You probably also did better than SS. He was not saying that only those that did at least average would do better than SS, because “average” refers to the average investment return, not the SS level of return.
The chart does show the ratio’s shrunk from 3.3 to 2.9 in the last couple of years, and I expect it will continue to shrink for the next couple decades as the Baby Boomers hit retirement age and start cashing in SS, but after that I don’t see that it wouldn’t stabilize again.
But really, if it’s worked with 3 workers per beneficiary for the last 35 years, it looks fairly robust to me.
Yeah, it’ll likely get down near 2 during the “worst” of the crunch. But as long as immigration and birth rates can maintain that then I don’t think there is overwhelming demographic instability.
It’s only robust if the payments into the system going forward can keep up with the expected promises going forward. It may have “worked” for the last 35 years, but that’s only because the inflows were sufficient to meet the payments. There actually was a surplus, which as other posters have noted was spent on other things.
Here’s a chart off the SSA website. It shows the surpluses as a gap between “Income” and “Outgo”
http://www.ssa.gov/oact/progdata/assets.html
What this chart doesn’t show, of course, is the forecasted lines for each - say, stretching out 10 or 20 years. The “Outgo” line is going to start sloping up at a steeper rate than the “Income” line, precisely because the 3-to-1 ratio has been where is has been for the past few decades - as well as longer life expectancy. This can be calculated fairly accurately using actuarial tables and current rates of payout. They have already been promised to a future generation of retirees. I suppose you could change the nature of the promises but that will be a long and messy political process. And by the way…you’ve already taken the worker’s money as part of the payroll tax. I suspect they want it back.
The notion that the surpluses have been invested in some sort of “asset” is complete nonsense, as eloquently described by Shodan and others above. I hope you don’t subscribe to that notion.
I think you’re reading more into my response that I intended. I was merely pointing out that using average return is misleading when discussing an insurance program. The average person doesn’t have their house burn down, or get any return from term life insurance.
The point remains that SS exists to provide insurance against inadequate income during retirement. Whether that is due to poor personal planning, bad investment outcomes, or simply living too long.
That forecast is included in the cites up-thread. The shortfall, after depleting the SS Trust Fund, is around 20% indefinitely. It’s not like this is actuarial rocket science - we can predict these sorts of things quite well.
This is false, as has been documented countless times before. It is a much an asset as if the surpluses had been invested in Chinese bonds.
I like those scare quotes. It didn’t really work, even though it did?
No, it is not equivalent to Chinese bonds at all. In fact, it could not be more un-equivalent to owning a Chinese bond.
Owning a Chinese bond is a claim on someone elses asset base or income stream. Specifically, the Chinese. The bond is ultimately determined by the creditworthiness, or solvency, of the Chinese. The Chinese may default, or pay, or not pay. Evaluating all of those factors determines the value of the bond.
US gov’t bonds in the SS “trust fund” are a claim on our own asset base or income stream. As a few posters have noted above, it’s like moving $20 from your right pocket to your left pocket, and putting an $20 IOU in the right pocket, payable by the left pocket. It is nonsense.
“Working” has a current-time period effect, and a future effect.
I can go out and get 5 credit cards, max them all out immediately, take a vacation, buy a home I can’t afford, and eat well for 6 months.
I can say that my use of the credit cards has therefore “worked”. It has “worked” for that 6 month time period.
But I have created future obligations, with interest, that I must now repay. So it will most definitely not “work” for the future time period. And I can say that overall, my use of the 5 credit cards did not “work”.
If you need any more help explaining this, please let me know.
True as far as it goes, but you missed out an important step - you need to give your left pocket the power to tax the American people and corporations to get the $20 (plus interest) back.
Agreed.
Except, of course, that if you hadn’t moved the $20 from your right (SS Trust Fund) to your left (General Fund), you would have instead borrowed $20 from the public (as publicly-held debt). You still have the same IOU outstanding, all that changes is who’s name is on it.
The driving force behind the existence of the debt is general fund shortfalls. All the SS Trust Fund does is change who we owe that money to.
Do you at least agree with jtgain that the size of the Federal Debt is exactly the same as it would have been had the SS Trust Fund never existed? That is the first step towards enlightenment.
How is this nonsense?
I do this sort of thing all the time. I keep several financial accounts (checking, savings, CDs, brokerage, etc). It may not make sense to other people, but I keep a reserve of $x in each. There are occasions when I have to dip below $x for a given account and transfer it to a separate account. On a later date, I pledge to myself to replace it.
For all intents and purposes, I don’t have to do any of that. It’s all more or less my pool of money to use as I wish, but there’s nothing nonsensical about an accounting scheme that keeps separate pools of money, maintains balances, and keeps track of transfers between them.
Even a home equity line of credit can be considered the same type of thing.
Good point Antibob. And if you had one fund that was consistently borrowing from another one, you certainly wouldn’t blame the over-performing fund for ruining your overall financial condition. You would, rightly, blame the one that was having to do the borrowing, and modify it to return it to surplus.
But you wouldn’t say that your over-performing fund that you borrowed against had assets in it because you promised to pay the funds back. That’s all I am saying.
Sure, but that’s because we’re pushing the analogy too far. You can’t directly compare a business’ or an individual’s balance sheet with a government’s. A government with its own sovereign currency can actually 100% guarantee to pay the funds back. The problem is how to do it without dissolving faith in the currency itself and in a way that doesn’t wreck its economy.
That would depend on why your under-performing fund was under-performing. If it had the power to tax the largest economy in the world then yeah, I would call it an asset (amarone’s point).
Using the deficit of the general fund to wipe out the good public planning with respect to SS is misleading, especially when it is used to make the shortfall look longer (and more imminent) than it truly is.
Fix the problem, don’t use the problem to attack something you politically dislike.
Okay, so I don’t have the tax power of the government*, but I did promise to pay myself back. And I have always paid my bills on time. Would you say that the 401k has assets in it, just maybe not AAA rated ones?
I’ll tell you what. I’m going to raid my daughter’s college fund next week and put an IOU in it. When my wife finds out, she will be upset because she’s not as financially saavy as you guys. Would you tell her that my daughter’s college fund is fully intact, yet with possibly riskier investments than before?**
*And again, since we are resorting to the tax power, there is no functional difference between having this “trust fund” and having nothing. We raise taxes to pay off bonds or to pay benefits.
It’s the same.
** But, hey, who knows. The Dow dropped 513 points today. Maybe I am a better investment than the mutual funds that she is in? Better just tell her that the college fund has assets in it.
Your scenario doesn’t make any sense. Why would the purchase of $110 par Shodan Bond be contingent on my future purchase of a $200 Shodan Bond?
Of course it’s an asset, in the same way that any security is an asset.
When the market cratered today, where do you think most of the investors put their money?
Hint: it wasn’t gold and it wasn’t Shodan Bonds. It was US Government securities.
Because that’s how you can be sure you will paid back. It’s backed by the full faith and credit of Shodan, who you may quite sure will be after you to cough up the $200.
It doesn’t make any difference. The public are the ones who have to pay back what you borrowed from them.
Regards,
Shodan