“actuarially bankrupt” what does that mean exactly?
Is it a technical term of the trade?
Obviously, I found definitions of both of the words separately. That’s not always an indicator of the usage or meaning of a phrase or term.
People are saying that Social security is “actuarially bankrupt.”
Actuarially’s such a specific sounding adverb that it seems “actuarially bankrupt” must have some meaningful difference from the unmodified “bankrupt”
It’s an expectation of future bankruptcy. Something like the following scenario:
You run a pension fund. It’s expected that you will have to pay $1 billion in benefits over the next 30 years, which you estimate based on average retirement rates, life spans, etc. In order to afford those payments, you think that you currently need $200 million in assets, which you estimated based on future pay-ins, market returns, management costs, etc. Those inputs are necessary to get the other $800 million that you will owe eventually.
If you only have $100 million in assets right now, you’re not actually bankrupt at this moment. However, with only half of the expected need for assets, you might expect only $600 million in future earnings/pay-ins and therefore it’s virtually guaranteed that 20 or 25 years from now, you’ll have hit $0 in the bank when $200 million in benefits are still left to pay. At that point, you’ll be literally bankrupt, but at the moment, you’re only actuarially bankrupt.
You can see how this applies to Social Security, though it’s a bit of a stretch there. SS has no assets. Payouts come from general revenue, just like SS taxes have always gone into general revenue. It can only be bankrupt to the extent that silly people expect it to work like a pension, which is never was, never will be, and cannot be. (Which is not to say we shouldn’t analyze the revenue/costs of the program, but we should stop pretending it is something it is not.)
I don’t see the problem with the term. They’re saying that under the current revenue and payout scheme, the program will not be able to pay for itself on an ongoing basis in the future (as it was originally intended to do).
No. The Social Security system collects taxes and retains the excess after payouts as assets. Its trust funds were established in 1939, and presently contain $2.8 trillion.
Perhaps you’re one of those who think that if the $2.8 trillion were kept under the mattress in the form of government obligations with pictures of Benjamin Franklin it would be “real money” in a sense that interest-paying government obligations are not. 
That has got to be one of the stupidest things I’ve ever read on the SD.
We all know that gold is the only real money although I would be willing to take my payments in non-hybrid seeds.
Speaking of that - have you noticed that SS stands for both Social Security and Schutzstaffel
SaiNt’CAd, FotL, Sov. Cit., person in body under natural law.
This reply does not bind me to any contracts.
Paul/Cruz 2016
The problem is that the 2.8 trillion trust fund is essentially a chunk of the national debt. When the bills come due - when social security needs to dip into that trust fund - it means that the Federal government has to either honor those pieces of paper by raising taxes on the taxpayers at the time this happens, or it has to “refinance” the debt by borrowing from other suckers, and this refinancing will more than likely raise the interest rate paid by the Fed.
These new, higher interest rate debts will require raising of taxes as well…
So, however you slice it, it ultimately puts the burden on the people working during the time that the social security trust fund is being drained. Aka the children and grandchildren of the baby-boomers, people in their 30s like myself right now…
I never did understand why the Federal government couldn’t have invested the money in actual, real investments. Why doesn’t it own a piece of a wide spread of successful companies and businesses, worldwide? 2.8 trillion would buy a lot of stock…
I am an actuary. There is no such term as “actuarially bankrupt” in common use, nor does it have an accepted meaning (or any meaning at all) within the profession.
Quite obviously, there are long term problems within Social Security; in coming decades it will require either substantial benefit reductions or substantial tax increases, OR (if neither happens) it will add significant amounts to our already substantial annual deficits and national debt. You may characterize these problems as you wish.
To pretend for a second that this might be a real statement…
Imagine the conflicts of interest in picking the stocks.
Imagine the complaints about what stocks got picked.
Imagine the government sitting in a stockholders’ meeting.
Imagine the government voting on issues presented to the stockholders.
Imagine the government holding enough stock to be seated on the board of directors.
Imagine the government paying taxes to itself.
Imagine regulating companies it invests in.
Imagine…
There’s probably a whole college course in all the ways this idea fails and the ramifications of what that would mean in the real world.
But that would also put the burden on the people working at that time.
However you slice this, paying pensions to retired former workers involves transferring wealth from the current generation of workers to their non-working parents. A system funded by social security contributions and/or taxes, or a fund holding stock and bonds and receiving dividends and interest, are alternative mechanisms for effecting this transfer, but there is no a priori reason to think that one is more sustainable than the other.
Of course, storing non-transferable, non-marketable certificates printed on an inkjet printer in a filing cabinet in an obscure government office building in Parkerburg WV is substantially different than storing government obligations with pictures of Benjamin Franklin under a mattress.
And, where, may I ask, will the money to pay interest and redeem the certificates come from other than the general revenue of the United States as **dracoi **claimed?
Does the government of China invest in a lot of stocks, or other kinds of commercial investments (all over the world, in fact)? I know they have an official (or maybe quasi-official) agency that studies investment opportunities all over the world to choose where to invest. But does the government then invest, or does that agency make recommendations for private investors in China? (Private investors in China??? The mind boggles!) Anyway, they don’t seem to be bothered by any of the above problems! Thus proving that Communism is freedom!
I understand the idea of a conflict of interest. However, in principle, the government could have a standard, mathematically defined formula for deciding if a given business is viable. (just being listed on the stock exchange with a value per share above a buck is already not too bad). They would not hold more than 1-5% of any given company. Money would be distributed evenly, or in “tranches” (companies might be divided into A, B, and C grade investments. within each grade, the amount invested would be perfectly even, such that the government owns the same % of each company. It would weight it towards the A grade companies)
Owning real assets, those companies would produce wealth statistically, which the government could use to pay it’s obligations.
Your point is understood. Nevertheless the phrasing **dracoi ** used was wrong in any accounting sense. Call my correction a nitpick if you wish.
Future retirees don’t need money, they need food, shelter, clothing, medical care, and so on. They will use money in exchange for these goods and services.
But someone, somewhere, somehow will have to produce these goods and services at the time they are consumed. If we just need a godzillion dollars in 2065 we could just print up a godzillion dollars. The problem is that when we try to exchange those godzillion dollars for the goods and services that exist in 2065 we find that adding a godzillion dollars of purchasing power doesn’t actually increase the amount of goods and services available.
The only way to increase the goods and services available in the future is to produce stuff now that can be used in the future…durable goods like houses, infrastructure like roads and bridges and canals, capital goods like factories and steel mills, human capital like educating and training young people to produce more in the future.
We can write a giant check in 2015 payable in 2065, but to cash the check there has to be stuff ready to buy with the money. Otherwise it’s just pretend. And we can commit here in 2015 to pay retirees in 2065 bucketloads of money, but how to we force the people of 2065 to honor the agreement we made before they were even born? They have to want to do it. The only way they’re going to want to do it is if the economy in 2065 is so much larger than it is today that it’s easy for them to produce all the stuff the retirees of 2065 will need. Or we could, you know, raise taxes a bit. Because to pay the trust fund back the money we use today we have to pay it back with taxes in the future. If we “borrow” “money” “from” the “trust fund” to pay for current expenditures, then we can borrow more money in the future to pay for future retiree pensions. If the people of the future agree to do that.
A bunch of politicians pinky swearing that the people of 2065 will have to pay huge sums for pensions for swarms of retirees doesn’t obligate the people of 2065 to do as the politicians of 2015 decreed.
In other words, socialism. The government owns the means of production, and directs the goods and services produced to whatever group currently has the favor of the overlords.
Or we could tax the billionaires a bit more.
If the needs of retirees grow as they are expected to, and the economic growth rate stays at the rate it is expected to, that means a larger and larger and larger fraction of the economy must go to support people who no longer contribute to the economy, which means that the people who do contribute will have to pay a higher and higher amount to support them. It doesn’t matter if you call this socialism, or taxes, or sovereign wealth funds, or whatever. Fewer people working, with greater and greater demands, means the workers have to provide more. A lot more.
Ask Greece what actuarially bankrupt means.
What you’re trying to do there is devise a system whereby the government predicts which enterprises will prosper in the future, and buy stock to assure itself of a share of the future profits of those enterprises so that it can use them to meet its pension obligations as they fall due.
It is both cheaper and more effective not to attempt to predict which companies will prosper, but simply to wait and see which ones do prosper, and then secure a share of their profits by, you know, taxing corporate profits and use that money to meet pension obligations.
If, say, 2% of national production has to go to the government to pay pensions to seniors, it costs the same whether the collection mechanism is corporate dividends or corporate taxes. But corporate taxes is going to be a cheaper and more reliable way of collecting that sum.
They won’t know. They just know what “bankrupt” means.
Did you mean to say “actually” bankrupt?
Not that I advocate government investment in the private sector, but I have to point out that you are assuming the government would only invest in corporations subject to US taxes. Investing in foreign corporations might be a keen way to get foreigners to pay our pensions.
