This great article by Fortune’s Allan Sloan points out that Social Security is technically bringing in less than it’s paying out right now.
According to Sloan,
”
No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.
The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).
This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.
Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.”
This is the first time since the 1980s that Social Security has run into such a problem, but as I’ve been pointing out over and over, just 7 years from now (and possibly sooner) this will become a permanent situation according to estimates.
As I’ll be telling my Money Show workshop this afternoon, you absolutely must start preparing for changes related to this worsening situation now.
Related posts:
- Another great article on Social Security Fortune’s Allan Sloan and I continue to think very similarly when it comes to Social Security’s current state. His latest...
- Kicking the Social Security can a little more … In another case of the “great for today, horrible for tomorrow” planning coming out of Washington, I just wanted to...
- Another good article on folks who opted out of Social Security In this morning’s column, I linked to one of my previous articles that discussed public workers in Galveston, Texas and...
{ 13 comments… read them below or add one }
What, people with no jobs, no homes, little taxable income and sucking food stamps and other government programs don’t pay social security taxes? Get outta’ here.
Employment is much worse than we are told. The status of the average American is much worse – they just choose to make stupid decisions which helps to cover up reality.
Ever rising underemployment, closed small businesses and importing lower-paid foreign labor is working out so well for us.
As these budget numbers clearly show. And yet the sheep, elites and politicians, ignore reality.
To ALL our peril.
Last year I repaid my early Social Security and reapplied for full SS. I knew this could be risky because SS itself is shaky. With the recession and so many people out of work and not paying into Social Security, the estimate for failure has moved from 2041, when I would be 99 if I’m still alive, to 2037, and dropping fast.
Even with full SS I don’t get enough to live comfortably, so I’m still working as an online instructor. Fortunately that’s a great field to get into now and doesn’t require dressing up or driving somewhere, so I can do it from home on my own time.
While this is a good solution for me right now, I’d like to be able to retire completely in a few years. Did I waste my money paying back Social Security? I just purchased your Ultimate Survival Guide to Securing Your Retirement and I’m hoping to find some answers there, but I’m still worried about where the economy is heading. My IRA went south at the beginning of last year, so I took out the money to pay back my early SS. Now stocks are back, but I’m not sure for how long. I hope I didn’t make a mistake.
Roz
Nilus,
Thanks for the article on Socialist Insecurity and the Amish. I didn’t know that history but found it extremely interesting. Since I am a financial advisor, I recently had a person confront me withe the criminal behavior of Bernie Madoff, lumping all of us “Wall Street types” into the same category. To make his point of hostility towards Wall Street, he said he would like to see Madoff hang. While I agreed with him that Madoff should get his just punishment, I asked him, “How much money did you have invested with Madoff?” “None” was his answer. I then asked him, “How much do you have tied up with Social Security?” “A lot” was his answer. I asked him if he felt the same way toward Social Security, its administrators and the congressmen who took all the “reserves” out of the fund to apply to budget deficits. He didn’t understand what I was getting at, but I finally told him that Social Security is doing the same thing Madoff did — a Ponzi scheme! The only difference is that Madoff stole $55 billion while Social Security has gotten into us for about $55 trillion. While I don’t want to become Amish — it’s tempting! Thanks for the article.
Nilus Mattive Reply:
May 13th, 2010 at 4:55 PM
Thanks for the feedback, Allen. I like your argument/analogy, and I have made similar ones in the past. As many are pointing out here, beyond my admittedly theoretical/philosophical concerns, the real issue is simply the gross mismanagement of the system we do have.
Social Security could very easily be put permanently into the black by making all income from whatever source subject to social security tax. The way it is now, those of us who have worked all our lives and paid into Social Security will be living in poverty in our old age, while the urban plutocracy, who have never done anything useful in their parasitic lives, and have made their fortunes by defrauding the middle class and embezzling their savings, will live quite comfortably. Until we rise and slaughter them down to the last twitching plutocratic fetus, and begin this absurd dance again.
Social security in the U. S. is needed, and stop trying to abolish it. The reason it is not in good shape is because the money is put into a general fund and is used for many projects around the country. What you should be saying is to put that money collected in a seperate fund by itself. This is a country of 300 million people, not 100 or 200 thousand where the Amish all stick together. The billanairs take most of the wealth of the U.S. and leave the working man, just barely surviving. Thay need Social Security. You Don’t want to put that money into the stock market where it can be legaly stoled or takened by the billianairs. Most everyday working people don’t know or have time to know when to buy stock, only the super rich know that. You also brought up taxes, well I rater make more money and pay more taxes, than to make less money and pay less taxes, because I still will be more rich than the middle class and poor people. I work hard for my money and Pay taxes and Pay towards S/S and would like to have that money put in a seperate fund. This way the money in that fund cannot be used for tax cuts for the super rich. Like I said the super rich, not the Millionairs, but the billionaires. If you want to see big time poverty in the U.S then stop S/S. If you want to have a more well ajusted country then keep S/S. Without S/S you will have much, much more people out in the streets and more crime, and suffering. This country is the wealthest country in the world, and the Billianaires, should nor be able to take it all. Stick that in your pipe and smoke it.
Nilus Mattive Reply:
May 13th, 2010 at 4:38 PM
Al, I’m not on a crusade to abolish S.S. In fact, I think the actual number of people who would opt out — even if everyone was given the opportunity — would be relatively small compared to the general population.
Regarding the idea of putting the funds in a separate untouchable account … that’s better than what we have right now.
But I’m still left wondering how that would be any different than just letting each of us keep our money in our OWN accounts and invest it as we choose (whether in stocks, cash or anything else)?
I am 77 single woman. I wish I had put the amount of money I put into S.S. in some other form of savings. Believe me there is no way the amount I receive is enough to live on. Also I do not like big government and this is one aspect of it that has failed, in my opinion because it is too big to be effective.
Nilus,
Your comment that you would opt out of social security reflects the attitude of a young and very successful individual. Very common attitude I would think and you may be correct that you could do better with the money by investing it yourself.
I am now an old guy and we were very fortunate to have prospered by investments over the course of our life, but looking back I would have been silly to have opted out of social security for a few extra dollars a month to invest. You see social security is your safety valve. You know it will be there even if you tank your entire investment portfolio.
The main theme my wife and I have utilized in relation to our finances is to NEVER get greedy. Opting out of social security for a little extra to invest may be approaching this.
The current administration would, I think, like to get rid of social security (and probaly old people) to give more to welfare and other social services. I know social security is now upside down but this can certainly be corrected with proper administration. Pay back the funds that have been removed from this fund in the past to start.
We have friends that opted to take lump sum payments on their pensions back when investments were making 8% -12% in almost any fund you invested in. Many of these individuals have now had to return to work.
regar
Dear Sir:s
I can not believe that both Parties Knowing who own social security funds and why that a law has not been enacted to not allow government to raid these funds, the interest alone can be used to provide more services for needy and keeping our debts in check and balance for the protection of our next generation to follow.
Roz, Your investment in SS is far more important today than any simple stock investment you could make as as a non professional investor. Have faith in our government. It’s brought us this far, there is none better, SS will survive.
You quote Alan Sloan’s great article: “Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.”
REALLY? I’ve been hearing this hogwash from the right wing for years! Let’s see — those “Treasury IOUs” are actually U.S. Treasury Bonds, right now one of the most sought after investments in the world. So the counter argument is to instead put those trust funds in a much better investment — the stock market perhaps? Oh, boy, wouldn’t that be a roller coaster ride — trying to plan your retirement for when the market was at its peak instead of down 50%!
And this morning I did an online banking transaction, transferring money from savings into checking (temporarily of course — just waiting for my next social security check and I’ll move the money back). Wait a minute, that was just a paper transaction. Maybe I should have driven to the bank, drawn money out of savings and redeposited into checking — I wonder if an all cash transaction would have made me feel better about my lifetoday than having made that pesky online accounting transfer. (Or did the bank actually take my cash from one part of the bank and have a clerk carry it over to another part of the bank?)
So social security checks are written by the treasury department, since that is where the money for the interest payment actually comes from. What a surprise is that! Instead of loading up a truck with cash and driving it over to dump in the Social Security trust fund, treasury just wrote this months’ social security checks and credited the trust fund reserves. These horrible accounting entries!
By the way, don’t spend a lot of time wondering if you will ever get back all the money you paid into social security. I took a few minutes to actually do some figuring instead of wondering and worrying. I’m 83. I retired on my 79th birthday after paying into social security for 57 years (starting after I got out of the navy. I don’t recall — did they deduct SS tax from my check?) My figures show that my wife and I (she never worked so she draws on my SS) got all my payroll deductions back in three years. Oh, yeah, my payments earned interest for those 57 years so after three years I’m now living off the interest my payroll taxes earned while they were in the trust fund all those years. Man! That was a pretty good investment! Who knows, I might have to live off that interest for another 17 years!
Ron,
Thanks for the encouragement. I’m surprise Nilus is against Social Security now. He advised repaying early Social Security to get the larger full amount in his “Guide to Worry-Free Retirement Profits” and the “Retirement Ultimate Survival Guide.” I was already planning to do that, so it wasn’t just on Nilus’ advice, but is he retracting this recommendation now and why?
Roz
Nilus Mattive Reply:
May 17th, 2010 at 9:58 AM
Hi, Roz. Let me clarify — I do continue to think your strategy (and the one outlined in my report) makes sense. It is unlikely that S.S. will go away anytime soon, despite the problems. As I have said all along — anyone nearing or in retirement — should continue to expect their payments. (Though I’m not ruling out new taxes on benefits, reductions for higher earners, etc.)
My article was really more about a group of people who opted out … and why that possibility doesn’t extend to everyone. Sorry if it confused matters.
Nilis, you have missed one very important point discussing SS. It is a welfare payment to the elderly, and that’s all. The SS tax we all paid is nothing but another tax that went into the general fund to pay all the government programs over the years.
If you look at it this way the next simple step is to pay people based on need, that is; means test it. It is obvious Bill Gates will never get his SS, even if he were to apply, a special bill would be passed to exclude him. So, having said that, the way government will solve the problem of running out of money and solving SS problems in the future will to pay it only to those that meet certain income requrements. Those that have income excluding SS over a certain amount simply won’t qualify.