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A little History written in 20 years ago Potential
fund bankruptcy is annually updated by
Social
Security Trustees
Estimates of Gross Domestic Product,
unemployment, immigration, and other relevant
variables indicates withdrawals
will surpass inputs in 2041. Even though this was better
than the 2019 projection date made in
1997, President Bush says there is a crisis.
A look at the Social Security budget and following the
cash will reveal the crisis.
Baby boomer contributions have made fund deposits higher than fund withdrawals.
In 2003 the fund took in an extra 138 billion dollars bringing the
total excess to
$1.355 trillion.
All has been used to buy
Treasury Bonds. The fund got paper and the cash went to the
Treasury where our Presidents
and Congress spent it. They will continue to spend excess
cash until sometime 20131
when The
Concord Coalition, a deficit watching interest group,
estimates cash in
minus cash out becomes negative. The 2013 date was
increase to 2018,
then decrease to 2017 and on March 12, 2009 it was decrease to
2016. So in 2013 (2016)
politicians will go from having more to spend to having less
to spend. By 2025, the annual cash
shortage will be
$482 billion.
So now the crisis is clear. They want more cash.
What to do! Options include increasing the wage base being taxed, the tax
rate, and delaying the maximum benefit date. All were done in 1981. Ignoring the
problem and borrowing the cash will be difficult as borrowing more than we
already do will push interest rates higher on Treasuries and lower the value of
the dollar. So again, a bipartisan commission will be formed to increase rates,
wages
subject to Social Security taxes, and the normal retirement age. A commission shares the political burden. All have been done before. What bothers me is a
newly proposed option.Indexing Social Security to wages has caused Social Security pensions to increase. Wages go up because of inflation and
productivity. A plan indexing pensions to just inflation would lowers
pensions and a Presidential/Congressional cash crisis would be avoided for a while. The
Center for Retirement at Boston College has analyzed this proposed change. My friend Mr.
Average who just
retired at 65receives
$14,689. Had we indexed to gust inflation in 1951, the average Social Security pension would
be lowered by $2,131 to $12,558. To be candid, my friend Mr. Average needs
this additional income.
Let us move ahead to 2025. Under
the current system, Mr. Average will receive $16,205 in 2005 dollars, a $1,516
increase. If indexing only to inflation passes Congress and is approved by the President, Mr. Average will receive only
$14,689 in 2005 dollars. No real increase because he would not share in productivity
increases. His pension would be larger in 2025, but he could only buy the same amount of goods and services as in 2005.
My liberal side is bothered by the fact that this has even been proposed and
the
average pension is so low.
My conservative side reminds me, "If we send it, they will spend it."
My cynical side realizes the excess we send is spent to buy votes from constituents.
The Real Story
The National Academy of Social Insurance
reports the problem
can be solved for 75 years by immediately increasing the social security
tax rate by 1.85%
with half coming from employers and half from employees.
The
Center for Retirement Research at Boston College reports the entire mess can be solved by increasing the
normal retirement age from 67 to 70 or cutting benefits 20% for people under
fifty-five years of age.
They also report we are living longer in Becoming
Oldest-Old: Evidence from Historical U.S. Data. Since Social Security
was adopted in 1935, life expectancy for someone 65 has increase from 12 to 17 years. Since these numbers are going up, my friend Mr.
Average is making out very well. My normal retirement age is 66 years old. Hopefully
I will pay for one more year and collect for than 4 more years.
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