Government Takeover of Retirement Assets

Social Security Wants Its Money Back

From the start of the program in 1936 till 2005, an estimated $8.9 trillion have been paid out as social security benefits. In the same period, the program has received $10.7 trillion in income. - Interesting Facts About Social Security Numbers, Money, Matter and More Musings, March 5, 2007

March 17, 2010

BestCashCow.com - Everyone knew this day had to come eventually.

The government, way back in the nineties, needed to balance its budget, and seeing that raising taxes is a political move akin to volunteering to drink bleach, decided that the best way to get access to quick cash was to incorporate Social Security's funds into the general budget. The government, for its part, took this new obligation seriously and, as such, issued a huge pile of bonds to denote that it did indeed owe Social Security a whole potload of cash. About two trillion dollars worth, in fact.

This was generally taken as okay because Social Security was taking in more cash through tax receipts than it was putting out via payments, but now, that ratio is changing. So Social Security's got to cash in some of those IOUs that the Feds left behind. The problem is that the government's actually more broke now than it was then.

What does that mean, you wonder? It means about what we were figuring it means--Social Security's in wicked bad shape, because it's counting on IOUs issued by an organization that's already maxed out virtually every credit card in its wallet. But Social Security's response to this is what will be interesting--hiked minimum ages to enter? Reduced payouts to those already in the system? How will they react?

The key thing here is, there's a cash shortage. How will they get around that? Chances are this is going to mean pain for somebody--but just who gets the sharp end remains to be seen.

Social Security Handling a Rush of Early Retirees

August 9, 2010

Associated Press — Paul Skidmore’s office is shuttered, his job gone, his 18-month job search fruitless and his unemployment benefits exhausted. So at 63, he plans to file this week for Social Security benefits, three years earlier than planned.

“All I want to do is work,” said Skidmore, of Finksburg, Md., who was an insurance claims adjuster for 37 years before his company downsized and closed his office last year. “And nobody will hire me.”

It is one of the most striking fallouts from the bad economy: Social Security is facing a rare shortfall this year as a wave of people like Skidmore opt to collect payments before their full retirement age. Adding to the strain on the trust are reduced tax collections sapped by the country’s historic unemployment — still at 9.5 percent.

More people filed for Social Security in 2009 — 2.74 million — than any year in history, and there was a marked increase in the number receiving reduced benefits because they filed ahead of their full retirement age. The increase came as the full Social Security retirement age rose last year from 65 to 66.

Nearly 72 percent of men who filed opted for early benefits in 2009, up from 58 percent the previous year. More women also filed — 74.7 percent in 2009 compared with 64.2 percent the previous year.

Jason Fichtner, an associate commissioner at the Social Security Administration, said the weak economy has led more people who lost their jobs to retire early. However, it also has forced some people hard-hit by the recession and in need of a bigger paycheck to push back retirement and stay in the work force longer.

“But we’re seeing more people taking early benefits than staying in the workforce longer,” Fichtner said.

Like Skidmore, 63-year-old Jan Gissel of Tustin, Calif., also was forced into retirement early. She turned to unemployment benefits when her technical support business failed and filed for Social Security last September. Together, the checks are keeping her afloat.

“I knew I had to have an income from somewhere, and my business wasn’t giving it to me,” she said. “I just went online and, boom, three weeks later I had the check.”

Gissel wants to continue working but still hasn’t found a job. Although she didn’t expect to be cashing Social Security checks so soon, she’s grateful for the support it has provided.

“I needed it way earlier than I thought,” she said.

In the annual report of the Social Security program released Thursday, the trustees said that pension and disability payments will exceed revenues for this year and 2011, reflecting the deep recession.

The report forecast that the program would return to the black in 2012 through 2014, but that benefit payments will again exceed tax collections in 2015. For every year after 2015, the report projects that Social Security will be paying out more than it receives in tax collections as 78 million baby boomers begin retiring.

The trustees did not focus on the growth of early retirees in their report, as they don’t expect the early retirees to significantly drain funds over the long-term. Early opt-ins receive smaller monthly checks so that they aren’t projected to receive any more money over a lifetime than they would if they had waited to collect Social Security until their full retirement age.

People entitled to full benefits at 66 would receive 75 percent of their check if they began collecting four years early. Conversely, if they waited until they turned 70 they would earn 32 percent more.

How Much Could You Have If Social Security Was YOUR Money?

Originally Published on May 16, 2008

AllFinancialMatters - Imagine you were 22 when you started working back in 1978. Do you know how much money you would have if, instead of paying in the maximum Social Security tax over the last 30 years, you were allowed to keep it? It’s probably more than you think. Take a look at the chart below, which shows a 30-year history of Social Security:

If you could have kept the maximum amount withheld for Social Security over the last 30 years and invested it at a 10% ROR it would have grown to over $418,000. Of course I used straight-line appreciation, so the actual amount would be quite different but this will work for comparison’s sake.

According to my calculations, the amount subject to Social Security tax has had an average annual increase of 5.85% through 2007, while the maximum tax itself has increased 6.58% over the same time period. The difference between the two numbers is due to the increase in the tax rate over the years.

As I stated in the first sentence of this post, you were 22 when you started working 30 years ago, which would now make you 52 years old. If you continued to work and paid in the maximum amount into Social Security, how much could you have by the time you were 62? For 2008, the maximum Social Security tax is $6,324. If we increase that amount by the average annual increase of 6.58% for the following 9 years, it would look something like this:

The forward-looking numbers are adjusted for inflation and assume a more conservative 8% ROR minus a 3% inflation rate. So, IF the money were yours to do with as you please, you could have over $789,000 by age 62. A 4% withdrawal rate would give you a first-year income of over $31,584 or $2,632 per month. I haven’t done enough research to know how that number would compare with a Social Security payout (that’s the topic of a future post).

An Observation

I think the past 30 years of Social Security history is NOTHING compared to what the future will be. I can only see more and more income being subject to Social Security tax because of the fact that we have the Baby Boomer generation retiring and fewer numbers of current workers to support them. So, the amount that my generation and the following generations will have to pay into the system will most likely be greater than the benefits received at retirement.

That’s why I get so irritated everytime I see how much money is being sucked out of my paycheck to go into the blackhole we call Social Security. I know there’s not a snowball’s chance in hell that my wife and I will see the bulk of that money.

It’s really sad when you think about it. The program could have been so much better had we used to provide a safety net rather than giving it to everyone. It should have been based on need. Instead, everyone got benefits whether they needed them or not. Politicians didn’t care because there was an ample supply of Baby Boomers to fund current retirees’ needs.

Eventually our politicians are going to have to make some tough decisions.

NOTE: I left out the employer’s portion of the Social Security tax, which is equal to the amount the employee pays. When the employer’s portion is factored in, it really makes Social Security security look bad.