Social Security Is in Far Worse Shape Than You Think
By CHARLES HUGH SMITH

http://www.dailyfinance.com/story/retirement/social-security-far-worse-shape-than-you-think/19804267/?icid=main|htmlws-main-n|dl3|sec1_lnk3|196131

For years, politicians and policymakers have reassured the American public that the Social Security system, which sends monthly checks out to 53 million beneficiaries, is safely solvent -- and will be for decades to come. But federal spending and income data from the Treasury Department reveal that the Social Security program is already deep in the red, with outlays exceeding payroll tax revenues by $76 billion in 2010 alone.

This stunning shortfall calls into question the rosy fiscal forecasts made by the Social Security Administration (SSA) about the program's future solvency.

The annual report of the Social Security Trustees, published in August 2010, forecast that the primary Social Security program, the Old Age and Survivors Insurance Trust Fund (OASI), would not exceed its tax receipts until 2018. Unfortunately, it happened in fiscal 2010, which ended in October. That year's outlays for the OASI fund were about $580 billion, while receipts came to only $540 billion -- a whopping $40 billion shortfall.

Add in the deficit from the second Social Security fund, Disability Insurance (DI), and the gap between total SSA outlays ($707 billion in 2010, according to the Treasury) and tax receipts ($631 billion) grows to $76 billion -- more than 10% of the program's expenses.

Short-Term Estimates Were Way Off the Mark

The SSA trustees had estimated a $41 billion deficit (excluding interest income), but the final deficit came to $76 billion -- almost twice what they had guessed. Just as troubling, their estimate for total SSA income in 2010 (which included both Social Security payroll taxes and interest paid by the Treasury on the Social Security Trust Funds) was $791 billion -- a number that overshot the actual total income of $741 billion (tax receipts of $631 billion plus interest income of about $110 billion) by $50 billion.

That the trustees could miss estimates only a few months into the future by such huge margins calls into question the accuracy of their long-term projections, which are stated in the report:

"Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation's retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037."


SSA's estimate for total income in 2011 is $855 billion -- fully $114 billion more than the program's actual income in 2010 ($741 billion). With employment stagnant, is a 15% jump in payroll taxes remotely plausible?

Payroll Taxes Won't Bounce Back That Fast

For context, let's look at what happened to Social Security receipts in 2009, a recession year, and 2010, a year of modest economic recovery.

According to the SSA, the system's income for 2009 was $807 billion ($698.2 billion in the OASI and $109.3 billion in the DI). Income in 2010 was $741 billion -- a massive one-year decline of $66 billion.

Given the magnitude of this recessionary drop in income, it's difficult to place much faith in the trustees' extremely optimistic forecast of double-digit payroll tax increases in 2011. As I reported on DailyFinance in December, job gains have been exceedingly modest in the 154 million-worker U.S. economy, and many of those jobs were temporary or part-time. Factor in lower incomes for the self-employed, and it's little wonder that payroll tax receipts have been flat.

The trustees' forecast of Social Security's outlays in 2010 were much more accurate than their estimates of income: The report anticipated outlays of $714 billion, and the final total came in at $707 billion. The report's estimate of 2011 outlays is $742 billion, an increase of $35 billion, which is higher than the 3.5% ($23.8 billion) jump in 2010 costs over 2009 outlays.

That $742 billion estimate for 2011 costs is almost exactly equal to 2010 income of $741 billion. That means if outlays were to rise even a bit more than expected, or income were to decline from 2010 totals, Social Security would hit a deficit that the trustees aren't expecting to occur until 2025. Given that shortfalls have already reached levels the SSA hadn't expected until 2018, it's not that big a leap to conclude that the system's projections are woefully out of alignment with the nation's new realities.

Retiring on Borrowed Time

What do these potentially large, structural deficits in Social Security mean? It's simple: The Treasury will have to borrow more money on the global bond market to fill the gap, increasing pressure on an already unprecedented federal deficit.

Given the above data, it's unsurprising to find that the Treasury needed to borrow money to pay Social Security benefits in 15 out of the last 25 months. When the cost of monthly benefit payments exceeds the Social Security tax revenues, then the Treasury has to fill the gap with borrowed money.

Policymakers and citizens alike will need to have a realistic grasp of these Social Security deficits if they're to make the tough decisions about taxes and spending that lie ahead.

without reading your post, heres a very simple solution. start increasing the cutoff for the payroll tax for medicare/medicaid and social security. the most recent payroll amount I can find is 2009 it states that once you earn more than $106,800 you'll not owe any social security tax for the rest of the year. I propose that this changes by $50k for 10 years. After 10 years there would be no max meaning all wages and earnings would be exposed to this tax. I'm not able to do the math in my head but I'm pretty sure this would eliminate any future problem with the social security program.

Now some wealthy or perhaps poor conservative that wishes he were wealthy will complain that the wealthy will never be able to use the social security system. True, but we pay taxes that pay for Hospitals emergency rooms that are used by the poor every day. We pay for freeways and roads through gov't matching funds. Other than the bridge to nowhere most folks don't complain about new road construction unless its going to be through their own livingroom. Will I use all the roads that are made or really need to use an Emergency room, Nope. Do I get to fly a B2 Bomber or drive and fire a M1A2 Tank. Nope again. It seems when it means helping someone including old folks the wealthy cringe. but when it comes to making roads or bombs they have no problem with how their tax dollars are spent.

In all honesty I wouldn't mind paying 1% more if it means it will be there when I retire. Oh and yes I do have a nice 401k going to supplement my retirement if and when I ever get to retire

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

YA! Raise taxes! If we just raise taxes a little more, we can solve all our problems!

Now here's a mind-boggling question.

Why didn't the Obama administration, in conjunction with a fillibuster proof Democrat Senate and almost a super majority of Democrats in the house remove the cut off for FICA and raise the rate on everybody a couple of percent in order to fix the looming social security "trust fund" crisis once and for all?

Because they knew that they can't mess with the Bernie Madoff style pyramid scheme their great leader FDR set up or they would have to loose face and admit what they are?

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YA! Raise taxes! If we just raise taxes a little more, we can solve all our problems!

Now here's a mind-boggling question.

Why didn't the Obama administration, in conjunction with a fillibuster proof Democrat Senate and almost a super majority of Democrats in the house remove the cut off for FICA and raise the rate on everybody a couple of percent in order to fix the looming social security "trust fund" crisis once and for all?

Because they knew that they can't mess with the Bernie Madoff style pyramid scheme their great leader FDR set up or they would have to loose face and admit what they are?

What do they care about retirment
They retire with full pay after one term in office

Social Security is fine.
The Canada Pension Plan is fine.

Why do the neo-cons in both countries want you scared? Because there's big money waiting for them if they can only get you to support individual retirement plans. Every transaction is money in their pockets.

Want to add a level of insurance to the pension plans of both coutries?
Remove the ceiling on contributions.
In Canada, that ceiling is $46,300.
No further contributions are required above that amount.

Make all earnings subject to contribution to the plans. Let's hear the gnashing of teeth from the trust fund babies and dividend dorks now.

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I do not fight fascists because I think I can win.
I fight them because they are fascists.
Chris Hedges

A riot is the language of the unheard. -Martin Luther King, Jr.

Social Security is fine.
The Canada Pension Plan is fine.

Why do the neo-cons in both countries want you scared? Because there's big money waiting for them if they can only get you to support individual retirement plans. Every transaction is money in their pockets.

Want to add a level of insurance to the pension plans of both coutries?
Remove the ceiling on contributions.
In Canada, that ceiling is $46,300.
No further contributions are required above that amount.

Make all earnings subject to contribution to the plans. Let's hear the gnashing of teeth from the trust fund babies and dividend dorks now.

You and I agree with Robert Reich

http://robertreich.blogspot.com/2009/05/truth-behind-social-security-and.html talk about a brilliant mind

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Social security is not "fine". It's a madoff style ponzi scheme that doesn't need to be funded any further.
It needs to be dissolved because it's a disaster that the next generations will pay into but not collect from. In other words, it's generational theft.

You and I agree with Robert Reich

Ain't that the truth.
It feels so right to be in agreement with someone with such credentials and position and such a history of involvment.

The other option would be to agree with some guy named Keith, who presents no verifiable credentials, refers to himself/herself in the single name manner much like Cher or Madonna and who seems to enjoy spouting the same garbage as is presented on Faux Network.

I feel we are on the moral and factual high ground on this issue skildude.

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I do not fight fascists because I think I can win.
I fight them because they are fascists.
Chris Hedges

A riot is the language of the unheard. -Martin Luther King, Jr.

it's the neocon way. Just keep repeating the same information until either people believe it or the stop replying because the argument is moot

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Uh oh, I didn't bring "verifiable credentials" to a debate and only use my first name. Lemme guess what's next! My RAC is low, or I'm computing on more than one computer or it's not quite a full moon or I prefer plasma TV's over LCD/LED's. Whatever. That elitist lefty moral high ground is crumbling below you.

Uh oh, I didn't bring "verifiable credentials" to a debate and only use my first name. Lemme guess what's next! My RAC is low, or I'm computing on more than one computer or it's not quite a full moon or I prefer plasma TV's over LCD/LED's. Whatever. That elitist lefty moral high ground is crumbling below you.

Umm thanks for the generalizations. can you quote a PhD that has better credentials than Robert Reich. Or are you just going to show us pundits and Oped pages

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Uh oh, I didn't bring "verifiable credentials" to a debate and only use my first name. Lemme guess what's next! My RAC is low, or I'm computing on more than one computer or it's not quite a full moon or I prefer plasma TV's over LCD/LED's. Whatever. That elitist lefty moral high ground is crumbling below you.

No. Just using Ross Perot as a source. Find the chart on the CBO website and post that, not the Ross Perot version.

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Little survey my congress person just sent out:

Which of the following would you support:

Raising payroll taxes to support the Social Security Trust Fund.

$2 in benefits cuts for every $1 in tax increases to make the system solvent.

Means-testing the program so that wealthy families who don’t need government assistance don’t add to the costs.

Increasing retirement payments for those who earn less, and decreasing retirement payments for those earning more.

Privatizing social security.

Increasing the retirement age across the board to track increases in life expectancy.

Means-testing is a euphemism for breaking FDR's promise to America, an admission that it is a Ponzi scheme.

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Little survey my congress person just sent out:

Which of the following would you support:

Raising payroll taxes to support the Social Security Trust Fund.

$2 in benefits cuts for every $1 in tax increases to make the system solvent.

Means-testing the program so that wealthy families who don’t need government assistance don’t add to the costs.

Increasing retirement payments for those who earn less, and decreasing retirement payments for those earning more.

Privatizing social security.

Increasing the retirement age across the board to track increases in life expectancy.

Means-testing is a euphemism for breaking FDR's promise to America, an admission that it is a Ponzi scheme.

How can anything that the government is allowed to take and use the funds from survive
It might have been solvent for years if they hadn't robbed the bank
And decided to allow people to get what they never paid in for

As for me I'm taking what I can get ASAP

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Government taking funds from it did hurry the process, but ponzi schemes never mathematically work.

I believe when FDR started Social Insecurity, there were 11 workers for every retiree. Today there are just under 3 workers for every retiree.

LBJ hurried the process by pushing the "unified budget" idea, where it's funds would be included in the general funds for politicians to dip into and replace with IOU's.

Nixon speeded the process again by allowing SSI disability payments to come from the same funds. Scope was widened and it was made more unstable.

Today it's a lot of promises and there's little cash behind it. We should transition to a private system where there aren't smoke and mirrors created by do-gooders.

Privatization of it would defeat the purpose of it. Selfish at best. Homicidal at worst.

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Janice

you might as well call it insane risk taking instead of social security. by definition the stock and bond markets are highly insecure and as we saw in 2007-8 very volatile. This is not something anyone would recommend for security.

What happens when these people lose everything on the markets? raise an eyebrow and explain that they should have known it was risky? I dont think so. this was and is a program to prevent people from retiring without a nestegg. Sure we have our 401k and IRA's but its private investments.

When you take $trillions and dump it on the markets you devalue every stock out there. this is a horrible plan and once again should be indelibly written on everyones minds as a bad idea so we won't have to hear some right wing nut job explain how its the best thing to save Social Security

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Wait a minute. How do you think social security is being run today? There is no surplus. It's a bunch of IOU's because a politician/bureaucrat wanted the money taken in FICA to spend on something else! The money isn't there. What don't you get about that?

If a company did that, all the people running it would be in jail. Madoff is. Are there any bureaucrats, congressional staffers or paper pushers in jail b/c they came up with some scheme to put IOU's into the SS "lockbox" to be "maybe" printed by the treasury at some later point and given to the social security "trust fund"?

And just what kind of trust fund is it? Do you realize for 2011, they're taking 4.5 percent instead of 6.5 percent and putting it back into your paycheck? That was the President's proposal. How do you do that with a TRUST FUND??? The money still comes due on schedule, doesn't it?

Don't you think some funny math by Washington DC is being played out? Don't you think the private sector would be prosecutable if they played these games?

You talk about devaluing stocks? What about devaluing the U.S. Dollar?