Where did my Social Security money go???

[golfguru]

Remember, not only did you contribute to Social Security but your employer did too. It totaled 15% of your income before taxes. If you averaged only $30K over your working life, that's close to $220,500.

If you calculate the future value of $4,500 per year (yours & your employer's contribution) at a simple 5% (less than what the govt. pays on the money that it borrows), after 49 years of working you'd have $892,919.98.

If you took out only 3% per year, you'd receive $26,787.60 per year and it would last better than 30 years (until you're 95 if you retire at age 65) and that's with no interest paid on that final amount on deposit! If you bought an annuity and it paid 4% per year, you'd have a lifetime income of $2,976.40 per month.

The folks in Washington have pulled off a bigger Ponzi scheme than Bernie Madhoff ever had.

Entitlement my ass, I paid cash for my social security insurance!!!! Just because they borrowed the money, doesn't make my benefits some kind of charity or handout!!

Congressional benefits ---- free healthcare, outrageous retirement packages, 67 paid holidays, three weeks paid vacation, unlimited paid sick days, now that's welfare, and they have the nerve to call my social security retirement entitlements?

We're "broke" and can't help our own Seniors, Veterans, Orphans, Homeless.

In the last months we have provided aid to Haiti, Chile , and Turkey . And now Pakistan ......home of bin Laden. Literally, BILLIONS of DOLLARS!!!

Our retired seniors living on a 'fixed income' receive no aid nor do they get any breaks while our government and religious organizations pour Hundreds of Billions of $$$$$$'s and Tons of Food to Foreign Countries!

They call Social Security and Medicare an entitlement even though most of us have been paying for it all our working lives and now when it’s time for us to collect, the government is running out of money. Why did the government borrow from it in the first place? Imagine if the *GOVERNMENT* gave 'US' the same support they give to other countries.

Sad isn't it?

[dkf]

1. Yes the internal rate of return for Social Security sucks.

That's one of the main arguments people who want to privatize use.

[JDPriestly]

3. I saved in a 401(K) --- Wall Street

That pays back at an even lower rate than Social Security and is totally useless in an economic breakdown -- which is what we may well see within the next two years.

The best thing is to try to save AND to have Social Security.

The Wall Streeters are just thieves.

What was done to people's pensions in the takeover mania of the last 30 years is simply highway robbery.

I can't wait until they start to look into some of Romney's corporate takeovers. I wonder what he did with workers' pension funds when he took over and sold of the assets of companies?

I don't know what he did, but I do no that the loopholes in the ERISA law turned pension funds into corporate managements' slushfunds.

[fasttense]

23. To answer your question "Where did my Social Security money go???"

It went to your parents. At least most of it went to our parents, there are also disabled and orphans that received some of it.

In 1983 Raygun and GreenSpin doubled our Social Security payments (and cut the uber rich's payments but that's another story). The Baby Boomers were the 1st generation to pay for two retirements - their parents and their own. Before Raygun, Social Security payments went directly to the retired generation so in effect the working kids paid for their parent's retirement. But Raygun changed all that.

The Baby Boomer's money is in the Social Security Trust Fund. That's where their retirement payouts will come from. That Trust Fund is suppose to go to zero after we Baby Boomers have passed on.

That leaves our children to pay for only their own Social Security. Ever cent our kids contribute to Social Security today goes to them (and the disabled and orphans of their generation).

So, we have paid for our parent's retirements and we have paid for our own retirements and now our federal government wants to take it away from us to pay for wars and tax cuts for the wealthy.

That's not a ponzi scheme, that's down right fraud.

[TheWraith]

2. I doubt you're going to get much sympathy here calling Social Security a "Ponzi scheme."

And you've got faulty assumptions there--first off, that you're going to be putting in $4,500 a year, every single year, from the time you're 16 years old, which is what you're calculating. Furthermore, 5% is a rather generous assumption of interest if you're going with no-risk PRIVATE investments.

Now let's re-do those calculations. Assuming someone goes to work at 22, out of college. Assume that in the 43 years between there and 65, they're unemployed for 4 of them, which isn't inconceivable. That's 39 years working. Now let's calculate that with 3% interest. Your nest egg becomes $334,805. Drawing out at $26k a year, you're bankrupt by the time you're 78.

[JDPriestly]

4. The problem with your calculations is that you leave out the

many years of high interest rates especially in the 1980s and 1990s.

When we first got our mortgage in the 1980s, we had to pay about 9% or more in interest.

For many years, we got 5% interest on our savings. Not today. We barely get 1% today.

I paid 7 1/2 to 8% interest on some of my student loans not all that long ago.

You are low-balling average interest rates over the years.

[TheWraith]

14. Maybe, but there's no guarantee that savings interest is suddenly going to spike.

For that matter, the '80s were a time of pretty high inflation, which would effectively counter the improvement in rate of return.

[JDPriestly]

15. But that is the problem with your calculations.

When I began working, minimum wage was less than a dollar an hour.

In 1969, my husband and I bought a house for $13,400. You couldn't buy an outhouse for that today.

The value of the money we seniors put into Social Security when we were young is not reflected in your figures.

A house that sold for $13,400 then sells for $167,900 today. So, that is how much the money I put into Social Security has increased in value since that time. And of course, it has increased even more in terms of the money that I put in before that time.

Social Security is secure. If people can and will save money in others ways, more power to them. But my generation paid for its parents and grandparents, and the younger generation, the working generation of today should pay for their parents and grandparents. That is the American way.

[Mimosa]

20. JD, excellent points!!!

Common sense, too. :D

When I think of how much more money our money was worth -even during the 1970s and 80s- I am always shocked.

[dkf]

9. Here are the IRRs. 3% is probably too generous. 2.5% looks about right.

http://www.ssa.gov/oact/NOTES/ran5/an2009-5.pdf

[FreakinDJ]

5. 40 years of Congress has stolen the money

and now they want a "Get out of Jail" card free

[madrchsod]

6. nice right wing talking points and you are wrong.

[unblock]

7. it's not a ponzi scheme. the system itself has always been sound.

there was an easily predicted problem with too many boomers retiring relative to younger people working, but reagan (of all people) fixed that by doubling the payroll taxes in 1983 based on a recommendation by the greenspan (of all people).

that's right, they doubled our social security taxes in order to solve the problem in advance, and we've been building up a surplus ever since then.


the PROBLEM is that that surplus was effectively raided to help fund the government insatiable demand for more spending and more tax cuts.

so it's not a ponzi scheme, it's just a good old fashioned pension plan that got raided.

[golfguru]

11. It is not a "real" Ponzi scheme but

the problem is ageing of the population.
If we had a constant ratio of retirees to workers, there never would be much of a problem. But as people are living longer, the ratio is lot higher than when SS started.

[jeff47]

8. You vastly overestimate the interest the Social Security Trust Fund gets

The trust fund only buys US Government bonds. The yield on those is nowhere near 5% and has not been for a very long time.

In addition, you are treating Social Security like an IRA/401k where your contributions are saved. Most of your social security taxes are spent on current beneficiaries. So calculating based on the entire amount of your tax payments as a "nest egg" is wrong.

[Jim Lane]

10. You're ignoring several aspects of Social Security.

Social Security is also known as OASDI, for Old Age, Survivors, and Disability Insurance. You've considered only the old age pension benefit.

By paying into Social Security you earn entitlement to survivors' benefits. If you die, your spouse and child(ren) will be entitled to that coverage. You also get disability insurance. If you suffer an accident or a major illness and become disabled before you reach retirement age, you'll receive disability benefits.

Your post effectively values these components at zero just because you're alive and healthy -- now. It's like saying that a homeowner's insurance policy in 2010 was a waste and a ripoff because the homeowner paid in the premiums and the house didn't burn down. That's a faulty economic analysis.

Beyond these points, Social Security has a progressive redistributive effect. The formula used for calculating benefits isn't just dollar-for-dollar based on contributions. If your covered earnings this year were $40,000 and your twin brother's were $80,000, then, when you both retire, this year's boost to your benefits will be less than his but will be more than half of his.

Finally, as others have pointed out, it's not a Ponzi scheme. Here's a good explanation that was part of a longer document on the Social Security Administration website, one that was (not surprisingly) removed from the website after Bush launched his attack on Social Security:

There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go insurance programs in that in both money from later participants goes to pay the benefits of earlier participants. But that is where the similarity ends. A pay-as-you-go system can be visualized as a simple pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end. As long as the amount of money coming in the front end of the pipe maintains a rough balance with the money paid out, the system can continue forever. There is no unsustainable progression driving the mechanism of a pay-as-you-go pension system, and so it is not a pyramid or Ponzi scheme. 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. 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.

The 1983 tax increase was intended to address the problem caused by the demographic anomaly of the baby boom, and it largely did address it. We Boomers have enabled the system to build up a huge surplus, which can be drawn down as we start to retire. On some economic projections -- projections that have been criticized as unduly pessimistic -- the surplus will fall somewhat short of what's needed, but the difference can be covered by some tweaking of the system.

[one-eyed fat man]

12. Call it a Pyramid scheme

It has always depended on adding a new base of tax payers larger than the crop of retirees drawing out money. Baby boomers are not only the biggest chunk in the system, they did not have kids at anywhere near the rate their parents did.

Since the system takes in taxes which it immediately distributes as benefits collapse is inevitable. A couple decades ago maybe a half dozen workers chipped in their taxes to support one old geezer. Long before it gets to the point where the aging population and declining birth rates conspire so that every worker has their own personal geezer to support they will rebel.

You want to help reduce the liability facing Social Security, buy your grandmother two cartons of non-filter Camels a week. The sooner you can convince those old fart to die the less money you'll have to spend.

[Jim Lane]

13. Calling it one doesn't make it one.

You write, "It has always depended on adding a new base of tax payers larger than the crop of retirees drawing out money." That's not accurate. The situation you describe -- in which the ratio of active workers to retirees is dwindling -- is true only because of the Baby Boom (and, more important, the end of the boom, i.e., the decline in the number of births that began in the early 1960s).

Along with this demographic problem, the Baby Boom caused a political problem, in that the boomers' movement into the work force improved the system's year-to-year finances. Before the long-term problem was recognized and dealt with, this created a temptation for politicians to increase benefits. A social insurance program can become a pyramid scheme if there's a population boom and if vote-grubbing politicians take the opportunity to make popular changes that put the system into long-term deficit. In the United States, however, the system is roughly in balance. The boomers have been paying extra so that their retirement can be financed.

Another problem facing the system hasn't been dealt with, though, and that's the increasingly deleterious effect of the wage cap. Increasing income inequality means that the "rich" incomes (those over the wage cap), which aren't taxed, constitute a larger and larger percentage of total income. I think that percentage is now at an all-time high. If the system recaptured that revenue, by raising the cap, its finances would immediately improve, even taking account of the higher benefits to be paid.
There is a political

[one-eyed fat man]

17. Wage caps

That is the other problem, the super rich don't work for wages. The worst of them don't produce anything. They no longer own factories, or railroads or oil refineries like the Fords, Rockefellers or Carnegies of a century ago. When Lehman collapsed some 70% of the GDP was "financial services!" There is no FICA paid on capital gains.

WTF? Credit default swaps, mortgage backed securities, and that crap made up 70% of what the country produces? Half a century ago a guy could make a respectable living with his hands. People made stuff. Stuff you could actually use. Now "tradesmen" and "craftsmen" are looked down upon. A little class warfare in action, those guys who took shop were too dumb for college.

Well, how many unemployed liberal arts majors can a country use? A CDL will get you a job faster than a Masters Degree in music anthropology, or Pre-Columbian basket weaving....and there are a lot more degrees being granted that are possibly interesting, but otherwise useless except for filling arcane chairs in academic departments. I have a niece that discovered her ability to operate a pan and a bulldozer did a lot more to secure her future than a degree in public administration. Her degree was enough to get her a job as a file clerk in a county office. Her ability to operate heavy equipment let her become the head of the county road department.

http://en.wikipedia.org/wiki/Social_Security_%28United_States%29#Implementation

The first monthly payment was issued on January 31, 1940 to Ida May Fuller of Ludlow, Vermont. In 1937, 1938 and 1939 she paid a total of $24.75 into the Social Security System. Her first check was for $22.54. After her second check, Fuller already had received more than she contributed over the three-year period. She lived to be 100 and collected a total of $22,888.92.Text

For the entire history of Social Security, benefits have been paid almost entirely by using revenue from payroll taxes. What made the burden bearable is there was a pyramid, the baby boom and the drop in fertility upset that ratio. That is what dooms every Ponzi.

[Mimosa]

21. ^ Excellent observations, Jim. ^

I always enjoy your posts. :D

[Warpy]

16. Social security is now and always has been an insurance program

and has never been an investment program. It wasn't designed as an investment program, only as insurance that would allow people with little or no pension to survive in their old age.

What made it a cruel one was Reagan who raised the tax SIX TIMES in order to rob the overpayment to disguise the disaster that cutting taxes on his rich cronies caused the Treasury.

The cure to keeping it solvent is to remove the laughably low earnings cap until the robbed funds are repaid and then to lower the overall rate to the combined 6-7% it should have been all along. That would have the added advantage of giving the well off that flat tax with no deductions they always claim they want. My guess is that they won't like it if they get it.

Remember, folks, no matter what silly people who repeat right wing memes say, it is INSURANCE. Repeat it loudly, repeat it often, and hope it penetrates the cement surrounding what they call their brains.

[Yo_Mama]

18. Your math is wrong

You aren't figuring in disability or medicare tax. Total Medicare plus OASDI tax is 15.3%. 2.9% of that goes to Medicare, leaving 12.4%. 1.8% of that goes to Disability, leaving 10.6%.
http://www.ssa.gov/oact/progdata/oasdiRates.html

Also you are not taking into account inflation in wages, which means that contributions in earlier years were much lower.

Still, your basic point is correct. Earlier generations did not pay enough to pay for their SS benefits. The generation that started working in the 1980s did in aggregate, and yet they are the generation that is not going to get nearly as much back as they paid in.

As to where it went, almost none of the excess money paid in was saved - it was all spent.

[OllieLotte]

19. You analysis seems correct to me. n/t

[AnnaLee]

22. I think you need to read the yearly OASDI report.

"As to where it went, almost none of the excess money paid in was saved - it was all spent."

The savings are no more "spent" than bonds sold to individuals, pension funds, foreign governments or anyone else. What do you think "buying bonds" means?

Anyone who does not understand this issue, does not understand OWS, in my opinion.