2022 Social Security Trustees Report
Dale Coberly has written on Social Security numerous times over the years. The Northwest Plan which he developed was recognized by the SS Administration as being a potential solution to a shortfall in SS benefits. Dale briefly describes below how the solution might work in resolving the SS shortfall. Just a heads up. I am not sure if Dale will give a lengthier report.
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The 2022 Social Security Trustees Report was released a few days ago. So far the response has been fairly muted, the usual suspects repeating the same misrepresentations they have been repeating with every Report over the last ten years or more.
The Facts in the Report which go undiscovered by those who don’t “do the math” are:
We have reached “short term financial inadequacy,” which means that within ten years the Social Security Trust Fund is projected to fall below the prudent reserve of 100% of the following year’s scheduled benefits.
This is not as bad as it may sound. We can still avoid the Trust Fund actually “going broke” by raising the payroll tax one tenth of one percent each year until income again balances outgo. One tenth of one percent is about one dollar per week for the average worker in today’s money. This is so tiny no one would notice it, much less feel it.
Or we could raise the payroll tax for each worker about one and one half percent “immediately and permanently,” which would balance Social Security funding for the rest of the century. This would be noticed, but not felt. Or we could wait until 2035 and raise the tax about 2%, which would keep Social Security “solvent” as far as the eye can see…over the infinite horizon. This would be noticed and felt..for about two weeks until people got over the shock. By that time their pay in real terms will have increased by about ten percent or more, meaning they will have more money to spend after paying for their basic needs for future retirement than they have today.
What is different about this year as opposed to previous years when the same one tenth of one percent increase per year would have solved Social Security’s financial “problem” forever, is that now the one tenth of one percent per year will NOT bring SS accounting out of “short term financial inadequacy” for a longer time than the Trustees consider prudent. This does not mean that full benefits could not be paid, but it does mean there would be some danger that some economic emergency would require an immediate larger than one tenth percent increase, or even borrowing enough from the Treasury to tide the program over the hard times. These are political dangers not financial dangers.
However, since politics and public hysteria are real facts of life, it would probably be better to raise the payroll tax, say, two tenths of one percent for a few years until the “short term insufficiency” is resolved. Two tenths of a percent would be about two dollars per week for the average worker. He won’t notice that much either.
I am sending this today because I think the word should get out before people forget the Trustees Report. I may have more to say about exactly how to avoid the “insufficiency” entirely. Earlier is better, cheaper, and less politically dangerous than later. But it will need somebody to do something.
THANKS
A SUMMARY OF THE 2022 ANNUAL REPORTS
(with a link to the full report)
Dobbs,
The Summary is written by (for) the “trustees” who are political appointees. They have usally been carefull worded to make SS look to be dangerously insolvent.
The “Trustees Report” is written by (mostly) the Actuaries, who, if you carefully read and follow the math, show what I am saying here. Exactly what I am saying here: SS can be made solvent forever by a trivial increase in the payroll tax.
Should Social Security still be around when you retire, you should understand your eligibility for benefits.
How You Become Eligible For Benefits
My daughter, who started paying in at age 16, went on to a six-figure high-tech salary, now self-employed with marginal earnings, paying both sides of FICA, will be eligible in another thirty years, if benefits are still being paid. What are the odds?
Fred,
Your first sentence is beyond ignorant. I sentence you to read everything written by Coberly on SS on this blog in hopes it will help.
Time will tell.
(Un?)fortunately, I will be long gone by then.
Dobbs,
Time will indeed tell, but it has a better chance of telling a story we want to hear if we DO something about it.
If/when the Social Security Trust Fund is entirely depleted, the US guv’mint will continue making monthly Soc Sec payments out of the general fund, in reduced amounts. That is my understanding, from what I have read. This is said to be a pledge, based on the ‘full faith & credit’ clause that’s in the Constitution.
Article IV, Section 1 of the United States Constitution, the Full Faith and Credit Clause, addresses the duties that states within the United States have to respect the “public acts, records, and judicial proceedings of every other state.” (Wikipedia)
Dobbs
This isn’t exactly true. When the trust fund runs out, Social Security will contiue to make payments from of the payroll taxes.This is likely to result in a benefit cut unless the taxes have been raised or are raised then.
The “full faith and credit” applies to the special Bonds issued by the government when it borrowed money FROM Social Security. That money will be paid…until it is gone…all of it including interest.
No one is stealing Social Security noney, but we do need to pay for the benefits we want to get. The Trust Fund was originally “just” an ordinary way to maintain an emergency reserve in case income failed to meet required outgo for a relatively short period of time.The 1983 Reagan-O’Neill fix raised the payroll tax above what was needed for immediate benefits so the Baby Boomers could pay for their unusually large cohort’s retirement, in stead of having to tax the following generation more than was fair for them to pay for their own own retirement.
The system works, if we don’t let them ruin it by turning it into a forced stock market participation game, or welfare as we knew it.
This is a Federal program, The states have nothing to do with it.
It’s good to have confirmation that ‘full faith & credit’ has nothing to do with paying off social security obligations, I guess.
If/when the trust fund runs empty, and all benefits are supposedly to come only from the FICA payments of current employees, things will get very weird. Perhaps inflation will be enough to cover it. One can only hope.
Dobbs,
one can do more than hope.
one could start by actually knowing how Social Security works. SS is SUPPOSED to be paid for by the FICA tax. The Trust Fund is only a balancing mechanism to smooth over the usual temporary imbalances betwen income and outgo. The specially large Trust Fund built up since 1983 tax increase was to allow the baby boomers to pay for their own retirement, as every other generation has through the magic of pay as you go, but which would not work in the case of the Babu Boomers because of the unusual size of that generation.
Meanwhile, as the Boomers die off and the Trust Fund is paid down, it is necessary to raise the payroll tax again because of the increase in life expectancy that has been going on.
Social security is designed to take care of inflation automatically by that same magic of pay as you go. Your benefits “increase” with inflation just as the incomes of the next generation “increase” with inflation. (actually, they both increase by more than inflation because the incomes of each genertion increase with the rise in real GDP per worker, so 12% of a 2060 income, say, will be more than 12% of a 1960 income.
It gets a little too complicated to explain in one sentence or paragraph, but you explain it to yourself if you just thought about it, given the leads i have given you here.
Full faith and credit is an expression used to apply to the special bonds that the government issues to SS when it borrows money from SS. It is not usually applied to actually paying the retirees benefits in return for the payroll taxes they paid while they were still working. But it is implied and believed in, whatever the Supreme Court said the one time they wanted to steal the retirement from a person who had paid for it because he was a “communist.”
Full faith of our government doesn’t mean much in retail, but it counts for everything in wholesale.
And I was so determined not to be drawn into a discussion with people who are determined to not understand, the victims of every lie told by Big Money about Social Security since 1936 and counting.
SS is SUPPOSED to be paid for by the FICA tax. The Trust Fund is only a balancing mechanism to smooth over the usual temporary imbalances betwen income and outgo.
Our children (& theirs) will see how well this works since ‘going forward’ successive generations are likely to be smaller than previous ones, not larger.
Dobbs
that’s what the projections are for. and they show that a tiny raise in the payroll tax will take care of the problem.
Michael, would you like to be my agent?
Well, you’re sort of a one trick pony if very good at that one trick.
technically the “trust’ fund was created by Ronald Reagan and Congress many years ago to address the fact that the baby boomers were the largest (at the time) to have come along wo stabilize it so that their benefits. now that they are retiring (and have been for a decade or more now) there doesnt seem to be any interest in Congress to fi it long term. its not like it cant be done, it just seems that some dont want too (even if most of their voters are or will on it)
January 1, 1940
The Federal old-age and survivors insurance trust fund came into existence on January 1, 1940, as required by the Social Security Act Amendments of 1939.
The Social Security Trust Fund
dw
Not a crisis yet . . .
dw
the voters need to make themselves heard…in a way the Congress can’t pretend it didn’t hear them.
Dobbs
this is correct, but I think dw was referring to the enhanced Trust Fund created y Reagan-O’Neill et al in 1983, as i tried to say in my comment above @ 9:56pm,June 11.
I have a little more to say about ways to pay for SS. Won’t really add much to this thread, but I was thinking of publishing it on a Sunday to catch the Sunday readers. No reason it can’t wait a week.
One thing I have been curious about these last couple years: Has the Covid death toll (which has skewed older demographically) changed the actuarial expectations for SS? I realize it has been only 2 years of excess deaths and decreased life expectancy, but do the actuaries adjust those figures on a yearly basis?
I may be exposing my ignorance here, but is there a point at which excess and unplanned mortality affects the SS solvency? Or are these impacts much smaller than I imagine?
Perhaps a more useful version of my question: Does the trustees report address changes in life expectancy since the start of the pandemic? How large a change (over how long a life span) would have to occur before the actuarial numbers change (presumably they improve if fewer old people live to collect but maybe there is something I can’t see in those assumptions).
Amateur Socialist
the actuaries account for the changes in life expectancies due to Covid. So far thee has been no significant effect on their projections. More serious is the effect of the recession and the expected inflation. The effect of the recession has been less than expected. I think the inflation was not expected until after the Report was finalized. The actuaries include inflation in both the income and benefits side of the equation so they tend to balance out. But the benefits are adjusted not automatically by the value of a dollar, but somewhat artificially by a politically vulnerable cost of lving adjustment. This can have an effect on the lives of retirees, but not so much on the solvency of the program.
you are not showing any ignorance you need be ashamed of. we, even the actuaries, are all more or less ignorant. but there is not knowing and there is refusing to know. not knowing what is in the Report is understandable, not knowing the future is understandable. the Actuaries do a pretty good job of predicting the near (ten years) future, and admit to being less sure about the long term future…but their best guess has been remarkably accurate for a long time, I know what is in the Report because that is knowable and I make it my business to know it. I can’t expect people who have other things to do to take the time to know it, but I do my best to tell them. Ufortunately there are people who make it their business to mislead them. that includes the Congress. and there are people who should know but rely on the “experts” paid to deceive them. That includes Presidents. And there is a huge mass of people who prefer the lies they have been told and the fantasies they make for themselves and cannot let go of their not-knowing.
Anyway, yes life expectancy changes the solvency. But the Actuaries do a very good job of accounting for that. The solvnecy is affected, but that is what the Report reports, so far with great accuracy and minimal change over the years, and the Reports are revised every year…again with minimal change so far in future projections, What I say here is accurate as to what the projections are. The projections are/ have been very accurate. But things can chsnge. Trying to plan for the unexpected is part of the art.
Thanks Dale. Do the actuaries “show their work” on life expectancy? That is, is there a place in their report I can use to examine their projections (and ultimately compare with actual data) to determine if future corrections are needed/likely?
At the risk of sounding grim about this, the still unresolved pandemic appears likely to continue claiming lives. And the impact is likely to continue skewing towards older people. Future interventions/vaccination initiatives notwithstanding, perhaps the pandemic will influence another set of models showing the impact of baseline LE (no covid, pre 2020 projections), current LE (2022 known impact) and worsening LE (continued degradation in US LE)
And I realize this is veering somewhat off-topic, but the much larger potential pandemic impact is of course on the Disability Insurance part of SS. With the CDC now acknowledging 20% of those infected with Covid potentially impacted by long covid, those numbers get huge quickly. FWIW private disability insurance underwriters are already rejecting applicants for prior covid infection because of the potential threat of long covid.
AS
That is on topic as it involves SS. If you started to talk Pickup trucks here, I would take issue. Thanks.
actually, I am more severe than that. if someone wants to tell us that Social Security is a socialist plot to destroy the family, I wouldn’t want to hear about it, and would try to point out to them that all “I” want to talk about is what the Trustees Report actually shows… which is not that there is a huge unfunded deficit that is going to crush our children, but that we and our children can pay for our own future, adequate, Social Security benefits by raising out own payroll tax (actually savings) about a dollare per week per year for a few years.
and yes, this is what the Report actually shows, but you have to do the math.
amateur socialist
first, don’t worry about veering off subject on one of my threads. veering off subject is how we get somewhere. unless the off-subject is so truly and unredeemably off subject, of course, that it can’t be expected to get anywhere [in which case if the off-subject person is truly convinced of his path he can, and should, write a post of his own and expect to be a lone crank or genius, depending, for a longish time.
as for the Trustees Report, they do give something of an explanation of how they get their numbers, but not, i think, in the detail you are looking for. I would recommend you get a copy of the Report and read it yourself.. ssa.gov/OACT/report/2022/… if i remember. should get you close. the Report is fairly easy to read, or at least find the subject you are looking for. some of it requires very close reading so you don’t miss some detail that turns out to matter. i think that from there you might be able to find a more detailed report on their methods in other ssa publications.
personally, i expectt them to make pretty good projections in a timely way that Social Security finances can be adjusted for whatever is coming. short of some real apocalypse, SS is a pretty robust program/idea and I cannot imagine anything that will work better to enable people to prepare financially for when they can no longer work….with someting like a guarantee they will have what they need.
we might ventually have to save (pay) more than we are used to of our earnings in order to have enough for when we can’t work, but that will be a matter of common sense, if there is such a thing by then.