Saturday, July 30, 2016

Social Security and Disability Insurance...A 29% Reduction in Benefits Already Mandated by Law...More Cuts to Come


In 2010, Social Security (OASDI) unofficially went bankrupt.  For the first time since the enactment of the SS amendments of 1983, annual outlays for the program exceeded receipts (excluding interest credited to the trust funds).  The deficit has grown every year since 2010 and is now up to 8% annually and is projected to be 31% in 2026 and 44% by '46.  The chart below highlights the OASDI annual surplus growth (blue columns) and total surplus (red line).  This chart includes interest payments to the trust funds and thus looks a little better than the unvarnished reality.

For a little perspective, the program pays more than 60 million beneficiaries (almost 1 in 5 Americans), OASDI (Old Age, Survivors, Disability Insurance) represents 25% of all annual federal spending, and for more than half of these beneficiaries these benefits represent their sole or primary source of income.

The good news is since SS's inception in 1935, the program collected $2.9 trillion more than it paid out.  The bad news is that the $2.9 trillion has already been spent.  But by law, Social Security is allowed to pretend that the "trust fund" money is still there and continue paying out full benefits until that fictitious $2.9 trillion is burned through.  To do this, the Treasury will issue another $2.9 trillion over the next 13 years to be sold as marketable debt so it may again be spent (just moving the liability from one side of the ledger, the Intergovernmental, to the other, public marketable).  However, according to the CBO, Social Security will have burnt through the pretend trust fund money (that wasn't there to begin with) by 2029.


Below, the annual OASDI surplus (in red) peaking in 2007, matched against the annual growth of the 25-64yr/old (in blue) and 65+yr/old (grey) populations.  The impact of the collapse of the growth among the working age population and swelling elderly population is plain to see.  And it will get far worse before it eventually gets better. 

From 2017 through 2029, the present 170 million person 25-64yr/old population will grow by just 5 million.  The current 51 million person 65+yr/old population will grow by 22 million.  And it won't get much better after that as the older population keeps swelling with boomers living progressively longer.


Beginning in 2030 benefits will have to be paired up with tax collections according to current law.  By present calculations, this means an initial 29% reduction in benefits.  The reductions will only become larger from there.  The average benefit check in 2016 is $1341/mo, or $16,000/yr.  A 29% reduction on the average payment will be <-$390/mo> and the reductions will keep growing for the rest of our lives.  For couples, this means their initial combined benefit will be $22.850 instead of $32.000.


Americans turning 67 in 2030 will be told that after being mandated to pay their full share of SS taxation throughout their working lifetime, they will not see anything near their full benefits in their latter years.  However, those in retirement now and those retiring between now and 2029 are being paid in full despite the shortfall in revenue.  They will be paid in full until this arbitrary "trust fund" is theoretically drained.


I have no intention of funding, in full, current retirees benefits with my tax dollars only to know I will hit the finish line with a 30%+ reduction that will only worsen over time.  My goal is to pay it forward to my kids and then do my best to never to be a burden to them.  The SS (OASDI) benefits must be cut now to be in line with revenues.  Raise taxes, lower benefits...your choice.  But I'm not about to make the old whole so I can then subsequently see my generation go bankrupt in my latter years.


Conclusion-
1- There was a trust fund, but Executive and Congressional tinkering along the way has seen that is has been entirely spent (artificially and temporarily boosting the economy along the way).  It's gone and issuing more debt in it's place is just asinine.
2- With immediate effect, benefits must be cut or taxes raised...you choose.  We can't pretend any longer and attempt to push the consequences out another generation.  Times up.  The pain must begin now and must be shared equally by all.


For more details about what we and the next president will face...HERE