Author Topic: Survey shows a third of workers have less than $1000 saved for retirement  (Read 12249 times)

sherr

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http://www.usatoday.com/story/money/personalfinance/2014/03/18/retirement-confidence-survey-savings/6432241/

Okay, but scary title aside I'm not sure how much attention to give this survey. They don't take pensions into account at all. Why not? If you have an awesome pension maybe you don't need any other retirement savings (except to not have all your eggs in one basket). They also didn't survey very many people. Still, I thought folks here might enjoy the head shake / heard attack this article will induce.

frugalecon

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I think it is foolish to accept pension promises at face value. First, pension benefits can potentially be reduced in bankruptcy (either of a private firm or, now, local government). Second, firms can decide in the middle of your career to eliminate your defined benefit pension. IBM just did this. So, perhaps you are 15 years into a 30 year career, in which the pension benefit is backloaded in the latter half of your career. If the plan is closed, you might get the benefit from the first 15 years, but it may be a small fraction of what you were expecting. If you haven't started your savings by then, you are in a world of hurt.

I have a pension at my job, and I think it is pretty secure, but I am basing my planning on an assumption that I can replace a large fraction of it and my projected Social Security benefit with income from my savings. There is some chance I will have too much money in retirement, but very little chance I won't have enough.

soccerluvof4

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I have seen /read a ton of these surveys and at the end of the day.....alot of people are screwed.

warped

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Well, first most people in the US don't have pensions.

Second, if you do, it's forced savings.

On the other hand, if you have a 401(k) type arrangement, you have to actually sacrifice the present money for future money.

The point being people don't care about their own future self, many time.

greenmimama

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I can completely see the truth in the title, didn't read the article.

I think most people are just relying on SS, they have no idea how pathetic the payments are.

horsepoor

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I have seen /read a ton of these surveys and at the end of the day.....alot of people are screwed.

The problem with these articles is, I read it and go "Oh, I'm doing so much better than THEM!" and start thinking about going all spendy and buying a shiny new pickem'up truck or something.

Zamboni

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^I don't think that.  I end up thinking I'm going to have to use my savings to subsidize "them" for their spendy ways when they are old and too feeble to work. 

Yet still I save . . .

gooki

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I haven't read the article, but it doesn't sound that dire.

A third of workers will be in the 20-35 age group, and having. minimal retirement savings would be the social norm.

A third will be in the 35 to 50 age group.

And a third will be in the 50 to 65 age group.

mbl

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I haven't read the article, but it doesn't sound that dire.

A third of workers will be in the 20-35 age group, and having. minimal retirement savings would be the social norm.

A third will be in the 35 to 50 age group.

And a third will be in the 50 to 65 age group.
Yeah, there's probably more to it than a sensationalized  headline

Also, what about those people who are low wage earners and are more concerned with having shelter and food and being able to meet more immediate needs?
How many people live this way who don't qualify for any aid, have jobs that don't quite keep up with the cost of living yet they continue on being somewhat self sufficient but just barely?

What percentage of Americans are living that way and would be accounted for as being those without any savings no less retirement savings?  Could be the CNA who takes care of your elderly relatives in a nursing home, or maybe a teacher's aid in a public school who takes care of an autistic kid who needs assistance during the school day, or maybe someone on the crew who cleans your office in the evenings,  or maybe the guys who pick up your garbage or recycling,  etc.

 I don't think it makes these people somehow stupid for not having retirement savings, not at all.  I suspect they already know that it's going to get tough when they're old, they probably know a hell of lot better than those who've never lived that struggle. They just don't have the ability to afford the luxury of saving/investing.   And not everyone can just go to college and get a "good" job.  Hell, there are plenty of college educated people out there who can't find work at all.

Yes, there are plenty of people who've not used basic common sense with their finances I understand that....a good deal right here on MMM :).
But to assign blame to everyone who doesn't have savings/investments/a plan for the future,  takes on somewhat of a mean spirited tone.  JMHO.

matchewed

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Full report - http://www.ebri.org/pdf/surveys/rcs/2014/EBRI_IB_397_Mar14.RCS.pdf

Breakdown of total savings and investments by age (Not including primary residence and defined benefit programs) -
http://www.ebri.org/pdf/surveys/rcs/2014/RCS14.FS-4.Age.Final.pdf (bottom of page 2)

Yes you see that older workers are much more prepared for retirement but it is true that across all age groups amongst the people that answered it was consistently between 24%-43% (oldest to youngest age brackets) who had less than $1k.

*edit* I called out that it included primary residence and defined benefit programs. That was wrong. Edited to fix that.
« Last Edit: March 21, 2014, 10:28:06 AM by matchewed »

No Name Guy

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Great link Matchweed:

Shit...the Table 3 showing the breakdown by age group is depressing.  For the 55+ age group, the ones staring "traditional" retirement in the face, it's disgusting:

Less than 1k:  24%
1k to 10k:  10%
10k to 25k:  7%
25 to 50K: 9%
50 to 100k: 8%
100 to 250K: 19%
More than 250K: 23%

My take away - 1/3 in the 55+ age group have less than 10k.  1/2 have less than 50k.  And this is the age group that is, or should be, most motivated to be ready to retire and fully half of this age group has chump change.

While 10k is certainly a lot more than 1k, for practical effects in the context of retirement, it's just as useless - a rounding error on what's needed.  With a 10k portfolio, the chance of success (in the FIRE Calc sense) in retirement is still 0.0% - the same odds of success as 1k.  50k, well, that'll be a nice few grand a year supplement for a few years, but not enough to retire on.  If all you have is 10 or even 50k in the context of retirement, that is the financial equivalent of a garden hose versus a forest fire - not even close to being enough. 

beltim

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Great link Matchweed:

Shit...the Table 3 showing the breakdown by age group is depressing.  For the 55+ age group, the ones staring "traditional" retirement in the face, it's disgusting:

Less than 1k:  24%
1k to 10k:  10%
10k to 25k:  7%
25 to 50K: 9%
50 to 100k: 8%
100 to 250K: 19%
More than 250K: 23%

My take away - 1/3 in the 55+ age group have less than 10k.  1/2 have less than 50k.  And this is the age group that is, or should be, most motivated to be ready to retire and fully half of this age group has chump change.

While 10k is certainly a lot more than 1k, for practical effects in the context of retirement, it's just as useless - a rounding error on what's needed.  With a 10k portfolio, the chance of success (in the FIRE Calc sense) in retirement is still 0.0% - the same odds of success as 1k.  50k, well, that'll be a nice few grand a year supplement for a few years, but not enough to retire on.  If all you have is 10 or even 50k in the context of retirement, that is the financial equivalent of a garden hose versus a forest fire - not even close to being enough.

It's not so dire as that. Social Security alone replaces close to half of pre retirement income for the lowest quartile of households by income(http://www.ssa.gov/policy/docs/ssb/v72n3/v72n3p37.html). When you consider that this study doesn't include defined benefit retirement plans, it's not a total disaster for retirement.

It is, of course, ample evidence of people living paycheck to paycheck.  Unless the savings in the article is net (after subtracting debt).  These numbers would not be surprising to me at all if it included student loans, car loans, and underwater mortgages. Negative net worth individuals who are relatively young and earning a good salary may be in perfectly fine financial conditions.

pom

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I also believe that it is not as dire as some would make us believe.

When observations do not agree with the science, either the observations are wrong (or biased or the samplig too small) or the science is wrong. In my experience it is usually the science that is wrong. My point is that according to what we believe to be true, 24%-50% of the older population should be in deep shit yet only a small percentage is (5% at most). Food for thoughts, no?

kyleaaa

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I also believe that it is not as dire as some would make us believe.

When observations do not agree with the science, either the observations are wrong (or biased or the samplig too small) or the science is wrong. In my experience it is usually the science that is wrong. My point is that according to what we believe to be true, 24%-50% of the older population should be in deep shit yet only a small percentage is (5% at most). Food for thoughts, no?

Agreed. People have been retiring without ANY savings and relying on Social Security alone for decades. The vast majority of these people aren't screwed and never will be. And of the people who DO have decent pensions coming, the majority of them are likely to be concentrated in the 50+ range so it's not surprising so many people in that age group don't have what we would consider to be significant retirement savings. If you have a decent pension and social security, you really don't need hundreds of thousands of dollars to retire.
« Last Edit: March 21, 2014, 08:36:18 AM by kyleaaa »

No Name Guy

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Yep....keep relying on the ultimate pyramid scam that is mathematically guaranteed to fail.

In reading the linked article, the 50+ crowd is the one with the highest confidence that social security won't be changed.  When, not if, but when it is changed, they'll be in for a rude awakening.

And ask all those 50+ city workers in Detroit how secure that pension is.  Or the ones from Delphi in 2009.
Or the United airlines in 2005.  Uh huh.....relying on a pension is SMART. 

http://money.usnews.com/money/blogs/planning-to-retire/2010/08/23/the-10-biggest-failed-pension-plans

Yep....those that fail to plan, or are planning on someone else to take care of them, are guaranteed to fail. 

sherr

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Yep....keep relying on the ultimate pyramid scam that is mathematically guaranteed to fail.

In reading the linked article, the 50+ crowd is the one with the highest confidence that social security won't be changed.  When, not if, but when it is changed, they'll be in for a rude awakening.

Okay, so I get that you're very pessimistic of social security and pensions plans. I also greatly prefer the 401k system to the pension system, and I'm also sure that some adjustments will have to be made to social security.

That being said I think you're a little overly-pessimistic, or at least pessimistic in the wrong ways. Not all pensions fail, and SS isn't in as dire straights as you make it seem. SS isn't projected to run into a deficit for 20 years. The 50+ crowd will be 70+ then, SS doesn't have to remain intact for a whole lot longer for their confidence to be justified. The AARP is an extremely powerful lobbying and voting block, do you really think that there are enough politicians out there willing to commit political suicide by forcing little old ladies to be evicted from their lifetime homes just to "fix" SS when there are other "fixes" available, like reducing benefits only for non-retired people? We shall see, but I doubt it. I think the young people are the ones who'll be screwed over by SS adjustments (but they'll have decades to plan for it), not the old people. I think the 50+ crowd is going to be just fine.

Edit: "crows" != "crowd"
« Last Edit: March 24, 2014, 08:31:03 AM by sherr »

johnintaiwan

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Quote
What percentage of Americans are living that way and would be accounted for as being those without any savings no less retirement savings?  Could be the CNA who takes care of your elderly relatives in a nursing home, or maybe a teacher's aid in a public school who takes care of an autistic kid who needs assistance during the school day, or maybe someone on the crew who cleans your office in the evenings,  or maybe the guys who pick up your garbage or recycling,  etc.

I am pretty sure those guys are doing very well. My dad has run recycling plants for years and I was thinking of going after one of those jobs when I heard how much they made.

warfreak2

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I don't know where this idea that Social Security is a pyramid scheme comes from. Structurally, it's a mandatory retirement (and unemployment/disability insurance, &c.) plan that invests in government bonds. You pay in, they buy government bonds, those bonds produce income. Yes, OK, government bond income comes from taxpayers, but everyone else getting income from government bonds is also getting it from taxpayers, and I don't see anyone arguing that those investors shouldn't be paid out of general taxation.

nicknageli

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SS isn't projected to run into a deficit for 20 years. The 50+ crows will be 70+ then, SS doesn't have to remain intact for a whole lot longer for their confidence to be justified. The AARP is an extremely powerful lobbying and voting block, do you really think that there are enough politicians out there willing to commit political suicide by forcing little old ladies to be evicted from their lifetime homes just to "fix" SS when there are other "fixes" available, like reducing benefits only for non-retired people? We shall see, but I doubt it. I think the young people are the ones who'll be screwed over by SS adjustments (but they'll have decades to plan for it), not the old people. I think the 50+ crowd is going to be just fine.

I agree.  They'll never be able to take away current Social Security benefits from the Baby Boomers.  They'd lose too many votes.  It's much easier to screw the younger generations instead.

Dezrah

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I don't know where this idea that Social Security is a pyramid scheme comes from. Structurally, it's a mandatory retirement (and unemployment/disability insurance, &c.) plan that invests in government bonds. You pay in, they buy government bonds, those bonds produce income. Yes, OK, government bond income comes from taxpayers, but everyone else getting income from government bonds is also getting it from taxpayers, and I don't see anyone arguing that those investors shouldn't be paid out of general taxation.

I'm not sure how plans are structured in the UK, but that is not how it works in the US.  The money that current works pay in Social Security taxes is not invested by the government on their behalf, rather it is immediately used to pay current beneficiaries.  If more comes in than goes out, then yes, those funds are invested in government bonds I believe but it is a relatively small amount compared to what has to go out.

An investment pyramid scheme (aka Ponzi scheme) is characterized by the fact that older investors are paid using funds from newer investors but no actual investing is taking place.  The scheme collapses when the schemer can no longer find enough new investors to pay out old ones and anyone still in the system at that point loses.

The only thing that really makes the Social Security system different from a pyramid scheme is that this system is mandatory.  Even so, the system still depends on there being significantly more workers than beneficiaries.  As the population ages, lives longer, and has fewer children the balance can shift, so rates of money-in and money-out have to readjusted periodically, but for political reasons this is rarely done.  There are also laws that state the federal government not allowed to take out debt to pay Social Security benefits and that they must use money collected for that purpose.

Personally, I do believe Social Security is a pyramid scheme.  I also believe it is far more likely that we'll end up tweaking and balancing the system before we let it collapse altogether.  For planning purposes, I'm assuming that means benefits will be reduced to 70% of current levels by the time I wish to collect.

GoldenStache

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@Warfreak2

The problem with the current SS system is that they have made it far to easy to collect benefits that peope did not earn/pay into. 

People are now putting their disabled child/ren (disabled comes down to a doctor and a lawyer both willing to write anything for a fee) onto SS.
Over 1 million non working children, averaging $720 a month, 14.4B a year for people that have never worked that are drawing funds from the pot for life.  Some of these children are actually disabled but they should not be getting money from SS, a different thread about where that money should come from.

Throw in food stamps and housing/cellphone/car subsidies they have no reason to ever try to get off of it.

http://www.ssa.gov/pressoffice/factsheets/young.htm 
http://www.socialsecurity.gov/disability/disability_starter_kits_child_factsheet.htm

 



warfreak2

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If more comes in than goes out, then yes, those funds are invested in government bonds I believe but it is a relatively small amount compared to what has to go out.
What do you want them to do instead? Take the money coming in, use all of it to buy bonds, and then sell bonds to pay for all of the money going out? I don't see the point in buying and selling the same bonds at exactly the same time.

The basic idea is to do the same thing concurrently for many individuals. Individual pays in, that money is used to buy bonds, income from those bonds is used to pay out, and eventually, the bonds are gradually sold to cover that individual's retirement. It's simply an optimisation that money is rerouted from buying bonds to paying out. It's functionally equivalent and saves on fees.

So no, it's not structurally a pyramid scheme, and it doesn't rely on ever-more money being paid in. Any gap between SS coming in and benefits going out is a red herring; there's a big pile of bonds producing income too.

LalsConstant

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So no, it's not structurally a pyramid scheme, and it doesn't rely on ever-more money being paid in. Any gap between SS coming in and benefits going out is a red herring; there's a big pile of bonds producing income too.

I've never thought the pyramid scheme analogy was a perfect description of Social Security, but it's so close to one, what else do you call it?

I've seen other publications throw out other numbers, but here's one I found with 10 seconds of google-fu that demonstrates why it's, in the aggregate, a pyramid scheme:

http://www.ssa.gov/history/ratios.html

And these numbers are about in line with others I've seen, and I remember some indicate that around 2020 we'll be down to less than 2 workers per beneficiary.

While it's true that it's not classic pyramid scheme in that the early adopters get larger and larger payments, it is one in the sense that the program is slated to pay out to more participants with fewer and fewer contributors.

So in the aggregate, it's the same problem.  It will collapse for the same reasons: the demand for outputs grows faster than the inputs.

Now to be fair, there is an argument to be made that if the government hadn't already spent the surplus it used to have, things might be just fine.  But to paraphrase Don Meredith, if ifs and buts were candy and nuts, what a wonderful Christmas it would be.

And this program, looking at that chart, may have made more sense in the past.  But at present, the demographics won't support it, and we've known that for a long time now and nothing was done about it because the people who would have to sacrifice were the same ones with the power to act.

But going forward for the forseeable future, there's no way this can continue as it is, especially considering that larger amounts of people under 30 are now less likely to have full time employment and a good number of people are underemployed.  These people aren't going to have the earning power to bankroll an ever increasing Social Security bill.

The Boomer generation dying off won't solve the problem either, the population is just going to keep getting more elderly.  Hang out in an assisted living center or similar instituition for a while and listen to the conversations, it's amazing how people think they're entitled to my paycheck by virtue of being older than I am.

Like everyone else I have all kinds of ideas about how to "fix" it, but I have absolutely no input on those decisions so I'm forced to wait and see.

warfreak2

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Red herring. So what if that ratio is going down? The big pile of bonds is much bigger now than it was in 1970 when the ratio was 3.7. Those bonds produce income.

When you retire and live off of your own investments, your retirement account now has 0 people paying in and 1 person collecting, for a ratio of precisely 0. But it's not unsustainable, because you have income from investments, instead of from somebody paying in. That's the point. Otherwise there would be no SWR, early retirement would be impossible, and this website wouldn't exist.

No Name Guy

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War et al that don't think SS is a pyramid scheme:

1)  Pyramid schemes depend on a constant stream of new entrants to pay earlier ones.  SS does just this.  I was structured at a time when population was growing - its set up to NEED this constantly increasing stream of workers to pay as you go to the current retirees. 

2)  IOU's to yourself are not assets.  Government owning their own debt is not an asset.  For proof of this fact, I just hit 86x my income needs for retirement.  I just wrote myself a big IOU (at 6% interest - inflation plus 3) for 66x (to top of the 20x I have in real assets).  Oh, wait.....I'm in no better place actually.

Oh, and to those that say SS isn't going into the hole for 20 years....yeah, it ran a deficit and will run deficits going forward.

http://www.ssa.gov/oact/trsum/
Quote
Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.

Quote
Social Security’s Disability Insurance (DI) program satisfies neither the Trustees’ long-range test of close actuarial balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds.

Quote
Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012. The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before rising steeply

Those are the facts of SS, straight from the trustees of the system.  They can't be arm waved away.  I've only selected a few of the quotes that state how the system can not survive in its current form.

And I'm not pessimistic.  I'm realistic.  To use a well worn analogy - It would not have been pessimistic to say that the Titanic was doomed the moment it hit the iceberg - that's cold, hard realism. And immediately making ones way to the life boat (or starting to build a float from material at hand), grabbing a warm coat on the way, would have been an affirmation of life and hope for the future, not a pessimistic statement. 

The sooner people wake up to reality of the math of the SS system and start taking steps in line with reality, the better off they'll be.  THAT, IMO is optimistic - the same as getting to the life boat.  Tomorrow CAN and WILL be better, but only if you act smartly given the facts of the situation you face.

dude

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Social Security is going nowhere.  The fixes are minor and will eventually be put in place.

sherr

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Oh, and to those that say SS isn't going into the hole for 20 years....yeah, it ran a deficit and will run deficits going forward.

http://www.ssa.gov/oact/trsum/
Quote
Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.

Quote
Social Security’s Disability Insurance (DI) program satisfies neither the Trustees’ long-range test of close actuarial balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds.

Quote
Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012. The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before rising steeply

Your own source agrees with me. First off, the first quote you provide has nothing to do with anything, they're just saying that the sooner you fix the problem the better, which is true of all problems. The second quote is about Disability Insurance, whereas we were talking about SS in general as a retirement aid, which would be the Old Age and Survivor's Insurance (OASI) in the report, not Disability insurance. The third quote does not prove the point you are trying to force it to prove. It says they have a deficit of non-interest income compared to cost. But that's not a deficit. A deficit would have to compare all income to all costs. If you are only making $3 in tax income a year but have $500 Trillion in interest income, then you're definitely not currently running a deficit.

Let's look at what the report actually says about when SS will run a deficit. Search for the table "KEY DATES FOR THE TRUST FUNDS" about 2/3ds of the way down the page. If looking only at OASI then it'll start running a deficit (giving away more than it's bringing in) only in 2022, and in 2035 they'll have depleted their reserves of investments. If you include OASI and Disability Insurance together (the OASDI column) the numbers are 2021 and 2033, respectively. So okay, I was wrong, it'll run a deficit in 8 years, not 20. 20 years is when they'll first be unable to meet 100% of their obligations (assuming no changes).

So if we're talking about the 55+ crowd, they have 20 years where they can absolutely expect to receive 100% of their promised benefits and the next 20 years (if we're being very optimistic about their life expectancy) they can expect to recieve probably ~95% of their promised benefits (assuming no changes). That's very different from the "OMG they're all doomed, it's mathematically certain and only a matter of time" rhetoric that you're spreading.

Edit: 2022 - 2014 = 8 years, not 6. Can't math.
« Last Edit: March 26, 2014, 11:40:36 AM by sherr »

LalsConstant

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Okay, I appreciate these last few posts because I think I can explain to you SS supporters why this thinking is faulty.

I actually agree we can't really tell when it will go bust, I even agree that people who are 55+ today don't have to worry about it very much.

But can we also agree, that more or less, what is actually happening with the social security money is that a great deal of it comes in, then a great chunk of it goes straight out again, and some portion of it is used to buy bonds issued by other parts of the federal government?

That's the assumption I'm operating under and it's my understanding of the system.  If I am wrong please correct me.

I'll boil this down to a question: If it's responsible for a person to be very careful to not use debt to meet their obligations to the point their income can't support doing so, Why is it okay for the government to keep borrowing and going into debt to pay for Social Security?

There was an argument that there are 0 workers supporting someone living off their private investments.  I assert that is not true. 

When I take my KO dividend, it is because there are many people driving trucks and operating machines and making bookkeeping entries and sweeping floors every day.

It's very simple to understand why Social Security has to fail at some point.  It boils down to you banking on the forced seizure of income of a future generation to compensate you for the forced seizure of your income.

Well, every time this happens, every time the process iterates, human nature is going to be to feel like you got ripped off, you deserve a lot back to compensate you for your financial losses, hassle, and opportunity costs.

Keep repeating that, and you either inevitably reach a ridiculous level of demand that physically cannot be met, you inevitably run into a demographic disaster that makes it implode.

It wouldn't be inevitable if the program were allowed to greatly change or be highly flexible and nimble.  But it's not, it's politically charged where if anyone suggests changing it in any way to make it more sustainable they're branded a nutjob.  Yes some small changes are made, but they're very incremental and not paradigm shifting.  Even Al Gore and George W Bush couldn't make any headway, and I don't think anyone since either of them has even tried.

Even today, the typical worker, who is expected to provide for his own retirement, is losing 12.4% of his income to furnish Social Security benefits.  That doesn't sound bad until you realize the opportunity cost: that would represent around a decade, ten years, of additional work the average person has to do to keep this program afloat assuming these taxes covered the program's expenses.

Eric

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I'll boil this down to a question: If it's responsible for a person to be very careful to not use debt to meet their obligations to the point their income can't support doing so, Why is it okay for the government to keep borrowing and going into debt to pay for Social Security?
Because comparing personal finances to governmental finances doesn't make sense?

It's very simple to understand why Social Security has to fail at some point.  It boils down to you banking on the forced seizure of income of a future generation to compensate you for the forced seizure of your income.
Ooooh, forced seizure of income!  Sounds serious!!  Despite the alarmist rhetoric, yes, it's funded by taxes.  Unless you think taxes are going to go away, I'm not sure why you think SS would.

It wouldn't be inevitable if the program were allowed to greatly change or be highly flexible and nimble.  But it's not, it's politically charged where if anyone suggests changing it in any way to make it more sustainable they're branded a nutjob.  Yes some small changes are made, but they're very incremental and not paradigm shifting. 
But it doesn't need anything besides small changes.  It's almost sustainable right now AS IS.  So small tweaks to retirement age, slight benefit cuts, or increases to the SS cap will take care of it.

But you're missing your own point here.  If you think incremental changes get politicians branded as "nutjob", how do you think the general public will react to those that promise to let the system fail?  This is the same public that keeps most of their savings as coins in the cushions of their couch.  It's not going anywhere.  It's not politically viable to let it fail.

LalsConstant

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Because comparing personal finances to governmental finances doesn't make sense?

At the level of detail, this is correct.  At the level of concept and basic theory, it's valid.

Indeed, if you're a private person, you don't have payroll, etc. to worry about so you can be effectively self equity financed where that might not make sense for an organization.

However, there's a considerable portion of the public debt that is well outside of a reasonable operating or business cycle of the federal government.  We have plenty of 30 year bonds outstanding.  That's how far leveraged it is.

Our government operates in a cycle of a year and most government projects won't go a single decade much less multiple decades.  There are some famous blunders involving infrastructure projects where that happened of course but it wasn't the original plan in any instance I'm aware of.

Therefore I would reasonably expect the government debt to be much less and with a much shorter mean duration than it is now.  That is not the case however.

Too much leverage or debt can't reasonably be good for any entity, government business or individual.  While I agree with the argument the government can never be insolent, there are still negative consequences we should reasonably expect.

Ooooh, forced seizure of income!  Sounds serious!!  Despite the alarmist rhetoric, yes, it's funded by taxes.  Unless you think taxes are going to go away, I'm not sure why you think SS would.

I should rather think the matter is serious.  Whether that's alarmist or not is your opinion.  If my statement is in fact false and the program is funded some other way I must be very mistaken, but for now I'm going to assume I'm correct.

Nowhere have I said Social Security is going to end.  It will however financially implode the government.  Just because the state cannot be insolvent doesn't mean there aren't consequences.  Perhaps I was not clear, I apologize if I wasn't.

And yes we agree, it's a matter of taxation and I agree taxes are never going to dissipate.  Where we disagree apparently is that I think taxes could be lower or better handled.

Nowhere have I called for a cessation of taxation.  A reduction perhaps would be an option I'd bring to the table.

But it doesn't need anything besides small changes.  It's almost sustainable right now AS IS.  So small tweaks to retirement age, slight benefit cuts, or increases to the SS cap will take care of it.

Another poster has already laid out the facts that show this is an overly optimistic conclusion above.  In the interest of brevity I shan't rehash.

I could be wrong, for all I know, that next week the US economy will suddenly blossom and 30 years of unprecedented prosperity usher in and it solves all these problems.

Even then, I can think of alternatives to the current program that can't get any serious consideration because of the DC cult of Thou Shalt Not Defy AARP.

But you're missing your own point here.  If you think incremental changes get politicians branded as "nutjob", how do you think the general public will react to those that promise to let the system fail?  This is the same public that keeps most of their savings as coins in the cushions of their couch.  It's not going anywhere.  It's not politically viable to let it fail.

Your reaction is proving my point, I voice very objective concerns about a serious problem that is affecting many people negatively and get dubbed "alarmist" and get mocked for taking a serious problem seriously.

As to this proposal, yes and no.  It's true that at some point, it will have to shift radically.  I agree with that assessment.  The idea that our politicans can be trusted to "ease" the system into something more sustainable is demonstrably faulty.

Part of the problem may be what you consider incremental isn't defined, will delaying the retirement age 6 months or a year be incremental, or are you thinking more like 10 years?  If it's something more like the latter, I call that radical but agree it sounds like a reasonable if supoptimal solution, or at least  the start of one.

The full implications of what I am saying is that  which I call a radical shift won't be timely to prevent many avoidable negative consequences, and the tragedy is that it doesn't have to be this way but I fear it will be because most people are happy to stick their heads in the sand and reluctant to listen to criticism of the status quo.  It's far more fun to poke fun at the critic than honestly evaluate the situation and admit one could be wrong.

Eric you seem like a nice and reasonable person, you truly do, but as someone who appreciates the fact you're being so reasonable I would be doing you absolutely no favors by not imploring you to recognize your bias here, to evaluate the evidence, and consider changing your opinion.

Naturally you probably won't because no one changes their opinion because of one internet post (let's be real here), but I've said my piece.

MrsPete

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Well, first most people in the US don't have pensions.
The numbers would vary drastically if you were to look at it broken down into age groups.  Almost all my family members in my mother's age group are retired now -- with pensions.  In my generation, I think I'm the only one who has a pension. 
I can completely see the truth in the title, didn't read the article.

I think most people are just relying on SS, they have no idea how pathetic the payments are.
It's not just SS of which people aren't aware.  I was talking to a fellow teacher some time back about retirement details . . . and she said to me (in a very serious voice), "Do you realize that our pension isn't going to be as much as our current paycheck?"  I didn't want to insult her, so I wasn't mean about it, but -- DUH! -- of course your pension is less than your working paycheck!  You can find a few outlandish examples (mostly in California and Congress) of over-generous pension payments, but how do you get to be near retirement age and never have investigated exactly what kind of payment you're likely to receive?

This isn't a stupid person either.  She has a masters degree and is EXCELLENT at her job, but she just didn't pay attention.  That's the biggest problem with Americans and retirement:  They just don't bother to pay attention.  They just don't think about it.
^I don't think that.  I end up thinking I'm going to have to use my savings to subsidize "them" for their spendy ways when they are old and too feeble to work. 

Yet still I save . . .
I think the same way.  Today we have elderly retirees with no substantial income, and most of them become burdens on their family; still, we -- the general "we" that is society -- are taking care of those without family or resources.  What will happen when my generation is elderly?  I foresee two big problems:  1) More people will find themselves in retirement with no real income.  2) Since people are having fewer children these days, many more of these people will not have family to fall back upon.


ketchup

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Yikes, that's pretty scary.  I only joined my company's 401(k) last year (and I just turned 23, no degree) and my 401(k) alone is well into four figures.

warfreak2

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2)  IOU's to yourself are not assets.  Government owning their own debt is not an asset.  For proof of this fact, I just hit 86x my income needs for retirement.  I just wrote myself a big IOU (at 6% interest - inflation plus 3) for 66x (to top of the 20x I have in real assets).  Oh, wait.....I'm in no better place actually.
This is an extremely odd position. The US Treasury and Social Security are two different departments. It hardly matters whether SS buys bonds from the Treasury or from other people who have bonds, they're the same bonds.

Your hypothetical IOU to yourself is an asset if it has value - it doesn't have the full face value, though, because of the risk that you can't pay it (almost 100% in your case, so your IOU is indeed practically worthless). The other side of the paper is a liability, of course, so you are transferring from a liability into an asset and your net worth didn't change. SS can buy bonds which already exist, though, so the US Treasury doesn't need to create additional liabilities; SS buying bonds transfers income into an asset, increasing SS's net worth (as you'd expect income to do). (If you insist on thinking about the Treasury and SS as both being the same thing, then buying bonds transfers from a liability into an expense, also increasing net worth).

If the Treasury writes bonds that it can't pay, then it's not SS going bankrupt, it's the Treasury, and they won't be able to pay any of their investors, let alone SS. You might assert that the Treasury is likely to default on those debts (you'd be dismissed as a lunatic), but this would still only be an argument that the bonds held by SS (and everyone else) are risky assets.

--------------

There was an argument that there are 0 workers supporting someone living off their private investments.
No, there wasn't. That is an enormous misrepresentation of what I said:
When you retire and live off of your own investments, your retirement account now has 0 people paying in and 1 person collecting, for a ratio of precisely 0.
(Emphasis changed.) Obviously the whole country doesn't stop working when you retire, and I didn't claim such a thing.

--------------

So if we're talking about the 55+ crowd, they have 20 years where they can absolutely expect to receive 100% of their promised benefits and the next 20 years (if we're being very optimistic about their life expectancy) they can expect to recieve probably ~95% of their promised benefits (assuming no changes). That's very different from the "OMG they're all doomed, it's mathematically certain and only a matter of time" rhetoric that you're spreading.

As a UK citizen and a mathematician I'm more interested in the logical argument than the details, so I'll leave these sorts of details others like sherr who clearly know more about it than me. However, in my mind a pyramid scheme is defined by its logical structure, not by the particular numbers.

Workinghard

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Well, first most people in the US don't have pensions.
The numbers would vary drastically if you were to look at it broken down into age groups.  Almost all my family members in my mother's age group are retired now -- with pensions.  In my generation, I think I'm the only one who has a pension. 
I can completely see the truth in the title, didn't read the article.

I think most people are just relying on SS, they have no idea how pathetic the payments are.
It's not just SS of which people aren't aware.  I was talking to a fellow teacher some time back about retirement details . . . and she said to me (in a very serious voice), "Do you realize that our pension isn't going to be as much as our current paycheck?"  I didn't want to insult her, so I wasn't mean about it, but -- DUH! -- of course your pension is less than your working paycheck!  You can find a few outlandish examples (mostly in California and Congress) of over-generous pension payments, but how do you get to be near retirement age and never have investigated exactly what kind of payment you're likely to receive?

This isn't a stupid person either.  She has a masters degree and is EXCELLENT at her job, but she just didn't pay attention.  That's the biggest problem with Americans and retirement:  They just don't bother to pay attention.  They just don't think about it.
^I don't think that.  I end up thinking I'm going to have to use my savings to subsidize "them" for their spendy ways when they are old and too feeble to work. 

Yet still I save . . .
I think the same way.  Today we have elderly retirees with no substantial income, and most of them become burdens on their family; still, we -- the general "we" that is society -- are taking care of those without family or resources.  What will happen when my generation is elderly?  I foresee two big problems:  1) More people will find themselves in retirement with no real income.  2) Since people are having fewer children these days, many more of these people will not have family to fall back upon.

I dunno MrsPete. My husband's social security will be pretty close, with no significant difference, to his "working paycheck." Course he's maxed out on his 401k, flex spending account, and all insurances come from his paycheck.

The aging population, not having family to fall back on, is one of the reasons China has eased their one-child policy. http://www.cnn.com/2013/12/28/world/asia/china-one-child-policy-official/

Eric

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I voice very objective concerns about a serious problem that is affecting many people negatively and get dubbed "alarmist" and get mocked for taking a serious problem seriously.

Note, it wasn't your objection, nor even you, that I called alarmist.  It was only your choice of words referring to taxes as "forced seizure of income".  I generally find using phrases like that effectively kills just about any point you'd like to make.  Of course, YMMV.

In everything I've looked at, SS is a relatively easy fix.  For example, remove the income cap and SS is solvent for essentially forever.  Boom.  Done.  However, I seriously have no idea how we're going to handle Medicare.  If you want to be worried about something, it's Medicare.  It's like the difference between checkers and chess as far as figuring out solutions go.

Abe

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If you get rid of the income cap, won't you also have to increase the benefits for those people?

Eric

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If you get rid of the income cap, won't you also have to increase the benefits for those people?

That would be something that would have to be weighed.  But would you have to?  No.  I know.  Socialism and what not.  It is Social Security though.

Ambergris

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Great link Matchweed:

Shit...the Table 3 showing the breakdown by age group is depressing.  For the 55+ age group, the ones staring "traditional" retirement in the face, it's disgusting:

Less than 1k:  24%
1k to 10k:  10%
10k to 25k:  7%
25 to 50K: 9%
50 to 100k: 8%
100 to 250K: 19%
More than 250K: 23%


This is actually interestingly bimodal.  It's like, a whole bunch of people haven't bothered with retirement at all, and a whole bunch have done it (nearly) properly.  Not many people in the middle...

beltim

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If you get rid of the income cap, won't you also have to increase the benefits for those people?

That would be something that would have to be weighed.  But would you have to?  No.  I know.  Socialism and what not.  It is Social Security though.

Even if you did increase the benefits for those people, it'd still basically eliminate the Social Security deficit thanks to the highly progressive nature of Social Security: http://voices.washingtonpost.com/ezra-klein/2010/06/research_desk_responds_could_r.html

warfreak2

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If you get rid of the income cap, won't you also have to increase the benefits for those people?

That would be something that would have to be weighed.  But would you have to?  No.  I know.  Socialism and what not.  It is Social Security though.
You don't have to give them proportionally more, at least. Society is already very comfortable with the idea of progressive taxation, I don't know why anyone cries "Socialism!" in response to it*.

I do have a few ideas, but they aren't polite.

No Name Guy

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To the claim that somehow SS is a "different" agency - bullshit.  The US Government is the US Government, period.  Its all one agency.  Claiming otherwise is ridiculous on its face. 

All the money goes into one spot - the Treasury, from whence it flows out. 

Quit the sophistry, accounting games bullshit - that kind of crap is for Enron (which SS actually has a lot in common with - accounting bullshit to hide, instead of enlighten, reality).

I'll add further - SS accounting, and government accounting in general, isn't like what has to be done in the private business world.  Government works on a cash accounting basis.  Real world works on accrual basis.  The bean counters can probably explain it better, but the gist is:  When an obligation is created, it's put on the books immediately as a liability at net present value.  If a corresponding REAL asset (IOU's to yourself, a govt bond held by the govt, not being one since it is also a liability - the liability canceling out the supposed asset) isn't also put on the books, you're running a deficit.  This is how a private pension works - if GE accrues pension liability this year for it's employees, but doesn't add corresponding assets to the pension plan, the pension runs a deficit, EVEN IF it didn't have the obligation to pay out a dime this year. 

Government on the other hand, operates on a cash basis.  Lets say they soak in (holding up a Dr. Evil pinky) one MILLION dollars in taxes, but only pay out 100k in benefits in a given year, they're "running a 900k surplus".  Never mind that in that same year, they made promises for 2 million in future benefits.  In the private world of accrual accounting, that would be 2 million in promises plus the 100k actually spent = 2.1 million in liabilites, 1 million in assets, deficit of 1.1 million.

The deficit in SS and Medicare is tens of trillions (I keep seeing 87 trillion) - just google "unfunded liabilities".

Quote
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

http://online.wsj.com/news/articles/SB10001424127887323353204578127374039087636

But hey, to all of you thinking SS is A-OK...yep, you just keep kicking around those chunks of ice on the deck and keep thinking that all is well because the band is still playing.

Oh - also - to think that lifting the cap and soaking folks for an extra 15% won't have severe negative ramifications......ha, ha. ha......good one.  Going FI / ER to me is, not only good for me personally, but a political statement.  I'm sick of being a tax donkey - a beast of financial burden to be worked to death.  I'm going Galt....denying those who view me as a source of revenue my labor and the money that comes from it.  Lots of the best and brightest will look at the extra burden and do the same.  Ask New Jersey how it worked out when they did a similar "soak the rich" tax....yeah, collected taxes went DOWN, not up (cough, cough....Laffler curve).  Sorry, folks.....thinking raising taxes even more is going to work is at odds with reaility.  But hey, its fun to kick around this blocks of ice and the band is playing a catchy tune.

warfreak2

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To the claim that somehow SS is a "different" agency - bullshit.  The US Government is the US Government, period.  Its all one agency.  Claiming otherwise is ridiculous on its face. 
OK, if we're not allowed to account for SS and the Treasury seperately, just "the US Government", then how is it even sensible to say that SS will go bankrupt? If there's only one balance sheet then you can only say that the government as a whole will go bankrupt, you can only say that the government as a whole is a pyramid scheme.

Quote
I'm going Galt....
Oh, an Ayn Rand follower. I'm not interested in this any more.