Social Security

[fadedrose]

I can't understand how they can know with any degree of accuracy that SS will become bankrupt in X many years...

Doesn't the fund depend on contributions from working people, and if they manage to bring the country up to full employement, the fund will grow?

Jobs are the key to everything for everyone.

[Statistical]

1. It is a projection based on likely growth rates, inflation, population growth etc.

The report is updated each year so if trends are more optomistic future reports will reflect that. If they are worse future reports will reflect that also.

For example 3 years ago it was projected that expenses would exceed revenue starting in 2017 however that happened in 2010 and 2011 due to the recession.

It is no different than saving for your personal retirment. Say you estimate you will need $1,000,000 to retire comfortably and you are going to retire in 40 years. You estimate 8% annual return, wage growth of 5% annually, and then work backwards to calculate how much you will need to contribute each year.

Obviously it is only a projection but it is a place to start. Now in 10 years (30 years to retirement) you likely have a better idea. You may need to raise or lower contributions to hit your target. At 20 years out your options are starting to get rather defined. 10 years out should just be a verification you are on track.

[fadedrose]

4. But isn't the decline in funds due mainly to unemployment...

Inflation, growth, etc., are factors, but I think that low employment and people working jobs that pay so low that they never come up to the figure where SS stops being collected from their paychecks is an even greater factor.

Your posts always make a lot of sense...I enjoy and benefit from reading them.

[Statistical]

13. Yes it is. However even w/ no recession

demographic changes were going to cause SS to start running a deficit and draw from the trust fund. Originally that was anticipated in 2017. The recession simply moved the timeline up.

Now maybe we exit the recession and hit a super growth economic expansion. With GDP and wages rises 5% annually, and unemployment hitting historical lows. If that happens the projection will be updated. Maybe that pushes the exhaustion date back to 2057 or makes SS infinitely solvent.

Still the projection is based on LIKELY outcomes. Each year it is revised based on real world changes. Any statistical model works the same way. You create a predictive model based on certain assumptions and then as time goes on historical data is used to update the model.

That being said projections 10 years out are obviously less prone to error than those 27 years out. However waiting until 10 years out makes any requires changes more drastic.

Lastly SS isn't going bankrupt. Even with the trust fund exhausted revenue in 2037 (from year 2037 payroll taxes) will be able to pay roughly 78% of promised benefits. Of course we should strive to pay 100% of promised benefits and the projections indicate that will require some modest changes.

[NNN0LHI]

18. Off subject here but I have a question

What would be the estimated cost in actual dollars at current electric rates added to my electric bill to put about 10,000 miles on one of these new Focus all electric cars?

Only reason I am asking is because I figured you already have done an estimation on this. If you need to do a bunch of research for the answer don't worry about it.

Thanks in advance.

Don

[Statistical]

20. Back of napkin calculation.

Most EV gets about 4-5 miles per kWh. Haven't seen exact figure for Focus yet but lets assume 4 miles per kWh.

10,000 miles / 4 = 2,500 kWh. In southern VA electricity is about $0.10 per kWh so that would be about 2,500 * 0.10 = $250 annually.

[NNN0LHI]

52. Thank you very much for your time, Sir

Very appreciated.

Take care and see you later.

:hi:

Don

[Hannah Bell]

32. "Originally that was anticipated in 2017. " What is this "originally"?

That "prediction" changes every year.

in 1996, 2012 was the date. and the tf was supposed to be exhausted in 2029.

Uh, no, waiting until 10 years out doesn't require any more drastic changes.

oh, & btw, ss still hasn't arrived at that place, despite your repeated claims that it has.

[Hannah Bell]

36. nothing to do with demographics.

[Hannah Bell]

22. no, expenses didn't exceed revenues in 2010 or 2011.

and it is *quite* different from saving for your personal retirement. SS isn't a savings program, it has nothing to do with "savings".

what are you peddling?

[Statistical]

23. . . .

http://news.yahoo.com/s/ap/20110127/ap_on_re_us/us_social_security

[Hannah Bell]

35. 1. the news reports of payouts exceeding revenue conveniently neglect to include tf

interest, even though the ssa projections include interest income.

2) you didn't answer my question.

[tabatha]

2. And the baby boomers

since Reagan changed it, were paying for the current retirees and their retirement.

SS should be sloshing in funds.

[Statistical]

3. It is. $2.5 trillion worth however that isn't enough.

At current benefit levels, and current revenue (payroll tax) levels the fund is projected to be exhausted in 2037.

[rfranklin]

8. But the projection is that without the trust fund they could pay 80% of benefits...

so it isn't exactly an emergency. By raising the cap on withholding this "problem" could be solved in a matter of minutes.

[Statistical]

14. Raising the cap gets us about 40% of the way there.

You are right it is no "crisis". The trustee report simply indicates that based on likely projected changes in employment, wages, demographics, and inflation SS trust fund will be exausted by 2037 and all benefits will need to be cut 22% across the board.

That is one solution but not likely the best solution. Some modest changes to SS could significantly improve long term solvency of the program.

[Hannah Bell]

38. where is "there"?

[Hannah Bell]

37. & the significance is?

[rgbecker]

11. As it turns out, there are excess funds, but still, at current ....

expected levels of benefits, number and age of beneficiaries, number and age of workers, things need to be changed by 2037 to continue the current levels of benefits and the current levels of FICA taxes. That's Social Security...Medicare is yet another story. Simply raising the maximum level of income which is taxed for Social Security would bring in enough income to fund it until 2067. Maybe by then, they'll have figured out they need to legalize the undocumented so they could help pay for some of the social services the republicans are so upset about paying for.

[Hannah Bell]

39. bullshit.

[jtown1123]

5. It will never EVER go bankrupt unless there is 100% unemployment

There will be a 22% shortfall starting in 2037 which can be fixed by raising the payroll tax cap on income earner who make more than $106,800 or raising FICA taxes about 40 cents a month. It's not rocket science.

[Crazy Dave]

6. If we keep the two current wars going and start two more...

...then social security may well indeed go bankrupt. Both dems and repugs just can't keep their grubby paws out of the funds for their own pet projects.

[jtown1123]

10. Social Security cannot go bankrupt as it is independently funded by FICA taxes.

What everyone is concerned about is the shortfall in 2037, where beneficiaries will only receive about 78% of promised benefits, which noone believes will happen. All they need to do is raise the extra revenue, which is as simple as raising the FICA tax cap on high income earners.

[Crazy Dave]

53. Ummm....we tried to raise taxes on the wealthy and it didn't work

Where were you?

Everyone already knows the FICA cap needs to be raised but it will never happen. Just like there's been no cost of living increase for two years but the wealthy still get to hang on to their money.

I guarantee the cap will not be raised ever for the wealthy. The "it will kill job creation and cause another recession" playbook works so good every time.

[Cleita]

7. It will be fully funded until 2029 and even if nothing

is done to fix that, it will still be able to pay out 80% of benefits. If you want the truth about SS go to the SS website and they explain it all to you. If it's too cumbersome to work your way around in it, go to Bernie Sander's website and he breaks things down. All this talk about SS being on life support is bull shit so that you vote for privatization and then Wall Street can get their hands on all that lovely money. This is what they are aiming for.

[jtown1123]

12. Exactly. There is a highly misleading AP article that was picked up everywhere

today that confuses a short term revenue loss because of the recession with the long term revenue shortfall which won't happen until 20 years out. Bad reporting, just awful.

[MannyGoldstein]

9. They don't, and they're full of shit

The projection that shows reduced benefits in 27 years is based on our economy growing at 2.1% per year. That's a horrible rate of growth - the average over the past 50 years is 3.2%, and the decade prior to the 2008 crash (including a recession and crappy recovery) was 3.0%. Even 2010, which was a crappy year, was 2.5%.

Another projection from the same folks, but using 2.9% growth, found that Social Security is fully funded as far as the eye can see.

Timmy Geithner is the head of the group that made both predictions - guess why the scary and unlikely one is the one being publicized.

I'm so sick of these fuckers, such swine.

[Statistical]

15. It doesn't assume only 2.1% growth.

http://www.ssa.gov/oact/tr/2010/II_assump.html#95492

[MannyGoldstein]

16. Where's GDP growth in that table?

I don't have time right now to find it - see http://writ.news.findlaw.com/buchanan/20090521.html, it'll point you in the right direction.

[Statistical]

19. GDP growth isn't used in SSA calculations because it is a meaningless metric.

Productivity growth IS used as wages generally track productivity gains.

The productivity growth and other assumptions by SSA trustee are valid.

[rgbecker]

24. I think they do use it as indicated by this explanation and chart guide.

http://www.socialsecurity.gov/OACT/TR/2010/V_economic.html#188118

They have a low cost (optimistic) intermediate and High cost (pessimistic) estimate based on many different assumptions. Pretty interesting. Either way, to argue that the government agencies numbers and assumptions are bad is alot like Boehner saying the CBO numbers about the Affordable Care Act are just plane wrong. No sense in even discussing the issue I guess. I'd like to point out that the SSA group has apparently been using the same methods and numbers for years, so at least you can make some comparisons over the years.

I'm beginning to believe more and more that hanging the Social Security issue out is just another method of keeping the American people afraid....be Very Afraid! Terrorist! No more money for you or your grandchildren! 40 cents of every Dollar! Greece, Ireland, Iceland for God's sake! Uncertainty because of the Marxist Nazi Socialists!

[MannyGoldstein]

25. First off, I cited a published economist who found the same numbers

Krugman and others have also said that the numbers are very conservative, without specifying numbers. This isn't like Boehner pulling it from his ass.

Second, Krugman points out that in 1995, the estimate of when the fund would be depleted was 2029 - 8 years earlier than the current estimate. As time goes on, the estimates generally recede further into the distance because the assumptions are fairly pessimistic.

[Statistical]

27. Other metrics are but GDP growth isn't used in SSA calculations

A lot of other metrics are used.
Price growth, productivity, wage growth, fertility rates, immigration, life expectancy, working age population, inflation, etc however GDP is not.

The person I responded to indicates 2.1% GDP growth is "bogus"; well GDP growth (2.1% or otherwise) isn't used in the trustee calculations or mentioned in the report. So it is a red herring.

GDP isn't a useful metric for calculating financial outlook of SSA.
Say GDP increases 20% but wages remain flat that wouldn't help SSA financial outlook (as SSA revenue is correlated on earned wages not GDP). On the other hand say GDP only increases 5% but wages also rise 5%. That would significantly help SSA outlook.

[MannyGoldstein]

34. Here ya go...

http://www.ssa.gov/oact/tr/2010/V_economic.html#205214

[Hannah Bell]

45. bullshit.

http://www.ssa.gov/oact/tr/2010/V_economic.html

[MannyGoldstein]

26. They do - see Buchanan's article nt

[Statistical]

28. No they don't. SEE THE ACTUAL TRUSTEE REPORT.

Are you trying to tell me not to believe my lying eyes.

GDP is irrelevant to the financial outlook of SS. Wages and productivity growth are important metrics (as SS revenue is directly correlated to earned wages). GDP growth has no relevence and it isn't included (2.1% or otherwise).

[rgbecker]

29. I'll paste the section here if you don't want to be bothered looking at your own link.

1. Productivity Assumptions
Total U.S. economy productivity is defined as the ratio of real GDP to hours worked by all workers.2 The rate of change in total- economy productivity is a major determinant in the growth of average earnings. For the 40 years from 1968 to 2008, annual increases in total productivity averaged 1.7 percent, the result of average annual increases of 1.7, 1.3, 1.5, and 2.2 percent for the 10-year periods 1968-78, 1978-88, 1988-98, and 1998‑2008, respectively. For 2009, the estimated annual change in productivity is 2.5 percent.
It is most useful to consider historical average growth rates for complete economic cycles, because productivity growth can vary substantially within economic cycles. The annual increase in total productivity also averaged 1.7 percent over the last five complete economic cycles (measured from peak to peak), covering the 41-year period from 1966 to 2007. The annual increase in total productivity averaged 2.3, 1.2, 1.2, 1.8, and 2.1 percent over the economic cycles 1966-73, 1973-78, 1978-89, 1989-2000, and 2000-07, respectively.
The ultimate annual increases in total economy productivity are assumed to be 2.0, 1.7, and 1.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively, and are consistent with ultimate annual increases in private non-farm business productivity of 2.4, 2.0, and 1.7 percent. The private non-farm business sector excludes the farm, government, non-profit institution, and private household sectors. These rates of increase are the same as those used in the 2009 report, and reflect the belief that recent strong growth in private non‑farm business productivity, after the relatively poor performance from 1973 to 1995, is consistent with future long-term growth that mirrors the long-term trends of the past.
For the intermediate assumptions, the annual change in productivity is assumed to be 3.7 percent for 2010 and 1.6 percent for 2011. Thereafter, the annual change is assumed to average 1.5 percent through 2019. The annual rate is assumed to reach its ultimate value of 1.7 percent in 2020 when the economy has fully recovered. For the low-cost assumptions, the annual change in productivity is assumed to be 4.2 percent for 2010 and 1.7 percent for 2011. The annual change is assumed to average 1.6 percent over the 2011 to 2019 period, and reach its ultimate value of 2.0 percent thereafter. For the high-cost assumptions, the annual change in productivity is assumed to be 3.3 percent for 2010 and 1.4 percent for 2011. The annual change is assumed to average 1.4 percent over the 2011 to 2019 period, and remain at that value thereafter.



http://www.socialsecurity.gov/OACT/TR/2010/V_economic.html#188118

[Statistical]

33. Can you not read? Your quote disproves your OWN claim.

"annual increase in total productivity"
...
"The ultimate annual increases in total economy productivity are assumed to be 2.0, 1.7, and 1.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively, and are consistent with ultimate annual increases in private non-farm business productivity of 2.4, 2.0, and 1.7 percent."
...
"For the intermediate assumptions, the annual change in productivity is assumed to be 3.7 percent for 2010 and 1.6 percent for 2011. Thereafter, the annual change is assumed to average 1.5 percent through 2019. The annual rate is assumed to reach its ultimate value of 1.7 percent in 2020 when the economy has fully recovered. "

Productivity growth is not GDP growth. Productivity growth is always lower than GDP growth. Thus an assumption of 2% PRODUCTIVITY growth is not an assumption of 2% GDP growth.

For example in 2000 we had GDP growth rate of 4.1% but a productivity growth rate of 2.5%.

Productivity growth, along with population growth, fertility rates, immigration rates, price inflation, and wage inflation are factors in SSA report. GDP GROWTH IS NOT USED, not a 2.1% GDP GROWTH, NOT ANY GDP GROWTH.

SSA revenue is based on WAGES not GDP and WAGES are directly correlated to productivity. So your claim that the trustee use a "bogus" 2.1% GDP growth is WRONG. They don't use a 2.1% GDP growth assumption, they don't use ANY GDP growth assumption. The PRODUCTIVITY growth numbers used by the Trustee are factual and based on historical norms.

[rgbecker]

40. Listen, I don't think we are having a disagreement on the worth of the

SSA numbers. We both think they are good enough for the trustees report...right? Based on historical norms etc.

But they are based on GDP numbers as stated in this report, which I did read. Here is the Quote from my previous post:

"Total U.S. economy productivity is defined as the ratio of real GDP to hours worked by all workers."

You are right "Productivity growth is not GDP growth" but it is based on "real GDP" and so by their definition GDP must be included in the estimates. You are the Statistician, but I think the chart in that report shows their using 1.5 or 1.7 (Intermediate) and less from here on out but shows numbers like 2.5 for 2009 and 3.7 for 2010. (And 3.2 for 60-65, 2.3 for 95-2000, 2.5 for 2000-05, etc.)

I'll include the link again to the 2010 Trustee's Report. Please tell me if the numbers I'm showing for "Productivity" look good to you and if we should be concerned or not that the Trustees are being too pessimistic.

http://www.socialsecurity.gov/OACT/TR/2010/V_economic.html#188118

PS. I never made a claim that the Trustee's used a bogus 2.1% gdp growth rate. Must have been another poster.

Thanks for your help understanding these numbers.

[Statistical]

46. Sorry.

I wasn't paying attention. Thought I was still talking to the same person. My applogize.

I feel (other disagree) that productivity gain numbers are realistic. Maybe they will be higher, but they also could be lower. The intermediate projection is the baseline. Which means in a statistical sense there is a roughly 50% chance the real outcome will be higher but also a 50% chance the real outcome will be lower. The high cost and low cost estimate are upper and lower bounds.

So to simplify the Trustee report is best projection of what will happen over next 75 years. The intermediate projection is the most likely and things are unlikely to be better than the low cost projection or worse than the high cost projection. The one caveat is the there is significant potential for variance in a 75 year projection however it is just as possible that it deviate to the downside as the upside so until we have more accurate information (which won't happen until we get closer to 2037) it is best to work based on the baseline.

As economies mature productivity gains get harder to come by and productivity gains begin to slow. 2% productivity growth is likely over the next 50 or so years. Now of course is we have some radical breakthrough like cold fusion, nanotechnology, bio-engineering, huge leaps in AI, etc then all bets are off the table. We may see 4%, 6%, hell even 10% productivity growth.

[Hannah Bell]

47. 6. Gross Domestic Product Projections

For the intermediate assumptions, the average annual growth in real GDP is projected to be 3.0 percent from 2009 to 2019, the approximate sum of component growth rates of 1.1 percent for total employment, 1.7 percent for productivity, and 0.1 percent for average hours worked. This projected average annual growth in real GDP of 3.0 percent can also be separated into an underlying sustainable trend rate of change of 2.3 percent for this period, plus an above-trend growth rate of 0.7 percent that is mostly associated with a relatively rapid increase in employment as the economy recovers and the unemployment rate falls from near 10.0 percent in 2009 to its assumed ultimate level of 5.5 percent in 2018.

If you can take the trouble to look at the chart, below-trend GDP growth of 2.1-2.2 is assumed for the entire period following the "recovery" from the 2007-present recessionary period. That's from 2018 to 2085.

http://www.ssa.gov/oact/tr/2010/V_economic.html

[Statistical]

49. That averages 2.5% for the 28 years between 2010 & 2037.

Which is pretty strong growth for a fully mature economy, and the Trust Fund will still be exhausted in 2037 based on that growth.

[Hannah Bell]

50. the higher rates 2010-2017 = supposed recovery from the deepest recession since the depression.

rates 2018-on = 2.1-2.2.

and your average is still below trend.


but wait, you said the trustees don't mess with gdp projections....?

[rgbecker]

30. Thanks for the Buchanan link...interesting set of articles.

[Hannah Bell]

44. bullshit.

http://www.ssa.gov/oact/tr/2010/V_economic.html

[Hannah Bell]

43. please point out the "growth" assumption in that link -- GDP.

For the 40-year period from 1968 to 2008, the average growth rate in real GDP was 3.0 percent, combining the approximate growth rates of 1.5, 1.7, and ‑0.3 percent for its components — total employment, productivity, and average hours worked, respectively.

For the intermediate assumptions, the average annual growth in real GDP is projected to be 3.0 percent from 2009 to 2019, the approximate sum of component growth rates of 1.1 percent for total employment, 1.7 percent for productivity, and 0.1 percent for average hours worked.

This projected average annual growth in real GDP of 3.0 percent can also be separated into an underlying sustainable trend rate of change of 2.3 percent for this period, plus an above-trend growth rate of 0.7 percent that is mostly associated with a relatively rapid increase in employment as the economy recovers and the unemployment rate falls from near 10.0 percent in 2009 to its assumed ultimate level of 5.5 percent in 2018.

http://www.ssa.gov/oact/tr/2010/V_economic.html

Growth rates for GDP for the 75-year period, except for the "recovery from the recession" period (2011-2017) are indeed 2.1-2.2%.

Table V.B2.—Additional Economic Factors

http://www.ssa.gov/oact/tr/2010/V_economic.html

[lumberjack_jeff]

17. Yes. Exactly. The policy changes are desired to get the right number on their calculator.

Long term planning? Let's talk about global warming and peak oil instead. Projections are a hell of a lot more legitimate and provable.

[Hubert Flottz]

21. It is a projection based on bullshit/propaganda.

They spent the money in Iraq and Afghanistan and now they are trying to cover their ass.

[bdamomma]

31. weren't those wars not paid for by bush?

[Hubert Flottz]

51. Bush is the cause of most of these problems.

He's planted bad seeds throughout the federal government.

[AngryAmish]

41. The main problem is nobody can predict the future

No me, not you, not anybody. It is Nick Taleb's main argument.

Yet everyday people blather on about the future and what it holds. Could be right, could be wrong but mostly it is wrong. When someone correctly predicts the future they loudly exclaim "see what I did" but you don't hear about the guy who got it all wrong.

Social Security might be fine if nothing is done. For example there could be a pandemic of rapidly advancing, inoperable, incurable and deadly facial cancers that strike 92% of those over 65. But we should not count on it.

Social Security will be fine, until it is not. Then the program will end and old folks will depend on their children again.

I just don't see where the growth is going to come from. Is our population rapidly growing so we need lots of new houses? No. Can we make stuff cheaper than China? No. There is a fundamental shift going on where the low skilled, low intelligence people are losing their jobs forever. And we don't know what to do about it.

[jtown1123]

42. Want to see a fun chart? SS shortfall equals Bush Tax Cuts for the Wealthy

http://digbysblog.blogspot.com/2011/01/friendly-reminder-to-president.html

[Hannah Bell]

48. that's about it.