2014 Trustees Report

by JoeTheEconomist August 4, 2014 3:50 AM

The 2014 Trustees Report for Social Security was released on July 28th.  The coverage of that report demonstrates once again that the media is focused on the length of the fuse rather than the size of the bomb.

The report tells us that the Social Security system lost 1 year of projected solvency over the course of 2013.  Instead of providing 19 years of full benefits, the system now should provide benefits for 18.  That according to the media is the good news. Michael Hilzik of the LA Times, for example, said "The release of the annual trustees reports for Social Security and Medicare customarily give rise to an outburst of disinformation from the enemies of these social insurance programs -- that comes with the territory when you're putting out documents of hundreds of pages densely packed with graphs, charts and statistics."  It is an ironic statement coming from someone who could not possibly have read the hundreds of pages by his press deadline.  He quoted someone Kathy Ruffing who spent even less time with the matierail who apparently pronounced that there was no news in the report.

Here is the bad news : 

The actual shortfall (the cost to fix the system) increased by 1.8 trillion.  That is roughly $2 of broken promises for every $1 that the system collected from ALL sources of revenue. 

The solvency shortfall (the cost to make the problem of Boomers a problem for their children) grew by 1 trillion to more than 10 trillion dollars.  This is the cost to kick the can.

Social Security reached two dubious milestones.  2013 was the first time in history in which the average person turning 66 - that's normal retirement age - expected to live long enough to feel the impact of the shortfall.  The time frame of solvency in the Trustees Report means that more than 50% of voting age Americans expect to retire after the Trust Fund is gone.

There is a troubling side to this report.  The projections in this report vary substantially from the projections of CBO.  CBO projects that the system will pay depleted benefits in 2030 rather 2033.  That type of difference can be attributable to things like the long term jobs picture or life expectancy tables.  More troubling is the differences in the short-term picture.  CBO projects that the Social Security Trust Fund will peak in 2017 where as the Trustees put the figure at 2019.  In the short run, these projections should not be that far apart.

What is lost in all of the popular coverage is that the bomb size is growing.


The 2013 OASDI Trustees Report

by JoeTheEconomist May 31, 2013 18:04 PM
The Trustees of the Social Security Trust Funds released their annual report, read summary.  The online report was posted on Friday at  www.socialsecurity.gov/OACT/TR/2013/.

In the 2013 Annual Report to Congress, the Trustees announced:

  • The combined trust fund reserves are still growing and will continue to do so through 2020. Beginning with 2021, the cost of the program is projected to exceed income.
  • The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2033 – the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits.
  • The projected actuarial deficit over the 75-year long-range period is 2.72 percent of taxable payroll -- 0.05 percentage point larger than in last year’s report..
  • Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.
The system continues on course for insolvency in 2033 - but what does insolvency in Social Security mean to you?  (Read More)

Pew Research : Retirement Across Generations

by JoeTheEconomist May 30, 2013 7:55 AM

Pew Research has produced a report on the preparedness of generations for retirement. 

"When the Great Recession hit in 2007, the oldest baby boomers faced the real possibility of downward mobility just as they were entering their golden years.The downturn also heightened concerns about retirement planning—or lack of planning—by younger generations. Many younger Americans were already behind in saving for retirement, and suddenly millions of them were out of work or owned homes worth far less than they had been just a few years earlier"  (read more)

The research includes expected revenue from Social Security.  It reports the expected benefit levels to continue forever.  This will significantly overstate the preparedness of early Boomers.  According to the report, various studies have shown that pensions (such as Social Security) contribute as much as 50 percent to the household wealth projections. (See the full study)

CBO Releases New Data On Social Security

by JoeTheEconomist February 7, 2013 15:37 PM

Jed Graham, who writes for IBD, discusses new Congressional Budget Office projection showing a worsening financial outlook for Social Security:

“Social Security's financial outlook took another hit this week, as the Congressional Budget Office hiked its estimate for cash deficits from 2013 to 2022 by $212 billion.”   (Read "Social Security Trust Fund Likely To Run Out In 2031")

The article says that "Meanwhile, workers 44 years old who may be more than halfway through their working careers face the prospect of retiring after the trust fund is bust."  It appears that the writer assumes people will retire at 62, which is an option for less than half of Americans.  For people who expect to retire at full retirement age, 49 years-old is the point where workers expect to retire after the trust fund is gone.  Anyone 66 or younger expects to live long enough to have benefits cut.

The Trust Fund And 2033

by JoeTheEconomist January 25, 2013 8:38 AM

We provide this information as a counter-balance to what people read in the media about the ability of Social Security to pay full benefits.  Much of media coverage is based on the projections of the Trustees, which is only as good as the assumptions. 

We tend to think that the assumptions are optimistic.  We think it is unrealistic to expect 5% returns on the assets held in the Trust Fund when the system is buying debt that yields less than 2%.   The assumptions overstate current fertility rates, which are at 25 year lows.  The point isn't that the Trustees are wrong, but rather that the projections may prove overstated.

Here are examples where other writers have questioned the assumptions :

"Social Security officials have long been misdiagnosing the program’s financial condition. Whether this reflects poor judgment, incompetence or deliberate misdirection seems impossible to determine." ~ Jagadeesh Gokhale.  (on Politico)

"While these actuaries are highly responsible and careful and do excellent work curating and describing the data that go into the forecasts, their job is not to make statistical predictions. Yet the agency badly needs such expertise. " ~ Gary King (on NY Times Op-Ed)

The Trustees have said that in a good economy funding should be available for full benefits through 2032.  The media is reporting that the funding does exist - 'even if we do nothing'.

Social Security – 2012 Results

by Guest_Post December 5, 2012 9:20 AM
We reprint articles with the permission of Bruce Kasting. 
The full article can be found at : https://brucekrasting.com/social-security-2012-results/
Social Security (SS) has released its estimates for the December data for benefits payed and taxes received. With this info, I can estimate the 2012 results that will be formally reported in five-months. It was a ho-hummer of a year for SS, it tread water vigorously, and ended up with a cash deficit of $46.7B, just a tad more red ink that 2011’s $45.6B.
Some thoughts on these results:
- The $46.7B annual cash deficit is the third in a row. The 2012 shortfall confirms it; SS will never see a cash flow surplus again. Every dollar of the cash shortfall MUST be funded by selling additional debt to the public.
I hope this is clear. I’ll repeat it. Social Security is adding to the debt held by the public. It is forcing the country to borrow more to fund current operations. When Senate Democrats, like Dick Durbin and Harry Reid say, “SS does not add a penny to our debt.”they are lying.
- The Tax on Benefits is up to a meaningful $27.1b (+15%). The increase is the result of many newly retired folks who are getting SS, and also have other income (investments and pensions). This forces them to add the SS income into their tax base. THIS IS A “MEANS TEST”.
I emphasize this fact as there is very strong opposition to the concept of a means tax for SS by Democrats in Washington and the liberal press (Dean Baker). But it already exists!
Liberals don’t like means testing because it undermines the principals of SS. It makes it appear that SS is a form of welfare. The fear is that if SS is labeled as welfare, the popularity of the program would quickly wane. So the staunchest supporters of SS are avoiding a fix that could patch the finances for the worst reasons. They are supporting Roosevelt’s dreams, at the expense of the base they say they are trying to protect. Only in America….
The problem with the existing Tax on Benefits is that it does not cut deep enough to fill the bucket. I advocate that the tax bite for high-end seniors be increased. I will go further, and state that the means test for SS benefits should be based on assets, not just income that can be manipulated.
My strong feelings on means testing SS benefits are to my personal disadvantage; my SS benefits would be gone under my plan. I say this now, as I know there will be many who will throw rocks at me for my stance. I can already see the words, “I paid for it, the money is mine!” I say ,”Sorry, this will come sooner or later.”
My gripe is that the generation that is causing the problem, the Baby Boomers, is getting off scot-free. All of the proposals to tweak SS (Age and inflation adjustments) would phase in over twenty-years. With this, the bulk of the baby boomers would get a free ride. This doesn’t seem fair at all to me. Society, as a whole, will have to pay for the Boomers, but the Boomers should shoulder a higher percent of the cost. By no means should their political clout result in an unfair outcome. This is a political “Kick of the Can”, “screw folks sometime in the future”. A downright ugly plan at that.
- In 2012 the Treasury paid SS $115B to offset the drop in income related to the 2% reduction in payroll taxes for the year. The operating results (including the Treasury contribution) still produced a cash flow deficit of $46.7B. In other words, the shortfall for 2012 added $162B to the borrowing requirements at Treasury. This borrowing resulted in a dollar-for-dollar increase in the Debt Owed to the Public.
- There was an improvement (+6.5%) in the YoY payroll tax income. A portion of the better results are annual “Adjustments”. 2012 had positive adjustments to revenue from the prior year totaling $2.1B, while 2011 had negative adjustments of $8.6B. Taken together, the real rate of increase for revenues at SS is closer to 5.2%. This data can be used to create an estimate of total payroll income (Adjusted payroll income / Tax rate {12.4%} :
2011 estimated SS total payrolls = $5.658T
2012 estimated SS total payroll = $5.951T
YoY change = $293B (1.8%)
The ~$300B of increased pay seems like a very big number, but when you consider that inflation is running at about that same 1.8%, most folks are getting no place fast.
I draw this comparison to make a point about the huge numbers that are part of the economy. A $300B increase in worker’s incomes doesn’t move the needle at all. Amazing…
Note: This quickie numbers analysis does not reflect the cap of $106.5K on SS tax, nor other sources of income that is not taxed by SS. I don’t think this skews the results/conclusions by much. Social Security has 155m in its pool, significantly larger than the Non-Farms Payroll (135m). These numbers cover a big slice of the American pie.
- The YoY increase in Benefits of $50.1B (6.9%) is a reflection of A) A COLA increase of 3.6% and B) A net increase of 1.4m in the number of beneficiaries. The costs at SS rose at a pace that is far higher than the economy grew in 2012. Approximately 11,000 people enter the system every day. 7,000 current members of the club, well, they leave the system 24/7.
- Interest income is down 2.5% in 2012. The decrease of $1.1B is modest, but also significant. The passage of time and ZIRP/QE, has caught up with SS’s investment portfolio. The interest income at SS for 2011 will prove to be the zenith; from now on, the interest income at SS will be in annual decline. This is an important milestone, a decidedly negative one at that.
The Federal Reserve has cheapened the cost of money at the expense of SS. One can argue the merits of this tradeoff, but what can’t be argued, is the consequence to SS. If the Ten-Year were at 4% (Versus the 6% long-term average) it would add $700B to SS interest income over the next (critical) ten-years.
If you listen to Bernanke, the other Fed Doves, guys like the WSJ’s Jon Hilsenrath, and all of the economists on TV, you would think that there is no consequence to the government of perpetual cheap money. Actually, what Bernanke is doing is dramatically shortening the day of reckoning for SS. The current thinking is the SS “go bust” date is 2033. But when SS releases its annual report in May, it will confirm that the date has been brought forward a few years, and the culprit is cheap money. I wish that someone other than the blog world would point these things out. Bernanke is no pal of SS, Very Important People, like Paul Krugman, love SS and also hail Bernanke’s endless cheap money. I guess they don’t see the conflict.
+++ (finally, sorry for running on)
- There was no crisis at SS in 2012, and there won’t be a real crisis for a number of years to come. The growing annual cash deficits are now “programmed” to happen. This gives Democrats the opportunity to say, “Hands off SS”. “It ain’t broke, so don’t try to fix it”.
My guess is that the Democrats will prevail on SS with regard to the current fiscal cliff debate. As a result, there will be no changes to SS. Should that be the outcome, in about five years the wheels will fall off the cart. By then, SS will be running cash deficits of at least $200B a year. It will be much harder to “fix” than today.