Social Security - I'm so CONFUSED!

Does anyone care to illuminate for me a few private mysteries about teh social security?

Is it a trust or not? It is self-renewing or not? How did it go "bankrupt"? Is it like a government lien? I trust the opinions of the OTC more than the skewed ones elsewhere.

I'm a skeptical squirrel

Blegh. I have to do this quickly so I may not cover all the salient points.

• Social Security is technically operated like a public retirement fund. You pay money into it throughout your working life and then, when you retire or become disabled, it pays you an annuity based on your contributions.
• The basic notion of Social Security is fiscally sound. It is supposed to maintain a trust fund with the monies paid into it, which earns interest through being invested in U.S. treasuries.
• The current issue with Social Security is that, some decades ago, Congress figured that it could appropriate SSDI payroll deductions for general revenue, with the promise to pay them back later if/when it was ever necessary.
• The trust fund is technically solvent for... well, for a long time. However, at the point when its outlays exceed its income, it's going to have to start reclaiming all those funds that Congress "borrowed" from it.

There is no technical fix for this, other than for Congress to suddenly repay everything it owes the trust fund. Basically we have Congress to blame for ruining it for everyone.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Essentially, borrowing from the social security fund just lets congress avoid having to borrow money, so it's effectively just borrowing money at a lower rate.

Don't worry about it. At present course, it's not going to be there at all for folks like you or me. The system going bankrupt and all that and no politician willing to touch the sacred cow to save it.

My father will have it for a few years, but not me.

Not without raising taxes. Or killing off old people, I guess?

Even then, I'm assuming you're in your early to mid 20s, Tom.

edited 12th Aug '11 4:23:25 PM by TheyCallMeTomu

Yeah, I really don't expect to get any use out of Social Security. I also know that it is terrifyingly difficult to comprehend, yet stupidly easy to simplify—which isn't a good thing, because people then have no idea how it really works.

I also know that one of the worst moments of my life was when I came up with this big, complex idea for how to replace Social Security. I then explained it to my friend, and he goes:

"Dude, that's just Social Security."

I gave up on it after that...

I am now known as Flyboy.

^^ 26 in 2 months. Nobody my age is going to benefit from the program. Nobody under 40 today is going to either. That's what happens when a literal Ponzi scheme falls apart. (And Social Security is built and funded EXACTLY like a textbook Ponzi scheme.)

edited 12th Aug '11 4:31:28 PM by MajorTom

I'd need to see numbers for that, and that's assuming no action is taken to raise taxes in any way shape or form.

Personally, I don't expect to ever receive social security money because my family's life expectancy for males is atrociously low. My father died at the age of 63, his father died at the age of 73, and his father died at the age of 63. I believe his father also died at the age of 63, but don't quote me on that.

In any event, this Daily Kos article seems to have a rebuttal to the Ponzi Scheme argument. Still checking through it now.

And Tom, before you say "WHA DAILY KOS LIBERAL MEDIA GIVE ME ACTUAL NEWS" or whatever, please find an actual point that's objectionable. As much as I may find dismay with Fox News, I would hope you'd expect the same from me when I criticize a Fox News link you provide.

edited 12th Aug '11 4:39:27 PM by TheyCallMeTomu

I see, so SS only became "a trust" once Congress began taking out loans on it. Convenient.

edited 12th Aug '11 6:28:04 PM by johnnyfog

I'm a skeptical squirrel

^^ You do realize if we raised taxes today it won't save the program tomorrow. There's no such thing as a permanent rate or projecting tax revenues under X rate 20 years down the line. Economic situations (and the shifts of power) will always alter the rate away from something that will sustain the program.

Fundamentally it has a bigger problem. There is no trust fund. To pay retirees today you rob from today's workers. The amount the SSA will tell you you've accumulated is just feel-good rhetoric. You'll never collect that, you'll just be put into one of their brackets like everyone else regardless of how much they have or have not worked. Basically, we're borrowing from Peter to pay Paul today. It's only getting worse as the monstrously huge Baby Boomer generation retires over the next 15 years and simple tax hikes won't stem the bleeding.

Thus as a result, the Ponzi scheme comparison holds.

Saying something is a Ponzi scheme implies that it promises higher returns then it actually makes. Which is blatantly false in the case of Social Security.

Blind Final Fantasy 6 Let's Play

^ It promises a return and yet it was losing money recently.

The classic Ponzi scheme promises nothing on returns in actuality. It's all about continuously finding more and more suckers to pay off the previous suckers. Eventually it falls apart.

Social Security is running that exact premise. Have a constant supply of new workers to pilfer from to pay for the increasing numbers of previous workers.

edited 12th Aug '11 6:35:07 PM by MajorTom

But Ponzi schemes are characterized by reliance on a geometric growth of "investors". Since Soc Sec does not pay excess returns, there is no requirement for continually growing customers.

If the demographics of the population were stable, then a pay-as-you-go system would not have demographically-driven financing ups and downs and no thoughtful person would be tempted to compare it to a Ponzi arrangement. However, since population demographics tend to rise and fall, the balance in pay-as-you-go systems tends to rise and fall as well. During periods when more new participants are entering the system than are receiving benefits there tends to be a surplus in funding (as in the early years of Social Security). During periods when beneficiaries are growing faster than new entrants (as will happen when the baby boomers retire), there tends to be a deficit. This vulnerability to demographic ups and downs is one of the problems with pay-as-you-go financing. But this problem has nothing to do with Ponzi schemes, or any other fraudulent form of financing, it is simply the nature of pay-as-you-go systems.

Blind Final Fantasy 6 Let's Play

Tom, it wasn't a Ponzi scheme when it was instated and it still is not, although Congress is doing its best to turn it into one by raiding it for general funds.

Edit: Calling it a false pejorative in an attempt to discredit it is a favorite debating tactic of people with no actual arguments to make. So please don't associate yourself with that.

edited 12th Aug '11 8:43:44 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

That's not how a ponzi scheme works.

How Social Security is currently run:

Working age people pay money into social security. Retired age people receive money from social security. I haven't looked at the detailed amount at which people pay into it or receive money from it but I'll wildly assume it is based on someone's income.

So the key point is that when it was first created, people paid into the system, this money was then invested to generate interest income and then when the first people who paid into it started retiring, they started receiving money. It's fiscally sound. If there is a generation that retires, which is larger than the next generation, the amount of money in social security's vault will decrease until the smaller generation retires at which point, assuming there is a larger generation after that one, then the money increases again. The only way the system breaks is if there is a continuous population decline for many generations.

Why Social Security is "broken":

Congress borrowed against the money, leaving no money in the vault, so any temporary fluctuation in population can possibly financially break the system. They unnecessarily made it super risky and everyone voted for these politicians without caring about the consequences. Now you get what... the people older than you wished for.

How to "fix" Social Security:

Block it from entering general revenue and have a separate board maintain it at arm's length from the government. Also, trying to stockpile a bit more money and then creating an investment portion that eventually grows to own most of it will not only help your stock market (because pension funds go for long-term investment strategies) but also you'll pay less tax in the future because interest payments will fund more of the payouts.

The problem with Social Security IIRC is that the payments made aren't invested, so there's no yield. And that's because Congress raided it to pay for the day-to-day operations of government.

edited 13th Aug '11 12:41:28 AM by Cojuanco

So wait, the government put money away into a fund specifically for social security, and then... drew funds from the social security.

That is nothing less than corruption.

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

Pretty much, it seems.

What are you gonna do about it then?

I'm no American, but I assume protests, letters, etc. The usual.

And then have them ignored, which is the usual.

1. It is to an extent. The minute difference between revenue and expenditure at any given time is buffered in a trust fund, though the vast majority is spent instantaneously (for instance, last year it acquired $781.1 billion, of which $712.5 billion was payed out, and the remaining $68.6 billion was placed into the trust fund, which currently stands at $2.6 trillion.) For the most part, it works more like an insurance company.
2. Yes, depending on the tax/revenue balance. SS doesn't hold money in individual accounts. Instead, all money that goes in from young taxpayers immediately goes out to old beneficiaries, with the difference going to/coming from the trust fund.
3. Social Security isn't bankrupt, and is in fact legally incapable of accumulating any debt whatsoever.
   • That said, there will be a 20% shortfall 26 years from now, one which could be eliminated with a 2% payroll tax hike, or by increasing the taxable portion of the wealthy's wages from its current $106k cap.
4. No, neither it nor its obligations are transferrable.

I'm ashamed of you all, especially Tomu, since I had this exact conversation with you before and you utterly demolished the “ponzi scheme” argument.

Nobody is “appropriating,” “borrowing,” nor “paying general budget expenditures” from the SSTF. All that's happening is that the SSA invests in treasury bonds to earn interest, exactly like your bank does with the deposits in your savings account.

Eric,

edited 13th Aug '11 5:10:58 AM by EricDVH

I wasn't arguing for an end to Social Security. I was arguing for stopping the withdrawal of money from a fund made for that specific purpose!

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

You do realise that it's not all to different from our State Pension scheme here (or any Pension, since Pensions are taxed) — the workers of today are paying for the retired of today, the retired of the future...may not retire at all.

edited 13th Aug '11 6:09:24 AM by Greenmantle

Keep Rolling On

@Inhopelessguy: the reason there arent protests about fixing it is twofold.

1: the Right has done its damndest to convince everyone (particularly the poor) that Social Security is a Ponzi scheme and cannot be fixed.

2: Most people dont understand economics or investing money in any sense greater than "my sisters brother's uncles cousin onetime bought a bunch of stock in IBM before they became famous and now he's rich"

edited 13th Aug '11 6:16:40 AM by Midgetsnowman

@ Green. Yeah, I realise that. Which'll suck for the two of us, thanks to demographic curves. Damn curves...

@Midget. I see. So, there would be protests, but because people are too uneducated, or too right, they don't care?