Myths About Social Security

[JoeTheEconomist]

H.L. Mencken once observed "For every complex problem there is an answer that is clear, simple, and wrong." The debate about Social Security reforms proves his point.

Today there is a simple answer: Americans are living too long. This answer is supported by data which shows life expectancy increasing from 63 in 1940 to more than 77 today. The logical conclusion is that “Americans are living longer and thus receiving benefits for more years.” While clear and simple, the conclusion is a mix of bad data and faulty reasoning.

Increasing life expectancies does in fact create two financial burdens for Social Security. First, it can mean that people are living longer in retirement so that they will collect benefits for a longer period of time. Second, it also can mean that people become more likely to reach the age where they can collect benefits at all. Yes as Americans live longer, Social Security will pay more in benefits.

Those consequences are however only half of the story. What the argument fails to consider is that Americans who live longer, work longer and contribute more to Social Security. So it is very possible that rising life expectancies can improve the financial imbalances in Social Security. So whether the negative impact offsets the positive impact really depends upon at what age Americans are living longer.

The primary cause of this increase in life expectancy is a reduction of infant mortality. Believe or not, fewer babies dying is a financial plus for Social Security. Infants born after 1963 statistically will on average collect less than they contribute to Social Security. The data from the Urban Institute a non-partisan think-tank says that an average wage worker (single or married, male or female) contributes more than he expects to collect – and that assumes every worker lives to the age of full-retirement.

Many do not. Advances in medical science saved my brother at the age of 21. Better doctors and better medicine allowed him to work until he died at the age of 44. Over the 23 years of additional life, my brother contributed close to $60,000 without ever collecting a penny. Life expectancies of Americans rose because of people like my brother, and yet Social Security made a lot of money on the increase.

This argument also ignores the way Social Security works. The benefits formula uses the 35 highest years of earnings to compute benefits. Thus when a worker works 36 or more years, the benefits formula removes a year of earnings. As a consequence of math, Social Security in many cases collects free money by Americans living longer. Americans whose live expectancy extends from 55 to 67 are at times a cash-cow for Social Security.

Projecting life expectancy is not an exact science. In fact, the Social Security Administration has faced public scrutiny over its estimation model. I provide some research here to create some a framework for prospective. According to research from SSA,



· The life expectancy of the average 30 year-old male (someone who typically has attained eligibility for benefits) increased by almost 9 years since 1940.



· The average 65 year-old male in 1940 expected to live about 12 years, whereas in 2010 he expected to live 16.4 years. Today Social Security requires people to wait an additional two years, the increase in retirement benefits based on this research would be less than 2.4 years.



· Statistically, Americans are more likely to reach the age of full retirement. In 1990, the SSA projected that someone who was 21 had a 72% of reaching full retirement-age. The Social Security Administration reports that figure had risen to slightly less than 79% by 2009.



I wish that I could tell you that 9 more years of work could offset the additional benefits generated by Social Security. I can’t. I can tell you that life expectancy of an infant is not relevant to a discussion about a pension system and that the public debate about Social Security does little to clarify the question of how increasing life expectancies of Americans affects Social Security.

 

[24107]

losing trillions of dollars in unnecessary foreign wars, giving billions of dollars in free aid to foreign countries and then complaining Americans are living to long. :vomit:

 

[newpublius]

Logan's Run perhaps?

Not really complaining, if I make a system where we contribute money and anybody who reaches 150 gets a house on the moon, that's really solvent unless longevity technology becomes available. Social Security is no different, the fundamental ratio of contributors:beneficiaries is what will make the program what it is. As that ratio gets worse, to maintain benefits means the contributors have to contribute more.... 3:1 will go to 2:1.....there's no free lunch....

 

[Kobie]

death panels

 

[Verax]

death panels

SHHHHHH, now they're going to know our plan. Call them "alternative bio enhancement planning" instead.

Also, is it just me or does this article contradict itself like 5 times and make no sense.

 

[JoeTheEconomist]

Logan's Run perhaps?

Not really complaining, if I make a system where we contribute money and anybody who reaches 150 gets a house on the moon, that's really solvent unless longevity technology becomes available. Social Security is no different, the fundamental ratio of contributors:beneficiaries is what will make the program what it is. As that ratio gets worse, to maintain benefits means the contributors have to contribute more.... 3:1 will go to 2:1.....there's no free lunch....

I am not convinced that ratios are meaningful. Social Security is a paygo system which distributes the cash its collects in the form of benefits. The first few generations captured large economic returns. There is only one place where that return can come from - future workers. It is possible that increasing the number of workers delays the consequences but it will not change the end. In the end, positive returns must be offset by negative returns.

 

[newpublius]

I am not convinced that ratios are meaningful. Social Security is a paygo system which distributes the cash its collects in the form of benefits. The first few generations captured large economic returns. There is only one place where that return can come from - future workers. It is possible that increasing the number of workers delays the consequences but it will not change the end. In the end, positive returns must be offset by negative returns.

That's right, you can have policies that tend to increase the number of contributors, that limit the number of beneficiaries, that limit benefits or increase contributions and in the end everything that you hear falls under one of those broad categories.

 

[vasuderatorrent]

H.L. Mencken once observed "For every complex problem there is an answer that is clear, simple, and wrong." The debate about Social Security reforms proves his point.

Today there is a simple answer: Americans are living too long. This answer is supported by data which shows life expectancy increasing from 63 in 1940 to more than 77 today. The logical conclusion is that “Americans are living longer and thus receiving benefits for more years.” While clear and simple, the conclusion is a mix of bad data and faulty reasoning.

Increasing life expectancies does in fact create two financial burdens for Social Security. First, it can mean that people are living longer in retirement so that they will collect benefits for a longer period of time. Second, it also can mean that people become more likely to reach the age where they can collect benefits at all. Yes as Americans live longer, Social Security will pay more in benefits.

Those consequences are however only half of the story. What the argument fails to consider is that Americans who live longer, work longer and contribute more to Social Security. So it is very possible that rising life expectancies can improve the financial imbalances in Social Security. So whether the negative impact offsets the positive impact really depends upon at what age Americans are living longer.

The primary cause of this increase in life expectancy is a reduction of infant mortality. Believe or not, fewer babies dying is a financial plus for Social Security. Infants born after 1963 statistically will on average collect less than they contribute to Social Security. The data from the Urban Institute a non-partisan think-tank says that an average wage worker (single or married, male or female) contributes more than he expects to collect – and that assumes every worker lives to the age of full-retirement.

Many do not. Advances in medical science saved my brother at the age of 21. Better doctors and better medicine allowed him to work until he died at the age of 44. Over the 23 years of additional life, my brother contributed close to $60,000 without ever collecting a penny. Life expectancies of Americans rose because of people like my brother, and yet Social Security made a lot of money on the increase.

This argument also ignores the way Social Security works. The benefits formula uses the 35 highest years of earnings to compute benefits. Thus when a worker works 36 or more years, the benefits formula removes a year of earnings. As a consequence of math, Social Security in many cases collects free money by Americans living longer. Americans whose live expectancy extends from 55 to 67 are at times a cash-cow for Social Security.

Projecting life expectancy is not an exact science. In fact, the Social Security Administration has faced public scrutiny over its estimation model. I provide some research here to create some a framework for prospective. According to research from SSA,



· The life expectancy of the average 30 year-old male (someone who typically has attained eligibility for benefits) increased by almost 9 years since 1940.



· The average 65 year-old male in 1940 expected to live about 12 years, whereas in 2010 he expected to live 16.4 years. Today Social Security requires people to wait an additional two years, the increase in retirement benefits based on this research would be less than 2.4 years.



· Statistically, Americans are more likely to reach the age of full retirement. In 1990, the SSA projected that someone who was 21 had a 72% of reaching full retirement-age. The Social Security Administration reports that figure had risen to slightly less than 79% by 2009.



I wish that I could tell you that 9 more years of work could offset the additional benefits generated by Social Security. I can’t. I can tell you that life expectancy of an infant is not relevant to a discussion about a pension system and that the public debate about Social Security does little to clarify the question of how increasing life expectancies of Americans affects Social Security.

Very good article. Things do look very simple on the surface. This is why we always think that our elected leaders are failing us. Thank goodness that they hire intelligent people who really dig deep and find workable solutions. A politician usually doesn't do what is politically expedient. He/she usually does what is in the best interest of the country with a strong bias to lean in the direction of the political ideologies of their constituents. Our government really does work hard and make good decision. That often goes unnoticed when you focus on the obvious simple solutions for complex problems.

Thanks Joetheeconomist. Very good.

 

[Renae]

losing trillions of dollars in unnecessary foreign wars, giving billions of dollars in free aid to foreign countries and then complaining Americans are living to long. :vomit:

We'd be 6 Trillion in debt if all things being equaled, we took out the social welfare spending.

You really have no idea how much your CARING costs do you?

 

[JoeTheEconomist]

Very good article. Things do look very simple on the surface. This is why we always think that our elected leaders are failing us. Thank goodness that they hire intelligent people who really dig deep and find workable solutions. A politician usually doesn't do what is politically expedient. He/she usually does what is in the best interest of the country with a strong bias to lean in the direction of the political ideologies of their constituents. Our government really does work hard and make good decision. That often goes unnoticed when you focus on the obvious simple solutions for complex problems.

Thanks Joetheeconomist. Very good.

I unfortunately come to the opposite conclusion. I sense that the politicians would like for us to blame someone other than them for the crisis forming in SS. Their messages sounds to me like the crisis is your fault that you are living too long, or it is your fault that you are having too few babies. This mindset was in Paul Ryan's plan, Simpson Bowles, and many other plans to 'fix' Social Security. We are living longer, but we are paying as much as 10 times what people paid in 1950.

I really do not want the article to say that aging doesn't affect Social Security, or that I even know. Here is an article that discusses the problem.

You're Doing it Wrong: Social Security Life Expectancy Calculations - The Daily Beast

I want people to understand that overly-simplied solutions aren't really going to fix Social Security.

 

[JoeTheEconomist]

We'd be 6 Trillion in debt if all things being equaled, we took out the social welfare spending.

You really have no idea how much your CARING costs do you?

The cost of fixing Social Security is about 23 trillion if all things were legally managed.

Here is an idea of how much not CARING costs your children.

The Cost Of Doing Nothing

 

[Renae]

The cost of fixing Social Security is about 23 trillion if all things were legally managed.

Here is an idea of how much not CARING costs your children.

The Cost Of Doing Nothing

Socual security, unemployment, food stamps, housing, medicare and medicaide all should be abolished. Its not the federal goverments job to provide such and we cannot afford such. Period.

 

[JoeTheEconomist]

Socual security, unemployment, food stamps, housing, medicare and medicaide all should be abolished. Its not the federal goverments job to provide such and we cannot afford such. Period.

I work with a group that urges reform. There is no single more vocal group of individuals than the people who want to end the system. But there is not a single group of people willing to vote on the issue. There is no group actively working to end it. Today we are doing nothing, and the off-the-books cost of medicare and Social Security dwarf all of expenses combined.

I hope that you read the article. The cost projections there are actually low-balls. It uses solvency cost rather than actuarial cost to determine how much SS lost last year. In real terms, SS lost $3 for every one that it collected.

 

[Renae]

I work with a group that urges reform. There is no single more vocal group of individuals than the people who want to end the system. But there is not a single group of people willing to vote on the issue. There is no group actively working to end it. Today we are doing nothing, and the off-the-books cost of medicare and Social Security dwarf all of expenses combined.

I hope that you read the article. The cost projections there are actually low-balls. It uses solvency cost rather than actuarial cost to determine how much SS lost last year. In real terms, SS lost $3 for every one that it collected.

The real problem is that FDR changed America. Instead of people relying on themselves we've slowly become a nation of weak selfish individuals and the politicians have embraced bribing the populace with free stuff.

 

[Ockham]

The real problem is that FDR changed America. Instead of people relying on themselves we've slowly become a nation of weak selfish individuals and the politicians have embraced bribing the populace with free stuff.

Weak selfish individual are so much easier to manipulate and control than self reliant ones. I think politicians just stumbled into it and saw how easy it was/is....

 

[Renae]

Weak selfish individual are so much easier to manipulate and control than self reliant ones. I think politicians just stumbled into it and saw how easy it was/is....

No. They knew exactly what they were doing. Remember, progressive thinking begins with the assumption most people are stupid, need and want to be helped. Those in power see themselves as being superior individuals whose actions are righteous. The Bush family epitomizes the rightwing version of progressive thought while Obama is the lefts version for example. Bush senior was far more progressive then W.

 

[JoeTheEconomist]

The real problem is that FDR changed America. Instead of people relying on themselves we've slowly become a nation of weak selfish individuals and the politicians have embraced bribing the populace with free stuff.

Just Facts. Originally Social Security was not free. It did not become 'free' or heavily subsidized until after FDR died. In fact FDR veto'd the bill which Congress passed to increase the cost on SS. Congress overrode his veto. Congress was the ones that bribed the populace, in fact it increased SS benefits every election year in the 1950s.

 

[Renae]

Just Facts. Originally Social Security was not free. It did not become 'free' or heavily subsidized until after FDR died. In fact FDR veto'd the bill which Congress passed to increase the cost on SS. Congress overrode his veto. Congress was the ones that bribed the populace, in fact it increased SS benefits every election year in the 1950s.

Fdr set in motion the belief that the federal goverment had a moral obligation to help people and that people should look to Washington for answers

 

[MTAtech]

H.L. Mencken once observed "For every complex problem there is an answer that is clear, simple, and wrong." The debate about Social Security reforms proves his point.

Today there is a simple answer: Americans are living too long. This answer is supported by data which shows life expectancy increasing from 63 in 1940 to more than 77 today. The logical conclusion is that “Americans are living longer and thus receiving benefits for more years.” While clear and simple, the conclusion is a mix of bad data and faulty reasoning.
...

No. People, in general, are not living longer. Life expectancy is correlated to income. Look at the Social Security Administration study. Look at Table 4: since 1977, the life expectancy of male workers retiring at age 65 has risen 6 years in the top half of the income distribution, but only 1.3 years in the bottom half.

Conservatives favor raising the Social Security age because people live longer -- except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

 

[MTAtech]

Fdr set in motion the belief that the federal goverment had a moral obligation to help people and that people should look to Washington for answers

“The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.” -- John Kenneth Galbraith

“The test of our progress is not whether we add more to the abundance of those who have much it is whether we provide enough for those who have little.” -- Franklin D. Roosevelt

 

[Ockham]

No. They knew exactly what they were doing. Remember, progressive thinking begins with the assumption most people are stupid, need and want to be helped. Those in power see themselves as being superior individuals whose actions are righteous. The Bush family epitomizes the rightwing version of progressive thought while Obama is the lefts version for example. Bush senior was far more progressive then W.

Fair point, however FDR would have had to possess quite an insight to such a movement and a long term view of his actions as well as how others would or could expand it. I don't give politicians that much credit to have planned such manipulation for the past 70 years. I think they did so and blundered into it rather than planning it.

 

[longview]

Social security had real possibilities for success,
but a few changes would have had to been made in the early 60s.
The idea that everyone working puts 15% of every dollar they make into an account,
that is invested to buy a pension, is sound accounting.
The system was set up to pay current retirees with incoming receipts,
but the receipts quickly grew in an expanding economy to be many times the outlay.
In 1967 Johnson go the law changed to be able to declare surplus SS receipts
part of the general fund,(the SS administrator would determine how much was surplus.)
Something had to be done, as the quarterly SS receipts were getting close to exceeding the
the quarterly deficit. once all the bonds were sold to SS, there were no other
investment options opened for the SS administrator.
Rather than allow SS to invest in other securities, the Government decided to offset the deficit
with the SS surplus.
By Regan's term, they needed more surplus in the SS, so they raised the rate.
Under current law SS cannot invest in anything other than federal securities (bonds).
If there was no deficit, there would be no bonds.

Disclaimer: Some of what I have stated is conjecture based on my reading history
and the treasury bulletin.
SS should hold bonds equal to the difference between the total receipts (and interest)
and the total outlays.

 

[JoeTheEconomist]

Fdr set in motion the belief that the federal goverment had a moral obligation to help people and that people should look to Washington for answers

FDR rejected the model of Social Security that we have today because he didn't want the SS system to be seen as welfare. The problem with welfare in his mind is that it is a political priority where as contributions would give workers a legal, moral, and political right to the benefits. You can get mad at him for many things, but in the case of SS FDR worked to make sure that SS was not backed by the moral obligation of the government.

 

[Renae]

“The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.” -- John Kenneth Galbraith

“The test of our progress is not whether we add more to the abundance of those who have much it is whether we provide enough for those who have little.” -- Franklin D. Roosevelt

you "help others" by stealing from free individuals and chain to poverty and dependency generations of people.

 

[Renae]

FDR rejected the model of Social Security that we have today because he didn't want the SS system to be seen as welfare. The problem with welfare in his mind is that it is a political priority where as contributions would give workers a legal, moral, and political right to the benefits. You can get mad at him for many things, but in the case of SS FDR worked to make sure that SS was not backed by the moral obligation of the government.

FDR should be seen for terrible man he was. Intent of action means less then the effects of his actions.