Social Security and Shenanigans

[beachFool]

Of Social Security and shenanigans: An open letter to my son Jim

www.waltonsun.com

2/12/2011

Dear Jim:

It was good seeing you and Stephanie last weekend in the ATL. With her new ?do,? she looks like Uma Thurman?s Mia in ?Pulp Fiction? ? maybe better. Stay away from pawnshops; remember what happened to Ving Rhames.


Young people, like you, often wonder about their prospects of receiving Social Security benefits. Once you mentioned Social Security was akin to a Ponzi scheme, and I respectfully disagree. In 25 years, assuming no changes, Social Security benefits will be cut 25 percent. With a Ponzi scheme, benefits get sliced 100 percent and much, much sooner. For instance when I do a retirement projection for clients, I use a lower rate of inflation for Social Security to allow for future benefit reductions. I may not make it 25 more years but I bet your mother will live that long (and look good, too).


Today there is a deadserious game afoot to eliminate Social Security and to replace it with private accounts. The geniuses who wracked their brains for this harebrained scheme are the same folks who thought trading credit default swaps was a good idea. The Social Security privateers have a new tact this go-around: The federal deficit. Currently, Social Security does not cost the government one dime and the lame-stream media sits there like the tar baby and doesn?t say a thing.


Ignore the fearmongering swirling around the Social Security Trust fund. FACT: The Social Security Trust fund owns United States Treasury bonds. No financial professional with a lick of sense would dismiss a TBond as a mere I.O.U. like Stuart Varney of Fox News. The truth is financial markets view it as almost inconceivable that the U.S. government will not honor its bonds. Investors gladly own Treasury bonds and receive record low interest coupons because of minuscule default risk.

The New York Times once parroted the same lame line as Fox. Equal opportunity for ignorance, I guess.


Democrats have a worthless track record, vis-a-vis Social Security and young people, because basically their solution consists of raising taxes. President Ronald Reagan hiked Social Security taxes steeply during his first term (an inconvenient truth to many), but we can fix Social Security funding woes without jacking up anyone?s taxes. Raise the normal retirement age to 67 by 2012 and adjust it modestly by one month every two years, modify how the pre-retirement benefit formula is calculated for workers in the top 70th percent of earners and use a less generous (but what some economists claim is more accurate) inflation index for current beneficiaries.


If you don?t want to raise taxes then you have to cut benefits. The argument is not ideological but rather elementary school arithmetic.


Recently I challenged a college professor?s argument that Social Security should shift to a defined contribution plan. The defined contribution model (401k plan) is inferior to defined benefit plans because of high hidden costs and low participation rates. A more important, although currently ignored, weakness of defined contribution plans is how volatility (market fluctuations) affects portfolio survivability. The sequence of market returns in retirement distribution portfolios can be beneficial or catastrophic depending on what Jim Otar calls the ?luck? factor. Check out his website: Otar & Associates ?


Banks, brokers and insurance companies peddling retirement income products are licking their chops in anticipation. Remember 2008: Markets gyrate ? sometimes dramatically ? but these jokers have the deck stacked in their favor not yours.


I am so proud of you and your career.

Love always, Dad.



Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@ LivingstonFinancial.net? .

BUZ LIVINGSTON
Just Plain Talk

 

[idlewind]

Ignore the fearmongering swirling around the Social Security Trust fund. FACT: The Social Security Trust fund owns United States Treasury bonds. No financial professional with a lick of sense would dismiss a TBond as a mere I.O.U. like Stuart Varney of Fox News. The truth is financial markets view it as almost inconceivable that the U.S. government will not honor its bonds. Investors gladly own Treasury bonds and receive record low interest coupons because of minuscule default risk.



Buz, if you truly believe this you are living in fantasyland. 14 Trillion and counting is the national debt. Calculate what a rise in interest rates would do to the amount of interest payments the federal government would owe. Or calculate what the debt will be in 10 years unless someone in Washington grows some cajones and gets serious about cutting spending. Then calculate the interest payouts on those amounts. We are approaching a point where SS, Medicare, Medicaid and interest payments equal the total income of the government. So EVERYTHING else is financed by deficit spending.
The course the federal government has been on the last century is unsustainable. I agree with your solutions though ( raise the retirement age and index benefits) and hope they will be implemented sooner rather than later.

Ever heard of Penn Central? Just because professionals do not think something can fail does not mean it is impossible.

 

[beachFool]

Ignore the fearmongering swirling around the Social Security Trust fund. FACT: The Social Security Trust fund owns United States Treasury bonds. No financial professional with a lick of sense would dismiss a TBond as a mere I.O.U. like Stuart Varney of Fox News. The truth is financial markets view it as almost inconceivable that the U.S. government will not honor its bonds. Investors gladly own Treasury bonds and receive record low interest coupons because of minuscule default risk.



Buz, if you truly believe this you are living in fantasyland. 14 Trillion and counting is the national debt. Calculate what a rise in interest rates would do to the amount of interest payments the federal government would owe. Or calculate what the debt will be in 10 years unless someone in Washington grows some cajones and gets serious about cutting spending. Then calculate the interest payouts on those amounts. We are approaching a point where SS, Medicare, Medicaid and interest payments equal the total income of the government. So EVERYTHING else is financed by deficit spending.
The course the federal government has been on the last century is unsustainable. I agree with your solutions though ( raise the retirement age and index benefits) and hope they will be implemented sooner rather than later.

Ever heard of Penn Central? Just because professionals do not think something can fail does not mean it is impossible.

You are conflating two issues which do not directly affect each other:

The federal deficit and Social Security.

If in twenty five year the SS trust fund is exhausted then beneficiaries receive lower payments. SS has been a pay-as-you-go system.

Social Security, in 2011, contributes zero to our current deficit.

Rather than repeat conservative talking points do some research.

Please NEVER accuse me of living in fantasyland, I study retirement issues in greater detail, in higher frequency and with an academic's eye far more than anyone else who posts here.

 

[30ashopper]

You are conflating two issues which do not directly affect each other:

The federal deficit and Social Security.

If in twenty five year the SS trust fund is exhausted then beneficiaries receive lower payments. SS has been a pay-as-you-go system.

Social Security, in 2011, contributes zero to our current deficit.

Rather than repeat conservative talking points do some research.

Please NEVER accuse me of living in fantasyland, I study retirement issues in greater detail, in higher frequency and with an academic's eye far more than anyone else who posts here.

Idlewind was talking about the debt, not deficit, and SS is included in that 14 trillion calculation.

Government - Frequently Asked Questions about the Public Debt

 

[30ashopper]

SS payment are taking a growing percentage of federal income, which leaves less for all the other thing the federal government spends money on. That in turn creates higher deficits. SS is part of the overall problem, you can't deny that.

 

[idlewind]

You are conflating two issues which do not directly affect each other:

The federal deficit and Social Security.

If in twenty five year the SS trust fund is exhausted then beneficiaries receive lower payments. SS has been a pay-as-you-go system.

Social Security, in 2011, contributes zero to our current deficit.

Rather than repeat conservative talking points do some research.

Please NEVER accuse me of living in fantasyland, I study retirement issues in greater detail, in higher frequency and with an academic's eye far more than anyone else who posts here.

Please do not accuse me of repeating conservative talking points, I come to my own conclusions. You might want to take that advise regarding liberal talking points though. This does not require alot of research, just common sense and the ability to do simple math.

A quote:

The Office of Management and Budget has described the distinction as follows:

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures ? but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government?s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)
​

When ( in fact it has already occured) SS income is less than outflow, then the "trust fund" will need to be utilized. This fund is backed by the "full faith and credit" of the federal government. So, if these bonds must be paid off, where does the money come from? The GENERAL FUND of the federal government. So, taxes increase, the deficit increases or spending in other areas must decrease. Money does not grow on trees, but the government can print more. This "fix" causes inflation, which plays havoc on retirement funds and fixed incomes.

Your position seems to be "don't worry, but by the way benefits will be greatly reduced" and the fix is that you can access your benefit later and if you are successful your benefit might be reduced. Like I said, I agree with your solutions but we differ when you say nothing is wrong. Something is definitely wrong and will get worse if not fixed yesterday.

 

[30ashopper]

Two of every five dollars goes to Social Security, Medicare or Medicaid, all of which provide some form of insurance. A bit more than a buck goes to the military. Then there?s a $1.50 or so for assorted other programs -- education, infrastructure, environmental protection, farm subsidies, etc. Some of that, like unemployment checks and food stamps, is also best understood insurance spending. And then there?s another 40 cents of debt repayment. Calvin Coolidge once said that the business of America is business. Well, the business of the American government is insurance. Literally. If you look at how the federal government spends our money, it?s an insurance conglomerate protected by a large, standing army.

But you wouldn?t know it to listen to the debate over the budget. When House Republicans talk about cutting spending and the Obama administration talks about freezing spending, neither group is talking about the vast expanse of the government?s commitments. They?re looking at a small corner of the budget, the 12.3 percent known as non-defense discretionary spending. The stuff that?s not Medicare, not Medicaid, not Social Security or the military. It?s the odds-and-ends, so to speak.

And it?s a bad place to focus cuts. Politicians don?t take the axe to non-defense discretionary spending because they think Teach for America or the food safety infrastructure -- both of which the Republicans are proposing to cut dramatically -- is more wasteful than the Pentagon or the health-care system. They do it because Teach for America and the food safety system is less politically powerful than the Pentagon or Medicare beneficiaries. The budget ends up like the yard of a man who owns only a lawnmower: The grass is trim, but the trees are overgrown and the ivy is everywhere and the gazebo is falling apart. Yet we keep mowing, because that?s what we feel able to do.

Ezra Klein - The U.S. Government: An insurance conglomerate protected by a large, standing army

 

[30ashopper]

I thought ObamaCare was supposed to fix a big part of this?

 

[idlewind]

This is a timely article about the impact of continued runnaway deficits.


Debt now equals total U.S. economy - Washington Times

Your Family Share: $97,594 --- That's right your government has put your Family $97,594 in debt without your permission and intends to spend even more this coming year... and then send you, your children, and your grandchildren the bill. Friends, they just don't get it!!! STOP ALL SPENDING NOW!!!

 

[scooterbug44]

And what are you willing to give up?

Everyone says rein in the spending and balance the budget .............. until they actually have to make a sacrifice.

You've seen the numbers - there is no way to fix the problem without changes to programs like Social Security, Medicare, Medicaid, and tax increases.