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I don’t want this kind of trust fund

11 Mar

“Social Security tax receipts for the first half of 2010: $346.9 billion; Social Security benefits payments for the same period: $347.3 billion. Before this year, projections have always been that Social Security wouldn’t cross that line into negative cash flow for five years or so. Now it’s a reality. Congress has been spending Social Security’s positive cash flow for years. Now there’s no positive cash flow to spend.”

Michael Tanner of the Cato Institute “the Trust Fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs.”  In other words, the Trust Fund doesn’t actually have any real money in it.”


I’ve posted a bit on my concerns with our governments unfunded liabilities. Social Security is a disaster in the making unless we undertake some serious reforms.  There are claims that the trust fund will keep Social Security solvent until 2037, that is of course if you don’t consider that there is no trust fund and the government will have to tax or borrow the money in order to pay it out.

Personally would like to see Social Security privatized while protecting those too close to retirement to take advantage of reforms. I would settle for some simple changes, such as rasing the retirement age and removing the income limit on contributions. When SSI was created the average life expectancy was about 62 or 63 years. The thought was the people would not draw on their SSI benefits for many years before they died. Now life expectancy exceeds the retirement age by roughly 15 years, which really screws up the actuarial calculations.

Others propose means testing, but I don’t agree with this approach because SSI is supposed to be insurance not welfare. If people pay in to the system for years, they deserve to get their money back. Otherwise we will reward bad behavior and penalize good behavior. An example, let’s say we have two workers who both average $75,000 in income for their lifetime and pay in pay roughly $500,000 (including employers contributions). Let’s say that worker 1 also saves 10% of his income in a 401K and invests wisely and is able to save another $1 million for his retirement. Worker 2 doesn’t contribute much to his 401K or personal savings, uses the cash to buy a Harley and a boat, and ends up with $100,000 in savings at retirement. We then apply means testing and Worker 1 gets nothing and Worker 2 gets nearly his full SSI benefit. Is this fair and reasonable, I think not.

To make matters worse, we have an Adminstration in the White House that this that there is not a problem and we don’t need to do anything about it.  The article by Charles Krauthammer sums things up nicely.

http://www.nationalreview.com/articles/261893/obama-s-social-security-hoax-charles-krauthammer

 

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Posted by on March 11, 2011 in Unfunded Liabilities

 

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