Interesting take on SS

[ejman]

I have always assumed that the SS statistical forecasting methods would be absolutely top notch this article questions that assumption http://www.nytimes.com/2013/01/06/opinion/sunday/social-security-its-worse-than-you-think.html?_r=0

Here is a little tidbit: "Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing."

 

[marko]

Here is a little tidbit: "Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing."

Well, we ARE talking about the government here, right? No need to get too deep into the details when the taxpayer is footing the bill !

 

[ejman]

Well, we ARE talking about the government here, right? No need to get too deep into the details when the taxpayer is footing the bill !

Well, of course nonetheless - any implications for RE planning?

 

[bo_knows]

Well, of course nonetheless - any implications for RE planning?

I don't know how old you are, but I'm 31, and am looking at an RE forecast of 10ish years. I do not usually include SS in any of my calculations, and I consider it "cherry on top" money. The times that I HAVE included it in my calculations, I have taken whatever the SS website thinks I might get, and divided that estimate in half.

 

[MichaelB]

The authors contend the SS is underestimating average longevity. As a result, SS funds will not last as long as forecast by the Trustees. Their paper is here Statistical Security for Social Security - Springer

 

[clifp]

Well, of course nonetheless - any implications for RE planning?

A $730 billion in shortfall in Social security the next 20 years is roughly $10/month per person. Although I am not sure if that means we should cutting back on Starbucks, or visiting bars more often now

 

[Alan]

Although I am not sure if that means we should cutting back on Starbucks, or visiting bars more often now

There was a great scene in The Simpsons first movie where, on hearing of impending disaster, all the people rushed out of the church into the bar next door while all the people in the bar rushed out and into the church.

 

[ejman]

I get the impression that the general board sense so far is this is much ado about nothing. I hope you are all right and we are not engaging in the usual group think.

 

[Independent]

I don't think it's correct to say that SS actuaries are limite to simple, mindless extrapolations without reviewing any outside demographers. See this http://www.socialsecurity.gov/OACT/TR/2012/2012_Long-Range_Demographic_Assumptions.pdf

OTOH, this is a field where there's lots of speculation about even about the most basic ideas. As they point out, there's no agreement on the nature of human aging. Maybe we are basically immortal, and just need to clean up some errors. Maybe we're basically limited to a maximum life span. Who knows?

So, it's no surprise that professionals disagree on the numbers. I'd want to look at what various researchers were saying 20 years ago and see who's methods have been most accurate so far.

I'm pretty sure that in the long run, SS as a "system" is paygo. We're going to have to pay enough taxes every year to pay that year's benefits. Whether that tax rate turns out to be R or 1.1 x R isn't the difference between the current benefits and no benefits.

 

[Khufu]

Dean Baker has a good response to this Times article:

But let's get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.

Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji's projections prove accurate, Social Security will not exactly be breaking the bank.

However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program's cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.

The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.


Bad News on Social Security: We're Going to Live Longer | Beat the Press

 

[Telly]

I get the impression that the general board sense so far is this is much ado about nothing. I hope you are all right and we are not engaging in the usual group think.

Your "hopes" may be misplaced

Thanks for posting it. An interesting read.

For those who don't want to read a whole article, at least look and read the graphics portion of it here --> Social Security?s Flawed Forecasting - Graphic - NYTimes.com

 

[bo_knows]

Your "hopes" may be misplaced

Thanks for posting it. An interesting read.

For those who don't want to read a whole article, at least look and read the graphics portion of it here --> Social Security?s Flawed Forecasting - Graphic - NYTimes.com

Great link. While I'm still at least 3 decades away from collecting SS, I still don't quite grasp why there is an cap on the income that SS tax is taken from. Removing that cap seems like it would solve all the problems.

 

[Animorph]

I'm pretty sure that in the long run, SS as a "system" is paygo. We're going to have to pay enough taxes every year to pay that year's benefits. Whether that tax rate turns out to be R or 1.1 x R isn't the difference between the current benefits and no benefits.

The SS Trust Fund currently holds $2.7 trillion, representing the amount we have saved for our retirement benefits, beyond what was required to fund past benefits. Not paygo, but also dependent on how Congress decides to set contributions and benefits. If Congress decides it never wants to pay the $2.7 trillion, it could increase payments or decrease benefits so that the net result is paygo or even continues to provide revenue to spend elsewhere.

 

[ERD50]

Great link. While I'm still at least 3 decades away from collecting SS, I still don't quite grasp why there is an cap on the income that SS tax is taken from. Removing that cap seems like it would solve all the problems.

I'm not saying it is right or wrong, but for some perspective, you also do not earn any added benefits for the amount you don't put in above the cap.

IOW, it's a cap on the tax, and a cap on the benefits.

-ERD50

 

[bo_knows]

I'm not saying it is right or wrong, but for some perspective, you also do not earn any added benefits for the amount you don't put in above the cap.

IOW, it's a cap on the tax, and a cap on the benefits.

-ERD50

I suppose. I guess you start to get into a debate over the rich subsidizing the poor's SS fund, which is for another thread.

 

[Sesq]

The cap is there to make the bargain work. Uncap it and you raise taxes on those folks earned income by 12.4% (employee and employer portions, let's not kid ourselves about who bears the cost). Meanwhile SS is more generous on lower wages than higher wages. When you get to the top I seem to recall the benefit of each incremental wage dollar is about 15% of what the first few dollars generate in benefits. So the high wage earners would complain that they are being ripped off, and they'd have something of a point. Further, it would have some big distortions between wages and passive incomes.

But the bigger challenge is in healthcare.

 

[haha]

I suppose. I guess you start to get into a debate over the rich subsidizing the poor's SS fund, which is for another thread.

There is really nothing to debate. High earners subsidize low earners, early retirees, hippies and other layabouts. To get SS approved by the electorate, it needed to be sold as work dependent, as folks back then were quite a bit less tolerant of freeloading than we modern elightened fellows are. And even now, all of us are not in love with freeriders.

Ha

 

[NW-Bound]

There was a great scene in The Simpsons first movie where, on hearing of impending disaster, all the people rushed out of the church into the bar next door while all the people in the bar rushed out and into the church.

I would just stay in the bar. Whatever harm was already done, whom would I be kidding?

 

[ejman]

There is really nothing to debate. High earners subsidize low earners, early retirees, hippies and other layabouts. To get SS approved by the electorate, it needed to be sold as work dependent, as folks back then were quite a bit less tolerant of freeloading than we modern elightened fellows are. And even now, all of us are not in love with freeriders.

Ha

Actually, freeriders are the price we pay to live in a semi-civilized society. Personally, I would rather pay a certain (reasonable) amount via taxes to provide bread and circuses to the freeriders than have to live with my shotgun at my side to keep the vermin at bay. (Wait, I am living with my shotgun at my side...never mind)

 

[NW-Bound]

Actually, freeriders are the price we pay to live in a semi-civilized society. Personally, I would rather pay a certain (reasonable) amount via taxes to provide bread and circuses to the freeriders than have to live with my shotgun at my side to keep the vermin at bay. (Wait, I am living with my shotgun at my side...never mind)

+1.

If the number of freeriders does not increase, I guess I can live with it.

Wait! Am I a freerider too, being an early retiree and all?

Signed someone who's sleeping with a 357 under the mattress.

 

[oldtrig]

One option is to continue raising the retirement age, perhaps to as high as 69 or 70. While the full retirement age is gradually increasing to 67 (for people born in 1960 or later) from 65, this increase is not enough to counterbalance the gains in longevity.
I do not think they have looked at what happens to a person after age 65. I am sure there are a few lucky people who will live to 100 without problems but I am not one of those people. Not sure what I would do if they took my SS away from me. I have cash saved and probably could make it until a very old age but I sure would hate to take that chance. oldtrig

 

[haha]

Actually, freeriders are the price we pay to live in a semi-civilized society. Personally, I would rather pay a certain (reasonable) amount via taxes to provide bread and circuses to the freeriders than have to live with my shotgun at my side to keep the vermin at bay. (Wait, I am living with my shotgun at my side...never mind)

Well, as best I can tell, I didn't comment on the best way to go about this. Just told the story.

Overall, I would like to see more controls, but SS recipients at least have 40 quarters of work which puts them ahead of some Americans..

Ha

 

[Independent]

The SS Trust Fund currently holds $2.7 trillion, representing the amount we have saved for our retirement benefits, beyond what was required to fund past benefits. Not paygo, but also dependent on how Congress decides to set contributions and benefits. If Congress decides it never wants to pay the $2.7 trillion, it could increase payments or decrease benefits so that the net result is paygo or even continues to provide revenue to spend elsewhere.

This is all true. I tried to sum it up with the words "in the long run" and "system".

By "system" I meant a program that is fully funded by a dedicated tax. The SS system currently has more accumulated taxes than benefits, but everybody's projection says that situation eventually ends.

 

[Independent]

Great link. While I'm still at least 3 decades away from collecting SS, I still don't quite grasp why there is an cap on the income that SS tax is taken from. Removing that cap seems like it would solve all the problems.

As others have mentioned, the "why" is mostly about voters' perceptions of "fair".

The SS actuaries don't provide an opinion on that, but they do provide numbers regarding how many additional dollars would come from eliminating the cap.

You an see their results in options E2.1, E2.2, etc here: Long Range Solvency Provisions
I'd suggest clicking on the "Detailed single year tables".

My interpretation of their numbers is that eliminating the cap makes a substantial dent in the shortfall, but doesn't completely close it.

 

[Independent]

Bringing back an old thread. The OP was about a NYT op-ed that questioned the SS actuaries mortality projections.

The actuaries' reply:

http://www.ssa.gov/oact/NOTES/pdf_notes/note150.pdf