social security

22Jun/1112

Social Security: Quibbling over Semantics

And, for the nth time, the media digs up the meaningless argument over whether Social Security is a Ponzi Scheme:

Q: Is Social Security an investment Ponzi scheme?
....
Before we can decide if Social Security's structure qualifies it as a Ponzi scheme, a quick definition is in order. A Ponzi scheme "is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors," according to the Securities and Exchange Commission.

Some investors think that the fact that Social Security pays existing investors with cash collected by new investors makes it a Ponzi scheme. But that's not true, says Jack Coffee, professor of law and securities law expert at Columbia Law School. "This is less a question and more an aggressive assertion," he says.

Social Security is not a Ponzi scheme because it wasn't an intentional fraud, he says. In fact, the system has worked as expected since its creation in the 1930s. What's happening now is that, like many corporate pension plans, Social Security is running the risk of being underfunded as obligations grow faster than contributions. But again, Social Security wasn't created with this aim, he says. "It was a system that was quite adequate for a long time," he says.

Actually, not all Ponzi Schemes are intentional frauds. Some pyramid schemes (the other term for the same essential thing) are run by people who do not understand the nature of true investment, as opposed to just moving money around from late entrants to early entrants. They may think they're doing God's work.

Which is the point: when it comes to money, people do not care that you had benign intentions if they get totally screwed over.

Because Social Security has never been a pre-funded plan, unlike public pensions (the Trust Fund is a lie - it's not pre-funding). Social Security is a pure transfer from working people to retirees (and others, but I'll ignore that for now). Fine, we have all sorts of cash transfers from one group to another in our government tax system -- the problem is these cashflows are unsupportable going forward, given that we have other things we want to do as well.

So one can quibble over what exact characterization we want to make, but 1. intentions mean little when the results are so disparate (this holds true for so many areas in politics. Education is a really obvious example.) 2. And the crisis is now (actually, it started last year), not when the fictional Trust Fund runs out.

Cross-posted to the Commune.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

Tagged as: social security 12 Comments

18Jun/114

AARP on Social Security: Unclear on their Messaging

Yesterday, an interesting story ran in the WSJ re: the AARP and SocSec:

On AARP's Policy Council, a group of volunteers who make policy recommendations to the AARP board, Mr. Rother faced intense opposition from members who see their role as protecting low-income seniors. He also faced resistance from the board.

His argument: Tax increases wouldn't be enough to make the program solvent. The leading proposal for raising taxes -- increasing the amount of income subject to payroll taxes, the central financing mechanism for the program -- would fill less than half the hole. Moreover, Republicans were not going to accept a plan that didn't include benefit cuts. The idea that both tax increases and benefit cuts were needed dovetailed closely with plans put forward by several separate commissions in Washington seeking to ease the U.S.'s long-term fiscal woes.

The shit must've hit the fan, because a different AARP official was putting out statements yesterday afternoon:

In a statement released this afternoon, AARP chief executive A. Barry Rand questioned the story's accuracy.

“Let me be clear — AARP is as committed as we've ever been to fighting to protect Social Security for today's seniors and strengthening it for future generations,” he said.

“Contrary to the misleading characterization in a recent media story,” he added. “AARP has not changed its position on Social Security.”

Mr. Rand noted that the organization is fighting proposals in Washington to trim Social Security in an attempt to shore up the nation's deficit. He stressed that “long-term solvency is the key to protecting and strengthening Social Security for all generations” and that AARP believed that any changes to the program would be phased in slowly and would not affect current or near-term beneficiaries.

A call to the AARP for further comment was not immediately returned.

A Wall Street Journal spokeswoman did not comment and the story was unchanged on the newspaper's website at press time.

Always on top of the news, the NYT pretty much reports the same stuff from yesterday:

Mr. Rother said the group’s stance on possible cuts, which was first reported in The Wall Street Journal in Friday’s editions, should be seen less as a major change in position than as a reflection of the political and financial realities facing the Social Security system and the country as a whole.

“You have to look at all the tradeoffs,” Mr. Rother said, “and what we’re trying to do is engage the American public in that debate.”

He made clear that the group’s willingness to discuss cuts comes with conditions: Reductions in benefits should be “minimal,” they should not affect current recipients and instead should be directed “far off in the future,” and they should be offset by increases in tax-generated revenue.

Nonetheless, the group’s openness to the possibility of unspecified cuts was seen as a significant development by people on all sides of the Social Security question because of AARP’s influence on federal policies affecting older Americans, including Medicare, prescription drugs and many more.
....
While AARP has not issued specific recommendations or figures on how benefit reductions might be carried out, the group’s recent discussions with its members signal support for using increased revenue to fill two-thirds of the projected gap, and benefits reductions for one-third, Mr. Rother said.

As word of AARP’s position set off debate in Washington on Friday, the group’s chief executive, Barry Rand, issued a formal statement saying that the group’s position had not changed in any substantive way and refuting what he described as “misleading” media reports.

“Let me be clear — AARP is as committed as we’ve ever been to fighting to protect Social Security for today’s seniors and strengthening it for future generations,” Mr. Rand said.

While he did not directly address the question of possible cuts in benefits in his statement, Mr. Rand said his group would be working to evaluate any proposed changes in Social Security “to determine how each might — individually or in different combinations — impact the lives of current and future retirees.”

Here is my take:

Notice that no specific benefit cuts are mentioned (or agreed to). At all. In form or amount. Or who would get hit.

I can think of all sorts of adjustments, and so has the American Academy of Actuaries. At one point, the Academy made a specific recommendation to increase the full retirement age for Social Security, but they also have no problem explaining the trade-offs of various reform choices (and how much it would likely help).

What I think is that some groups would like to be part of the Social Security reform discussion more than they prefer ideological purity. The AARP is one of those groups, I bet. I'm telling you right now that groups that are for absolutely no benefit formula changes are not going to be in the discussion. Also, those who are for privatization-only will not be in the discussion. This is just practical politics.

This is a dangerous place for the AARP to be, even vaguely, because while there are all sorts of benefit "cuts" that are less direct than others...and extremely technical (changing how the COLAs are done, making the benefit lower for higher income people, changing the wage indexing in the formula, etc. etc.), some group is going to get whacked. That's the whole point. It's possible to change the benefit formula and make it a skosh more generous for some groups, by the way, and it still work out ... but again, people will hear "benefit cuts" and get cheesed off.

Not my generation so much (yay Gen X, the perpetually screwed, we were never expecting much), but the Boomers and the other old folks.

Well, I don't think y'all are going to be setting cars on fire in the street, and the money has already run out. Forget the fictional Trust Fund - the SocSec cashflow is going the wrong way in terms of cash flows now, which means that yeah, current benefits will get cut in some manner, but I bet they'll use the various indirect means-testing methods to do it and maybe changing COLAs (some SocSec bennies are already taxable, and that's one area they can expand). So there will be benefit cuts, and if you want to be in the actual policy convo, you had best make noises that you're going to negotiate on what those will be.

Anyway the current story looks to me like an internal battle between Rand and Rother over the AARP messaging, and they should've gotten that straight before talking to the press. Even if they were in policy talks with Congress or the White House, they didn't need to go public with it yet. I guess we'll see if Rother is still there after next week, because that's some loose shit right there.

ADDITIONAL: Allahpundit posts on the issue for Hot Air.

ANOTHER PERSPECTIVE: Tom Blumer thinks the AARP may be doing this because of their dumbass move re: Obamacare (and prior blocking of SocSec reform) means they bled a hell of a lot of members who may not have agree with that policy. Guess what, guys? Maybe you would have done better to have stuck to the fricking discount programs and shut up about the politics! What an idea!

I think this is just going to alienate the people who are left in the membership.

Meep

Tagged as: social security 4 Comments

11Jun/112

We Ain’t Got the Money Of

Let me make this easy for everybody.

We, the people, in the form of our various governments, have been making a variety of promises with dollar signs attached... where said dollars would be paid in the future.

We do not have the money to cover those promises, as they are currently constituted. You can get into the squiggly details of discount rates, "bending the cost curve", death panels, soaking the rich, and whatnot, but the bottomline is that the demographics are not favorable and when the demographics were favorable and the promises were made, not enough money was not set aside to fulfill the promises:

The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation's gross domestic product.
....
The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That's more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

Now, I agree that these promises will not bankrupt the U.S. -- because they likely will not be fulfilled. And this is going to hit with the Boomers, because they are much too big a demographic bulge with too few to follow.

So I'm not particularly worried about things as my expectations are low to begin with. Unsustainable stuff will not be sustained.

But you know, some people may get cheesed off when they don't get 100% of what they expected.

Meep

Tagged as: medicare, public finance, social security 2 Comments

13Mar/110

The Debt Is Too Damn High, Public Finance News 13Mar2011

Let me expand my view a little larger than public pensions right now. They're not the only ones breaking the bank.

SOCIAL SECURITY

The Social Security Trust Fund is not only a lie, but may be worth less than zero. But that's only if we treat it like it were something other than zero. If we ignore all those slips of paper in a building somewhere in West Virginia (or wherever they're warehousing it now), and =poof=, they're worth zero. In case you're curious, here is what the trust fund has been doing since 1957. Some interesting patterns, ne?

What is the color of the sky in Mr. Lew's world? "Social Security does not contribute to the deficit in the medium term"....okay. Sure. How did you get your job, again? Look, it does not contribute to the deficit only by those projections. Remember those projections that were supposed to say the cashflows wouldn't reverse til 2016? And they reversed starting last year? I think you need to redo your homework, young man.

A look at possible impacts of raising the retirement age.

Former Bush adviser says there's no chance of Social Security privatization in the near future.

Social Security Myths:

Myth: Social Security didn’t create the deficit — and shouldn’t be cut to close it
....
Myth: Social Security benefits are earned; reducing them amounts to confiscation
....
Myth: Social Security is funded until 2037
....
Myth: The trust fund is invested in Treasury bonds, the most secure investments in the world. To suggest that the trust fund wouldn’t pay is blatant fear mongering
....
Myth: Social Security is an easy fix

I agree that there are no easy fixes to Social Security, but there are lots of simple fixes. It's just that many will be politically unpopular. So the complicated, half-assed "fixes" is what we'll likely have in the near term.

Boehner makes noises about considering entitlement reform. More on legislative debate, complete with Mr. Lew's idiotic remarks.

Karl Denninger says we need to stop lying about Medicare and Social Security.

Robert Samuelson pisses people off by calling Social Security middle-class welfare. While I don't agree with his definition of what constitutes welfare, I do believe SocSec will eventually become out-and-out welfare for older folks, as opposed to the blanket program it is today.

PUBLIC UNION PR

Threatened boycotts are always a great way to win friends and influence people. Solidarity, bro! Oh, and maybe you want somebody else as the public face of your union.

Union myths from Tom Sowell

From Ann Coulter, a profile of that working-class hero: the government bus driver pulling down 6 figures.

Rural areas in Wisconsin driving public union resentment in the state?

Why collective bargaining for public employees is a fiscal disaster. I don't think this is the driver, and the next link will show that.

A look at a study comparing the richness of the pension benefits against the collective bargaining power of the public employees. They don't seem to be connected, and that's hardly surprising in the public sector. The public employee power comes electorally, in funding campaigns and getting out the vote -- not in the ability to negotiate particular contracts. If you've bought your politician, what need is there for strikes and official bargaining? They'll get you what you want.

THIS IS WHY WE'RE BROKE

Math is hard. Aren't there rich people we can tax? Wait.... it wouldn't even plug one year's worth of deficit?

You first: President Obama criticizes legislators for not doing something that he's never done-- proposing entitlement reform.

Richard Posner (from last December) does a run-down of our public financing crisis.

At its core, many of the problems stem from demographic issues -- as illustrated by Europe. And a look at what is going to be happening to the generations in the U.S. in their different experiences of expected and actual retirements. I plan to work til I die.

Busting retirement myths. Now, I'm very pro-annuity, but they are correct about issues with fees. And there are reasons for that, though - it's a very thin market. If people valued the benefit more and we had more money going into that market.... we might be able to see some competition. As it is, it's a niche.

The "social insurance" federal programs make up 35 percent of personal income in the U.S. now. For such a cruel society, we sure to spread the wealth around a lot. Look at it from the perspective of the federal budget, and it's 40%. And this ain't the insurance biz, as well you know, Prof. Bainbridge (thus his scare quotes) -- this is just wealth transfer from the young to the old, and in many cases from the poorer to the relatively richer. Huzzah.

And of course, nobody wants to see their goodies cut.

Just for fun, take a look at this list of government departments/bureaus and see all the waste.

What would state bankruptcies accomplish?

PUBLIC PENSIONS

Just show us the numbers:

As for your city, your school districts, your county, your mosquito abatement district: How often does one of the 7,000 local governments in Illinois tell you how much you and other taxpayers fork over just for pensions? Our guess is, never.

That will change if Congress passes an excellent bill that's roiling the world of public finance. U.S. Rep. Devin Nunes of California, with help from several dozen other House and Senate Republicans, would require every government body in every state to regularly disclose to the U.S. Treasury the detailed status of its pension assets and liabilities. Great! These governments finally would show us citizens the numbers.
....
So far, only one congressional Democrat has spoken publicly in favor of Nunes' Public Employee Pension Transparency Act: U.S. Rep. Michael Quigley of Chicago. Why the silence of the Dems? Because unions aren't wild about spotlighting the dire condition of so many government pension systems. Union officials fear, logically, that if taxpayers realize how much pension debt they hold, they will demand lower benefits, later retirements and other economies.

Bill Zetter looks at who is paying what in Illinois pensions, but come on, Bill -- you know all that money is coming from the taxpayers. The issue is whether the employees get their total compensation boosted by taxpayers beyond what was originally expected (when the pension fund does poorly, or when crazy things happen to benefits). Holding total compensation to a particular level would mean that when pension fund contributions increase, yes, the cash-in-hand-right-now would decrease for employees. Okay, I know people aren't all that interested in these semantic games, but it is important: all the money is coming from the taxpayer.

A look at some of the generous terms under which Florida employees can retire.

The State Pension Time Bomb from Veronique de Rugy.

A conflict of interest problem in public pensions: judges could block pension reform.... reform of pensions that also cover themselves. Not sure how that should be handled.

John Bury looks at public pensions spin from government reps.

No, really, everything is fine -- public pension costs have peaked (in the UK). That is unlikely, I think. I'm not so delusional as to think that the 50-year projections I made for TIAA-CREF were going to be able to show that the annuities would do what we wanted ... though I had fun telling them that they wouldn't know if I had made a mistake for 20 years. The difference with a private company is that they won't let these mistakes compound over decades the way a government body can and does.

More on public pensions in Europe. They are looking at having to cut as well. Wisconsin reactions are low-key compared to the angst that has been going over there on this topic. More on UK public pension reform. UK unions are not happy, duh.

Next up for the Evil Party: cutting public pensions to zero, entirely. Or, rather, no longer footing the longevity and investment risk of the employees' retirement savings and income. But the author has it correct: switching new employees to defined contribution plans won't fix the unfunded liabilities that are from current employees and current retirees. But it won't compound the problem, either.

Meep

Tagged as: public finance, public pensions, public unions, social security No Comments

2Feb/110

Social Security Roundup 2 Feb 2011

There's not been much substantive movement on Social Security reform of late, but there sure has been a lot of jaw-boning.

Chuck Schumer and Harry Reid tried to make it look like the primary GOP proposals were either to privatize Social Security or totally eliminate it. They're both staking their ground that it's "off the table".

A big reason they have to say this that the far left, represented by Socialist Bernie Sanders, senator from Vermont, has made a point of making a big stink over things. And they're warning against any of the real changes likely to be proposed: increasing retirement age, reducing the COLAs, that sort of thing.

Raising the retirement age has some bad optics, because poorer people tend to have lower lifetimes and worse health issues precluding work, but as noted by the American Academy of Actuaries two years ago, much of the Social Security problem is one of demographics and a demographic solution is best.

Alas, John Boehner showed some weakness re: retirement age, but it's more that he thought he shouldn't have favored a particular solution too early on in the process. [Here's something I posted about life expectancy earlier. And if you want to know how it's calculated....]

This problem is not going away, because there's already a problem right now [wait a sec, 30% of the underfunding is due the FICA SocSec tax cap? I think 100% of the underfunding is due to having a benefit in the first place]. The Trust Fund is a lie -- the real problem is the cashflow where the payroll tax is currently insufficient to pay outgo, which means that instead of being a source to paper over a large federal deficit, it's now adding to it.

It's becoming a game of expectations now, and not just one of life expectancy. As some are waking up to the reality that while sure, it's popular amongst those getting the cash, the younger crowd might not be all that interested in keeping the Ponzi going given the worker-to-retiree ratio. Among many other things.

Just remember, "entitlement" doesn't mean what you think it does.

Meep

Tagged as: social security No Comments

21Dec/102

Words Matter: “Entitlements” and Social Security

Ah, "entitlement reform". Sometimes referring to just Social Security, many times Medicare [and maybe even Medicaid] thrown in, and if they're being really expansive, they also mean public pensions.

But that word "entitlement".....is misleading.

Because this is what the various parties are entitled to:

Nothing.

I'm not meaning that people didn't "earn" whatever benefits in question. It's that government promises are worthless, and can turn on a dime. You cannot count on them being there if they are unsustainable in reality, as many government promises are. You can't be entitled to something when you've got no way to enforce getting it.

Let's consider Social Security. What promises were made? What promises have already been broken?

There were lies from the very beginning [a 1936 brochure]:

After the first 3 year--that is to say, beginning in 1940--you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. This will be the tax for 3 years, and then, beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. After that, you and your employer will each pay half a cent more for 3 years, and finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay.

I don't think my grandparents were that gullible. They knew they would end up paying more. The more the government asserts, many times, without thinking, one can call such an assertion into question.

But due to the "richer people pay more, richer people get more" design of Social Security benefits, people got to feel like they "earned" the benefits. And that language is still used. But a 1960 Supreme Court case, Flemming v. Nestor affirmed that Congress can do whatever the hell it wants with Social Security. People were given the warning 50 years ago. They should have paid attention then.

Social Security, in many ways, is the easiest of all the entitlements to fix. It's a pure cash transfer. Congress can change the formulas and benefits at any times, and the formulas [and the tax status] of these benefits can be so obfuscated that the cash gets cut in dozens of "itty-bitty" cuts that add up to quite a lot. That's what has been done previously, but now it may require more overt changes to retain sustainability.

Several people have proposed means-testing Social Security benefits. I think my grandfather maxed out, and every year just sends his checks straight to the Church [he's got one of those generous, old-style defined benefit pensions from back when private companies could afford them]. Under any reasonable means-testing regime, he'd get nothing from Social Security. My grandmother on the other side has a state pension from her teaching job. I'm not sure how that stacks up against Social Security, but I hope it's a bit more.

Now, you would think that means-testing would be popular with progressives, given the class warfare underpinnings that have been in the estate tax debates. Hah. Expect consistency from progressives? =snort= No, and it's not a principled opposition. They know the moment that means-testing is on the table, Social Security starts its slide towards being an explicit welfare program for seniors. You know, the supposed purpose for which it was originally set up. Once it becomes that, and the benefit isn't "earned", but is a true safety net, and the tax argument becomes hairy. You want to raise payroll taxes to pay for welfare? Uh, I love granny, but.... [...and a lot of the problem is because a lot of these oldsters aren't grandparents]

The payroll tax has just been a sneaky way to gather in more taxes, while making people think they were earning something in return. News alert: you weren't earning anything. To link this a second time, that money was spent on all sorts of federal goodies and that money is long gone [even with those extra taxes, they ran deficits. Imagine what happens once the program no longer spews money, but sucks it.]

My fellow American actuaries have recommended that the full retirement age for full Social Security benefits should be increased, and I agree with that. It's a matter of setting expectations, not just cutting benefits down to size -- if you want to retire "early" [and I consider 65 early, given I can see my generation living into their 90s in large numbers], you need to prepare appropriately. [More actuarial stuff on changing the benefit formulas.]

If you guys wanted the rhetorical "children" to have paid for your goodies, you really should have had more children, boomers. Your parents had plenty, and so I do not begrudge them [my grandparents, having 9 children amongst them, and it would take me a while to count the grandchildren, so I'm not going to.... I've got 17 relatives by blood on facebook, that I've counted thus far.] But the cashflows are going in the wrong direction, and there aren't enough kiddies. So I think the entitlements aren't merely going to get cut for my generation, but also my parents' generation, the boomers, while they are getting those benefits.

Who knows? Perhaps Social Security will devolve to its original purpose. That's what I'm betting on.

Imagine, a government fulfilling its original promise.

Meep

Tagged as: entitlements, medicare, public pensions, social security, tax 2 Comments

27Nov/107

Meep Answers Questions

Inspired by snaqwells post, I am going to answer questions from other places. And in an uncharactersitic way -- I will answer tersely.

Will North Carolina GOP choose a black leader?
I wouldn't be surprised.

Just who the hell do you think you people are?
Masters of the EUniverse, apparently.

If the individual mandate is unconstitutional, will the entire healthcare law be invalidated?
Definitely maybe.

Is China's Competitive Edge Already Eroding?
Maybe not. Maybe it is. It is pretty much going to, though.

Why is the world bailing out Ireland?
Hold up, bucko. It's not a done deal.

You son of a bitch. How could you do this?
Reality hits.

National Opt Out Day is sort of an act of terrorism, isn’t it?
No. Something like this is.

Election Law to Rahm: No Mayor’s Race for You?
He'd better hope so. REALLY hope so. Getting booted without having to lose an election or deal with Chicago's issues... win-win-win-win-win. [Also, a blast from the past.]

Should state take more risks on investments?
The answer is No.

Are The Social Security Trust Funds A Mirage?
Not exactly. They're a lie.

Will the next fiscal crisis start in Washington?
No. I predict Illinois.

Is the American Dream dying?
No.

Meep

Tagged as: Chicago, China, EU, illinois, ireland, public debt, public finance, public pensions, social security, The Chicago Way 7 Comments

15Nov/103

Social Security — Much Ado About Cutting

Figuring out Social Security benefit formulas can be complex -- there are a lot of moving parts, with salary caps, inflation/productivity indices, bend points, etc.

But the easiest variable to understand is the Full Retirement Age. The higher that is, the lower your benefit at any given age of taking Social Security benefits. Raising that is essentially a benefit cut.

One of the proposals to come out of the current deficit/debt reduction talks is to increase that FRA. The American Academy of Actuaries made an official recommendation for this a few years back, but it seems the time is ripe now for that discussion to really do it. While the Academy (of which I'm a member), notes that there's a demographic issue -- people are living quite a bit longer than in prior decades, especially women, I think the demographic issue is not so much life expectancy in retirement, but number of workers supporting a retiree. Simply put, the Boomers did not have enough kids. If they had reproduced in a manner similar to their parents, they probably could have afforded a nice long retirement just like their parents.

But we have the situation we're in, so now what to do? Andrew Biggs is recommending not just increasing the NRA, but increasing the age of first eligibility. Even though legislation in the 90s has raised the FRA from 65 to 66 (for Boomers) to 67 (for Gen Xers), the minimum age hasn't budged a bit from 62. Problems with that: age of eligibility for Medicare isn't until 65, so there are issues there; the great majority of people take SocSec benefits within that year of first eligibility, and end up with a much smaller benefit than if they waited til later. By the way, raising the age of first eligibility will not change the balance sheet solvency of SocSec, as the benefits are roughly "actuarially equivalent" no matter the starting retirement age (that's why the benefits are so much lower if you start at age 62 as opposed to age 67 -- they really are trying to make the result equal).

That said, the issue for Social Security isn't just solvency but actual cashflows. I'm not sure how Biggs' proposal will affect the cashflow balances of OASDI taxes versus benefits paid out, but that's our short-term problem. Social Security has already "flipped" from being a cashcow in OASDI receipts to being a suck on the Treasury. The "Trust Fund" is having to pay out.

Now, there's all sorts of negative responses to the idea of raising either the FRA or the early retirement age. For one, not every group has similar life expectancies (though I noted in the comments there that black women have a higher life expectancy than white men... not much attention is paid to the sex gap in life expectancies. This holds even in life expectancy from age 65, not just birth). Most people have realized that raising the FRA is a benefit cut.

At this point, it's all about managing expectations. I think my generation knows it's not going to have the sort of SocSec cover that our parents (the Boomers) will...but I think the Boomers are going to need to manage their own expectations as well. As I mentioned above, they didn't have enough kids, and they're not going to get the "full" payment their parents did. I'm fine with "The Greatest Generation" having cushier benefits than mine or the Boomers - they did pay for it in sacrifices in WWII as well as great productivity in terms of economics as well as babies. But the Boomers didn't pay for it with babies. Sorry, guys.

So for all the stories about how SocSec is the third rail, and you can't touch Boomer benefits... I don't think that's true. Yes, some may have to fall on their swords, but reality is here, and if it's not taken care of now, some major corrections will force it to happen. The grandchildren aren't going to pay for it (partly because there aren't enough grandchildren), because the Chinese won't be willing to pay for it in the interim.

I think Social Security will eventually become an explicit welfare program for the elderly, but we have a long way to go before we get there. Changing the retirement age(s) is but one step.

PRIOR POSTS:

Meep

Tagged as: retirement, retirement age, social security 3 Comments

29Sep/100

Public Pensions and Social Security roundup, 29 Sept 2010

First, let's enjoy a round of public union kvetching:
University of California workers bitching over having to pay for their benefits; and more bitching here.

NJ unions pissed at Christie altering their deals -- unions: pray Christie does not alter them further. [actually, they will have to be altered further: See this 8-parter on CRAP by actuary John Bury: pt 1, part 2, part 3, part 4, part 5, part 6, part 7, part 8 -- if you read only one part, read the last where Bury sums up (each part is on a particular aspect of Christie's proposal):

Using my real-world numbers the shortfall is about $181 billion right now. Forget about 2041. By then there will either be no pensions or $181 billion won't buy you a cup of coffee. Let's be brutally honest.

And that's the real deal. There will not be enough in taxes to make up the shortfall in some states. Some people will not be getting their pensions. The unions had better wise up real fast, because the pensions Ponzi is going to devastate them. They had better adjust to reality if they want to survive at all.

In the category of "Isn't that conveeeeeenient", we have Andrew Cuomo's cousin trying to make investment deals with NY pension funds. The comment section on that story is a hoot. Someone brought up the HUD scandals, which I bet Cuomo has bet that noone would bring up. Hey Carl, maybe you'd like to remind voters of that one?

Oh, stuff is going on in France. Yeah, that socialist-given right to retire at age 60.... well, let us know how that works out for y'all. Mind you, the protest is against raising that age from 60 to the very very old age of..... 62.

Speaking of which, it seems the Academy's recommendation to raise the Social Security Normal Retirement Age has been given some space in the media. Yay, we actuaries!

But there will always be idiots. Hey, dude, do you want people to die earlier?.