The millionaire retiree next door.

[Texas Proud]

You seem to think that the SS trust fund is an independent entity from the Federal Government. It isn't. Me 'borrowing' from my penny jar in return for an IOU isn't a transaction that creates an asset . . . it depletes an asset.

There is also an underlying assumption to this whole line of reasoning that is false: that SS beneficiaries have a legal claim to the 'assets' in the SS trust fund. They do not.

A simple example shows the fallacy of this assumptions.

The government has the legal authority to eliminate all current and future SS benefits. Once done, the Social Security Trust Fund can return all of it's 'Bonds' to the Treasury as the fund no longer has any obligations. The Treasury can then retire those trust-fund bonds and they cease to exist.

The trust fund owns nothing. And you have no claim on that nothingness.

No, I do not believe that... just to clairify...

I also know that the SS fund has never ever indicated that it was a system that had assets that was there to pay future benefits... pure and simple it is a ponzi scheme...

I was just pointing out that their is accounting rules that they have to follow for fund accounting... you rightly point out that they can change the rules and 'retire' the debt, but until they do they still have the bonds to pay... And who is to say that they do not pass a law stating that they will not pay any savings bonds held by individuals To me it is basically the same.... the gvmt is not going to extinquish the debt by fiat....

I was pointing out that there is a separatly accounted fund that 'lent' its money to another separatly accounted for fund... the second fund now has to pay back the first... the second fund did not have to borrow from the first, but could have borrowed from you... what is the difference? Nothing... it borrowed the money and spent the money.... now the second fund has to get the money to pay back either the first fund or you.... anything you say that can be done to not pay back these bonds can be done not to pay back you... either of these come with big political risks that nobody whats to get into...



If you think about it a bit.... any borrowing from the gvmt is just a way to delay raising taxes...

 

[Texas Proud]

Agreed. You can vote to force the government to borrow money to pay benefits.

That is a very different thing from claiming 'we've accumulated a bunch of assets to pay future benefits', which has been the argument here.

I'll also point out that it was the same voters who are now putting their muscle behind maintaining SS payouts who voted to 'raid the SS trust fund' in the first place. Basically we have folks who are trying to spend the same dollar a couple of times while claiming they're somehow owed it. Nice con, if you can get away with it.

IMO, what people were saying is that if SS was like a true pension and had assets to cover the future liability then you can not ignore potential income these assets would have earned IF invested...

SS is not a true pension, but all calculations of benefits etc. are like it is one...

All this talk about SS running out of money is just because of the large amount of people retiring right now and for the next 30 or so years... we know there isn't a big stash of funds (yet, I think it is upward of $3 trillion from what I remember... could be wrong)... the last few fixes were to increase taxes and to make the SS payments taxable.... never before has benefits been cut... until now (being proposed)....

 

[Independent]

I did mean something like that, except using some specialized security, not exactly like treasury bonds. In the hypothetical you describe, the obvious problem is that the bond interest was not high enough. So make it higher. It makes my point even more clearly: there is interest.

Are Treasury bonds "real" assets?

We could, but the interest would have had to be quite high. For people born before 1885, the real rate would have been about 30%. That would be one way of saying the early entrants got a really good deal, but most people knew that without calculating an IRR. Real rates were still over 10% for people born in 1900 (hence reaching 65 in 1965).*

A treasury bond is a "real" asset to the owner, and a real liability to the Treasury. So when the gov't issues a bond to the SS system, it creates an asset to the SS system and an equal liability to the general fund.

In my world, the normal way I increase my net worth, that is increase the excess of my assets over my liabilities, is to earn more than I spend so I've got some "savings" left over. As a nation, we didn't do that when we started SS.

* Table 2 here http://www.ssa.gov/policy/docs/workingpapers/wp101.pdf

 

[Independent]

I'll also point out that it was the same voters who are now putting their muscle behind maintaining SS payouts who voted to 'raid the SS trust fund' in the first place. Basically we have folks who are trying to spend the same dollar a couple of times while claiming they're somehow owed it. Nice con, if you can get away with it.

I think you mean "same" in a generational sense. I agree with that.
But note there are some differences within generations.

I'd guess that the people most concerned about maintaining SS payouts are those who depend most on SS - the working middle. Those who benefited most from "raiding" the trust fund were the people who got the most benefit from the FIT cuts that the SS surplus funded - that would be the upper income people. (I'm assuming an unprovable of course - that if SS taxes had been set at a pure paygo level since the 1980s the political solution would have been higher FIT. I can't prove that.)

 

[SteveL]

The problem with the WSJ Art. is that it ignores the fact that previous generations, like my parents, who retired in the early 70's collected a lot more than they paid in to SS or Medicare, financed by the Baby Boom generation, whose work and taxes also paid for the Great Society of Mr. Johnson including Medicare. I've see some recent data that suggests that folks working today, won't collect amounts greater than they paid, especially if married with two careers.

Without a lot of population growth either from immigration or increased birth rates, we could end up in the same soup as Japan and Russia which have declining populations and much worse pension and aging demographics than do we.

It was during Mr. Reagan's admin that the Fed chair had the bright idea to "fix" SS with increased taxes and the "fictional lock box". Without this, the Feds would have had to face the deficit problem much sooner. $2.5Trillion was sucked out of SS taxes. No wonder the pikers in the govt. don't want to pay the piper.