Independent said:
Now I can see where you're coming from. I looked at the site. It seems that he is arguing that the various trustees reports keep re-projecting the date when the trust fund runs out to later and later dates. Almost as if they are intentionally being ultra-conservative. If so, then of course there is no long term problem with SS.
I did go out and get these numbers from various reports. Here are the report years and the "exhaustion" years. I've ommitted the "19" and "20"
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
46 43 41 36 36 29 30 29 29 32 34 37 38 41 42 42 41 40
Bruceweb looked at the middle of this sequence and came to his conclusion. I look at the longer sequence and see the the variations that are likely when you are making financial projections over this long time frame. This particular number is the most volatile of the various values they calculate, because it includes not only the SS factors but also the interest rate on the trust fund.
You are right about the volatility. In fact, in 2004, when the trustee report came in with 2042 number, the CBO estimate came in with 2052. I haven’t tracked it since then. I would speculate that the early projections were based on higher interest rates since the fund still held high yield securities from the early days. I have noticed a similar trend in my TIAA account interest rates as the securities I bought into in the early 80s have decreased in interest rate over the years. At this point my “legacy shares” are pretty well depleted and overridden by shares bought by compounding over the years. I don’t have the time but it would be interesting to compare both the assumed interest rates and the assumed productivity for the out-years in each of these reports. For example, in the 80s the interest rates may have consistently come in lower than projected one, two, three, etc. before. Perhaps even longevity increases were unpredictable until recently. Perhaps, also, last year’s move back from ’41 to ’40 reflected low interest rates of ’01-’03. Up to that point, for the most recent data, the move out seemed to come mainly from productivity values coming in above those used in the previous estimates. The problem is that the farther one moves out in the prediction, the more error in the projection. In fact, in 2003 the American Academy of Actuaries wrote this letter to the trustees warning them about error and the use of long-range, especially infinite, projections as serious talking points in politics with the public as opposed to in policy debates.
http://www.actuary.org/pdf/socialsecurity/tech_dec03.pdf
It is also less important to me than, say, the difference between taxes and benefits in 2040. That is the real cash that we will need. I looked those number up in the 97 and 06 Trustees Reports. For the "Old Age, Survivors" fund only, the 97 report projects 2040 income and costs as 11.32% and 15.42% of covered payroll.
The 06 report projects 2040 income and costs as 11.40% and 15.22% of covered payroll. Note how far apart these two reports are on the exhaustion date and how close they are on the cash flows. (adding in DI doesn't change the story).
When the boomers were given the payroll increases in the 80s, they were coming out of their early career days of double-digit inflations, double-digit mortgages and car loan rates and an energy supply crisis, especially early boomers. Additionally, they competed in a workforce that was swamped with competition for jobs (so many more of them). Yet, I do not recall that they opted to reduce numbers by allowing the Vietnam War to help their demographics or to improve their personal economic situation by threatening the elderly of the nation. The problem is focused on SS, the least of the problems in this 40-year debt question. Let's do a "what if". What if, in the 80s, that extra payroll tax was placed in private accounts in the same pay-it-back and take an annuity model proposed by the president. Do you think the boomers would hold less or more US securities than the SS fund holds today? The G-fund of the TSP (proposed model) is a fund just like the SS fund and the F fund is a bond fund with US security holdings. Now consider the hype on big market returns and reallocation into bonds as one grows older. So, inevitably the boomers reallocate to large holdings of government securities that will be used as cash flow in retirement. Even if these holdings were less than SS, the cash flow problems from retirees to the general fund obligation would be the same - demographics. Now factor in the public debt build-up from the general fund. Do people fail to understand that, at payback time, the redemption comes from the same source – taxes? If the markets were bad, the total savings would be inadequate (requiring government welfare subsidies to lower income seniors) and if the market boomed for the most part, the savings would be great and the reallocations to securities as great or greater than the small amounts that have crept into the trust fund yearly through the surplus. Of course, we could pass a bill at the last minute, say in 2007, to bar or limit the boomers use of the G and F funds as a place to safely hide their money from volatility. Same difference and still, no molasses. So I see the only solutions to demographic arguments as being orderly, timed extermination of burdensome old people or preparation by raising taxes while the boomers still contribute significantly to the tax base. The spin that is being given to the young people is going to cause the boomers to be in retirement when the yet to join the workforce will be faced with the debt from WWII to gen-Y and beyond. At the rate we are going with deficit spending and free-lunch coming any day now promises, a buy-in to current policy of this government by pointing fingers between generations is exactly what our free lunch politicians want. They won't be around to clean up the mess. Every recent election (with the possible exception of the last - time will tell) has been won by promises of more government spending AND lower-taxes. Meanwhile, the individual’s private economy has taken a hit from a variety of sources. Note in the actuary letter the comment that projections don't see depressions and wars.
Well, you can try telling that to the younger set. You might even be right. But if it ever comes to the point where they have to pay more taxes to keep the benefits up, I think they won't believe you.
The younger set diverts their attention from the federal deficit and Medicare at their own peril. I can't help those who simply will not listen. They are going along with the deficit spending and Medicare D while screaming about fund with the least looming future tax impact. Also, based on the 2004 and 2006 elections, the youngest voters are smarter than you give them credit for. Perhaps they will eventually topple the power base of the two major parties that have a grip on this nation. The slightly older younger people seem to be in a la la free lunch land. Nothing I can do about that.
I think you're using too few words for me to follow your idea. What are you trying to conclude here?
I guess that all I was trying to say is that a year-by-year ratio of debt to GDP does not show the interest accrued over the years by the bonds sold to fund the yearly deficit. Look at the debt value rise and ask your self what it would look like if the GDP were to fall under 2.0 for an extended period of time like the trustee reports predict. (This only says that if GPD is 4.0 this year and 2.0 next year and beyond, what does this ratio look like?) The impact of these low GDP future values would be devastating to future generations and social security would be a mute point. No one could redeem the debt without massive devaluation of the dollar. That is what I am worried about, not the social security fund (which the country won’t be able to pay back anyway if this happened). Again this is just musing the data on my part. Although I disagree with much that Bruce Webb says, I agree on one thing: The pictures that politicians give about deficits and debt projections usually obscure the impact of interest on the debt. But be aware that I am not trying to diss the trust fund debt but rather trying to get people to look at all sources of debt that we are accruing. This is the slight-of-hand that I see. It is not one source of “looming” debt that is the problem. If one source, the one that currently is in surplus, is so much a problem, then all sources make for a worse problem. Also, if free lunch solutions are so good, the future worker can just reduce taxes to pay for social security.
I'll agree that there is a lot of yelling and very little discussion. One side says SS is a corrupt Ponzi scheme, the other says that any suggested change will impoverish millions of grandparents.
I hope my "what if" above has served to equate the Ponzi scheme argument to all of the investment world. What is the stock market but a Ponzi. The market goes nuts whenever a company does not bring in higher profits this quarter than the previous quarter. They are not satisfied with just good profits. With Ponzi schemes, the bottom guy gets nothing. For the social security program, there are no projections that give anyone less than, if memory serves me right, 79% of promised benefits. Additionally, the 79%, when compared by inflation rather than wages, is greater than the benefits given out today. (I added this, not for any justification value, but for comparison value. I do not favor going to inflation indexing.)
I'm sure that I can't "Make them" do anything. I can vote and discuss.
I think this is your "simple, fair, and rational" solution, but I don't understand what you mean here. Which taxes, on whom, and what will you do with the money?
We are a long way from my original post, which was another musing. I simply said that, if we buy into a 75-year (or infinite) projection that is only 4% of GDP at the end of 75 years, then why don't we retire those parts of the future debt that will add into that debt that we can control; namely the general fund deficits? Since all debt is a loan, let's figure out how much debt is added by each year of deficit spending. To the extent that this money has been borrowed by investors through inadequate tax collection, lets call the loan, let them keep the excess money gained by their investments on the borrowed money and have them pay back the principal plus bond rate interest to the government. The money will be collected over as many years and used to move the trust fund (as well as new payroll surpluses) out of the government securities, which leaves the taxpayer paying for all operations of the government. I don't even know how to compute my lifetime share of the debt built since the social security surpluses began to loan money to the government. You see, when we operate in deficit, there is a regressive benefit to all the public (the more income, the better one fares from deficit spending because only income taxes and not payroll taxes are reduced). Then, when we reduce benefits, even though the money owed is sufficient to cover those benefits, we hurt the workers. It is a permanent transfer of regressive payroll tax to cover lower taxes for those whose earnings are above the cap and who, coincidently are less dependent on social security in their old age. People like to spin that it is all the same money but, thankfully, that is the one spin that no one with an ounce of intelligence buys. That would only be true if payroll taxes were un-capped. As it is, if the trust fund is defaulted, it is outright theft of the workers savings. Note that many people have a greedy conscious that is currently attacking the loaners of the money and not the beneficiaries of that loan. The workers are under threats and attacks. This is the result of the spin that you are talking about. Again, I am not dissing the social security debt; I am saying that it is a debt and challenging those that want to think otherwise to simply collect it from those that actually borrowed the money in the first place. It is one of my more cynical musings based, in part, on another less cynical musing - the 85 year old woman in failing health will be there whether we want to factor her in or not. I think people want to ignore that simple fact in all of their spinning.
I don't think I was promoting free lunches anywhere, just questioning why you thought the projected SS deficits were fiction.
I never said they were a "fiction". Indeed, depending on how you spin the 14th Amendment, Section 4, the trust fund may the only part of the Social Security system outside of government control. The point is amusing but, insofar as I can see, applying the Amendment and having it hold with respect to the trust fund would neither help or hurt the retired boomers. But I did say many things including a few comments on projections, a few comments on borrowed money, a few what ifs, and a few comments on letting the large populations get into retirement before turning attention to the total problem. By the way, if out-performance of the low-cost model were to continue, the trust fund d-day would never happen nor would the dire consequences. (The crap-shoot; we might be solving a non-problem in the sole case of social security debt.)
In short, I think talking points are politics and always exaggerated on all sides. That is why the people need to take back their government and run it correctly, not from the extremes of ideologies; the people need to run a responsible budget and find out a "truth" about the entitlements that we can all trust and buy into and, if there is a problem, can agree and fix it. I don't buy into a "truth" which claims that the government owes me my 401k government securities but does not owe the bloke, who, without a 401k, bought government securities with the same color money through Social Security his. I hope it sounds offensive to everyone when put that bluntly. I wish everyone could mentally track the cash flow; I think you need to be able to do it to really understand what I am saying and why I am challenging everyone to get the money back from the receivers of the loan and not take the money from future workers or the guy that provided the money for these loans.
![:-\](https://www.early-retirement.org/sk/forums/images/smilies/undecided.gif "Undecided :-\")
