Search This Blog

Tuesday, April 24, 2012

Social Security - Not Keeping Up with the Times

Today we find that 56 million Americans are either on Social Security or disabled.  That's 56/311 or 18% of the population of the entire country.

The average benefit per recipient is $1,125 as of March 2012.

So the monthly tab for Social Security is $1,125 x 56,000,000 or some $63 billion (with a 'B') USD a month or about three quarters of a trillion (with a 'T' US dollars) a year (750 billion or so).

For comparison the entire US "for hire" trucking industry is less than 1/3 of this on an annual basis.

The entire US healthcare industry is on par with this number at $788 billion per year.

Social security pays benefits to both older Americans and the "disabled."

These funds are accounted for separately and in about 2016 the "disability benefits" fund is going to run out of money.

(As a side note, according to this WSJ article, more is paid out of the funds than is paid in.  If the funds "went bust" the benefit rate would be cut about 25% - so the funds take in 25% less than they pay out at any given time.)

Now at some other point in our history this might not be such an immediate crisis but today things are different.

The US already carries some $15 trillion USD or so in debt - about equal to (or 100% of) the GDP of the US.'

Medicare is not far behind Social Security: see this as an example.

This is what I consider to be a "crisis level" debt - along the lines of Greece, Spain and Italy, for example.

Recently I heard an interesting statistic.

Not only are all the tax payments of the current generation spent, but also all the tax payments of our children's generation and our grand children.  That's right - we have already spent the money my grandchildren will pay in taxes during their lifetimes.


(Its little wonder the kiddies could give a rat's ass about us old geezers... We've already robbed them blind for what?  A fancy retirement condo?  A golf membership?)

In part some of this is caused by a "mismatch" in benefits versus the time period in which the program was created.

In the mid-1930's life expectancy was about 62 years of age.

Social security didn't "kick in" until you retired at age 65 - or until you were at 5% over the "average life expectancy."  Basically you were expected to work past your life expectancy.

Because of this arrangement about seven (7) workers paid into Social Security for each retired worker collecting benefits.  This makes sense given the structure of the program as it was created.

Today that would be about 82 years of age (5% over a life expectancy of a conservative 79).

But the "retirement age" has stayed at 65 for the last 80 years or so of the program - even though life expectancy has increased by about 15 years (see this table).

This has created a situation where today only a few workers pay in for each retired worker - and I believe that by the time I retire the ratio will be two paying in for each retired worker.

So not only is the program "broken" in the sense that its output exceeds its funding - but the basic design of the system has not been overhauled in some 80 years all the while people continue to live longer but not pay into Social Security for the delta between what was set up in 1935 and today.

So its destined to fail as it currently stands.

No amount of taxation can replace a bad design.

While some might argue about the "fairness" of this to older people you must also consider the fairness to the "workers" contributing.

Soon two people will pay the same proportion to fund one retiree as did seven in the 1930's - an increase of almost three-fold.  Few, I think, would object to the burden to pay created at the rate in the 1930's.

I see no way to make this more "fair" other than to dramatically "push back" the retirement age - an event that's unlikely to occur in today's political climate.

Another significant problem is that despite the funding of Medicare our senior population is not getting "more healthy."

All things being equal one would think that, once retired and on Medicare, the medical coverage they receive would reduce a senior's dependence on medical care - but the reverse is instead true.

So during their extra 15 years of life people do not live well and require constant and expensive medical care.

What all this boils down to is the "politician's dilemma."

"Where there is insufficient funding for a popular social payout program its always better to just keep paying than face the truth about bankruptcy or borrowing."

You find this from the smallest municipalities retirement program to the largest US government programs.

I am almost 55 years old.  I do not plan to retire - its that simple - particularly given the state of the economics related to social security.

For all those crying about raising taxes and so forth to fund this madness instead I think you should consider simply "opting out" of these programs to save money for those who cannot afford to do so.

No comments:

Post a Comment