k seniors retiring every single month (netted against the 200k or so that pass), I suspected that the demographics are getting close to if not already past a point where it is likely impossible to actually make any real changes to the program. I mean what are the odds of anyone on social security supporting any reduction at all? Pretty close to zero I’d say, and I completely understand that. If I was living off$1400 a month of government cheese, and hadn’t saved a dime of my own money, I suppose I might feel the same way.
So I looked at the US population, finding that in 2011, the population over 20 (sorry…no breakdown of 18+) was 223M. Of that population, 44% was over 50, and I assume not willing to vote to make any voluntary cuts to social security. Then, I looked at some other statistics and determined that the over 50 crowd has a voter participation rate of about 66% compared to the under 50 rate at ~50%. After adjusting for participation, on a straight vote, Over 50 has 51% of the vote to 49%, and thus the power of the majority to do whatever it takes to prevent benefit cuts for themselves, and even raise taxes on the under 50 crowd to pay for it. So absent a moral uprising against the blatant generational theft that is the Social Security/Medicare program, the demographics of democracy virtually ensure we will go full speed over the cliff. No matter what the  politicians say, or the jokesters at the CBO predict…there is no way in hell the hundred trillion or so of promises made by the federal government won’t be defaulted on in one way or another, so you might as well get ready for it. If you can’t afford the $3 a month cut being proposed, you’re going to be in for a rude awakening when the checks stop coming altogether.

Mar 22
0

Raiding the Fake Social Security Trust Fund…To Fund Another Fake Social Security Trust Fund??

By | Commentary
Just read this…about how the chief actuary Social Security Stephan Goss is planning to raid one fake social security trust fund to fund another fake trust fund with some awesome accounting voodoo(actually…a 2 line journal entry ought to be all it takes). I wrote a while back about the “Trust Funds” at Seeking Alpha in “Are Intragovernmental Holdings Real Debt” In my opinion…they simply don’t exist….they are just a figment of a government accountant’s imagination…and these shenanigans further reinforce that in my mind. To me…all they represent is the balance of funds already stolen and spent…nothing more. The sooner we accept that…the better.
Jan 13
0

Uncle Madoff Sam’s “Social SecurityTrust Fund” – How a nation of suckers fell for the oldest trick in the book

By | Uncategorized
Bernie Madoff Sr. 1935 (BM) : Ok everybody step right up. Have I got a deal for you today!! All you have to do is give me 15% of your paycheck from the day you turn 18 until the day you turn 62, 65, 67, 70?? In exchange for this modest contribution, I will, at my sole discretion, give you a meager monthly benefit until the day you die.
(Kid): What if I die at 60…do my heirs get anything? Can I take out a 401k loan against it?
(BM): No and No.
(Kid): Ok…it’s 1935 and life expectancy is only 58. Are you sure this is a good deal?
(BM): Oh yes…absolutely. I’ll post a spreadsheet on Facebook that proves it out.
(Kid): Well…what will you do with my money for the next 50 years until I need it?
(BM): Well, I’ll probably lend it to the government, who will spend it on a lot of stupid things, but don’t worry, I will be sure to get the IOU’s notarized. 
(Kid): But congress is just a bunch of no good crooks and thieves. I wouldn’t trust a congressman as far as I could throw him…
                Ok…enough fun. It never ceases to amaze me that we as a nation trust our government, run by universally despised politicians with our personal wellbeing in retirement. You would probably think pretty hard before letting your brother in law borrow $1k so he can make his mortgage this month, but if you are an average worker, making $50k per year, you are sending uncle Sam right about $7500 per year (15%) for this promise, that just about all of us know is BS. What could the average worker do with an additional $625 per month, $1250 if you are a couple? Pay off their house in 10 years? Pay cash for a car instead of financing? Maybe…just maybe fund their own darn retirement?
                Let’s take that average worker, and assume that over his career, his average annual salary is $50k, and that over his 49 year career (18-67) he thus pays in $367k. Furthermore, we are going to just ignore compound growth ect….we are just going to assume that investment return equals inflation…ie if inflation is 3% in a given year, then investment returns are 3%. Regardless of the real number, this employee gets to 67 with an equivalent of $368k in the bank. It’s not a huge nut, to be sure….the average retiree gets about $15k per year from Social Security…so again assuming no real returns, this nut will last 24 years, to the ripe old age of 91. After that…he has to move in with his kids, grandkids, or great grandkids. We should all be so lucky right?
                So this begs the question. If a worker could simply keep that 15% of his paycheck and hide it under his mattress getting no returns for 49 years, and still be better off than he would with social security…why the heck does this program exist? It’s quite simple really…social security isn’t a retirement program…it’s a Ponzi scheme now, and it always has been. Rewind back to 1935. You have a depression going on, the electorate is already a little pissed, and FDR needs money to pay for his programs. Enter Bernie Madoff Sr. (yes..I’m joking)
“Hey Mr. President… I have an idea. The electorate will never go for a new tax…in fact they would probably roast us alive. So instead of calling it a tax, we’ll just change the name and put a bow on it. Those dummies will lap it up. We’ll create a “retirement” program (as he does air quotes) and call it social security. Everybody will have to pay into it, so we get a steady revenue stream to spend on whatever we want.  Best of all, most of these saps will die long before we have to pay them anything. Sure, it will blow up in the end, but we’ll be long dead by then.”
That’s how I imagine it happened. I could be wrong.
                So here we are, 77 years later, and the little Ponzi scheme that could is still chugging along, if not as gracefully as before. No longer much of a cash contributor to the federal coffers, Social security is teetering the other way with a mountain of fake IOU’s ready to be cashed by the senior voting bloc. And now….decision time. When Bernie Madoff’s Ponzi scheme was exposed, some victims lost everything. While we can feel sorry for them, this is how it should be. Imagine the outrage if instead of letting these poor fools suffer, instead the federal government made them whole, and to pay for it, added another line item to your paycheck. $5 a week for the Bernie Madoff Victim’s fund. No Thanks!!. I wasn’t foolish enough to invest in a Ponzi scheme, Why should I pay for your mistakes?
                Except….with Social Security, we are all victims. We all got screwed…if you will, and it continues to this day. The only moral solution to this massive injustice is to shut the whole thing down. Why should our youth, or even anyone under 50 pay another nickel into this injustice? Those most responsible for this situation are today’s retirees. They bought the scam hook line and sinker decades ago and kept electing the clowns in congress who perpetuated the scam. Let’s just call it what it really has become. In addition to its Ponzi roots, Social security is just a huge welfare program where the wealthy and powerful elderly voting block essentially robs their children and grandchildren on a monthly basis. If my grandparents can’t make it without their government cheese, I’d be happy to take care of them myself, and I’d bet you would too. Sure…there will be some without family, but I bet it’s a small portion. With all that extra money flowing into workers pockets instead of being lost in the Ponzi scheme, who knows…maybe worthy charities will see an uptick in donations.
                But alas…what should happen is rarely what does happen. Instead, the Ponzi will just go on, and the deal will get worse and worse.