Link: http://assetbuilder.com/scott_burns/the ... l_securityOnly the top decile--- the top 10 percent of all households--- has more in actual financial assets than they have in virtual Social Security wealth. At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets.
The Incredible Importance of Social Security
The Incredible Importance of Social Security
That's the title of a recent Scott Burns column that I found very eye-opening and perhaps you will too.
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Re: The Incredible Importance of Social Security
SS is equivalent to an annuity, with some unusual features:
- the whole disability system
- spousal benefit
- full CPI indexation
As such, as the general level of interest rates falls, then the value of SS increases relative to private assets. The very low interest rates that we have experienced in recent years have seriously weakened the funding structure of private (final salary) pension arrangements, and also money purchase/ DC (ie the needed size of lump sum to create the annuity).
There are of course structural differences because politics can change whereas a private annuity is a fixed contract (but one party can go bust in that).
- the whole disability system
- spousal benefit
- full CPI indexation
As such, as the general level of interest rates falls, then the value of SS increases relative to private assets. The very low interest rates that we have experienced in recent years have seriously weakened the funding structure of private (final salary) pension arrangements, and also money purchase/ DC (ie the needed size of lump sum to create the annuity).
There are of course structural differences because politics can change whereas a private annuity is a fixed contract (but one party can go bust in that).
Re: The Incredible Importance of Social Security
Thanks for an interesting article, Michael. As someone still expecting a modest defined benefit pension, I'm very accustomed to thinking in these terms. But whether we think in terms of the annuity value of SS or not, highlighting the critical importance of SS is a re-statement of the obvious for the vast majority of us.
--Pete
(Thanks for the correction, Grt2bOutdoors. My brain always jumbles the first three letters of Michael's abbreviated name...)
--Pete
(Thanks for the correction, Grt2bOutdoors. My brain always jumbles the first three letters of Michael's abbreviated name...)
Last edited by iceport on Sat Sep 07, 2013 6:32 pm, edited 1 time in total.
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Re: The Incredible Importance of Social Security
His name is Michael, not Mel.petrico wrote:Thanks for an interesting article, Mel. As someone still expecting a modest defined benefit pension, I'm very accustomed to thinking in these terms. But whether we think in terms of the annuity value of SS or not, highlighting the critical importance of SS is a re-statement of the obvious for the vast majority of us.
--Pete
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: The Incredible Importance of Social Security
Thanks for posting it and from the article
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
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Re: The Incredible Importance of Social Security
Note the difference between some threshold and an average.Incognito wrote:Thanks for posting it and from the article
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
Re: The Incredible Importance of Social Security
Good article. Some comments:
- For most people Soc. Security is a big deal. For many it's a matter of "sustenance and survival".
- Soc. Security is too big to fail. A huge impact on the national economy.
- When young people causally say that they don't expect to receive Soc. Security.... they have no idea of the impact or the extra savings required to replace it.
I suppose I could "survive" without Soc. Security, but I'd better get used to doing a lot more walking and develop a taste for oatmeal.
burt
- For most people Soc. Security is a big deal. For many it's a matter of "sustenance and survival".
- Soc. Security is too big to fail. A huge impact on the national economy.
- When young people causally say that they don't expect to receive Soc. Security.... they have no idea of the impact or the extra savings required to replace it.
I suppose I could "survive" without Soc. Security, but I'd better get used to doing a lot more walking and develop a taste for oatmeal.
burt
Re: The Incredible Importance of Social Security
Social Security enables the seniors to live independently after quitting work.
My grandparents (my dad's parents) took care of grandfather's dad and grandmother's mom. Grandfather's dad and Grandmother's mom both moved in after the death of their spouses. That was the norm, at some points parents moved in to live with one of their kids.
Yes, Social Security and Medicare are incredibly important to our society.
My opinions have changed on Social Security. I no longer favor privatized individual accounts. We just have to make sure the current system is actuarily sound which means adjustments will have to be made. This is an issue that the country needs a serious discussion on.
This is an important and vital program. Social Security was a huge help to my grandparents, my parents, and hopefully for me someday.
My grandparents (my dad's parents) took care of grandfather's dad and grandmother's mom. Grandfather's dad and Grandmother's mom both moved in after the death of their spouses. That was the norm, at some points parents moved in to live with one of their kids.
Yes, Social Security and Medicare are incredibly important to our society.
My opinions have changed on Social Security. I no longer favor privatized individual accounts. We just have to make sure the current system is actuarily sound which means adjustments will have to be made. This is an issue that the country needs a serious discussion on.
This is an important and vital program. Social Security was a huge help to my grandparents, my parents, and hopefully for me someday.
A fool and his money are good for business.
Re: The Incredible Importance of Social Security
Medicare is also extremely important to American families. Here are some estimates from an Urban Institute 2012 study of the present value of SS & Medicare benefits for average two earner households for the years 2010 and 2020.
Link to paper - http://www.urban.org/UploadedPDF/412660 ... fetime.pdf
BobK
Code: Select all
Two-Earner Couple: Average Wage ($44,600 each in 2012 dollars)
Year cohort turns 65
Ann SS benefits Lifetime SS benefits Lifetime Medicare benefits Total lifetime benefits
2010 35,800 579,000 387,000 966,000
2020 37,800 632,000 499,000 1,131,000
BobK
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Re: The Incredible Importance of Social Security
I have never seen those numbers before, Bob.
Thanks much.
Lev
Thanks much.
Lev
Re: The Incredible Importance of Social Security
The OP's linked article has a political bias. Additionally, this is a general discussion which is not directly relevant to personal investing (not actionable nor personal). This thread has run its course and is locked. See: A reminder that non-investing general comment threads are OT and Forum Policy:
Update: See below. BTW, comments on the future of Social Security are off-topic.
Please understand that this forum has a narrow focus - personal investing. While it cuts down on the number of discussions, the policy is in place to reduce moderator workload (arbitrating contentious disagreements). We try to enforce policy uniformly, which is why this thread is locked.- It must be personal. In other words, you must be asking about your own situation. You can also ask on behalf of someone specific, such as a family member.
- It must be actionable. You must be able to do something specific with the replies that will make a difference in your situation.
UNACCEPTABLE TOPICS
Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
- Common religious expressions such as sending your prayers to an ailing member.
- Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
- Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.
- Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
Update: See below. BTW, comments on the future of Social Security are off-topic.
Re: The Incredible Importance of Social Security
After receiving a PM, I unlocked this thread and moved it to the Investing - Theory, News & General forum (use of Social Security as fixed income).
If anyone disagrees with what I do, please PM me and explain why. It may simply be a difference of perspectives; the feedback is welcome.
If anyone disagrees with what I do, please PM me and explain why. It may simply be a difference of perspectives; the feedback is welcome.
Re: The Incredible Importance of Social Security
Social Security is a nice portion of my income. It is like an annuity.
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Re: The Incredible Importance of Social Security
I'd like to know where they were shopping when they found that one.You can get an idea of why this happens by considering how much it would cost to buy an inflation adjusted life annuity to pay the average Social Security retirement check, currently $1,268.51 a month. Using the researchers' figures for annuity value, it would take about $235,000.
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Re: The Incredible Importance of Social Security
A Google search on the title and author turns up what looks like the original paper:
The Composition and Draw-Down of Wealth in Retirement, James M. Poterba, Steven F. Venti, David A. Wise, NBER Working Paper No. 17536, Issued in October 2011.
The National Bureau of Economic Research (NBER) is described by Wikipedia thus:
The Composition and Draw-Down of Wealth in Retirement, James M. Poterba, Steven F. Venti, David A. Wise, NBER Working Paper No. 17536, Issued in October 2011.
The National Bureau of Economic Research (NBER) is described by Wikipedia thus:
Given Wikipedia's openness and give-and-take, if editors thought that it was widely perceived to have a political agenda, it is almost certain that the article would include a statement citing sources that say so, in accordance with Wikipedia's policy that opinions are not allowed, but facts about opinions are.an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community."[1] The NBER is well known for providing start and end dates for recessions in the United States.
The NBER is the largest economics research organization in the United States. Many of the American winners of the Nobel Memorial Prize in Economic Sciences were NBER Research Associates. Many of the Chairmen of the Council of Economic Advisers have also been NBER Research Associates, including the former NBER President and Harvard Professor, Martin Feldstein.
The NBER's current President and CEO is Professor James M. Poterba of MIT.
Last edited by nisiprius on Sun Sep 08, 2013 4:13 pm, edited 1 time in total.
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Re: The Incredible Importance of Social Security
For many people, social security means the difference between not having the next hot meal vs. the next medicine to control a debilitating or life-ending decease.mlebuf wrote:The Incredible Importance of Social Security
That's the title of a recent Scott Burns column that I found very eye-opening and perhaps you will too.
Link: http://assetbuilder.com/scott_burns/the ... l_security
For others, it supplements other income streams and withdrawals from accumulated savings.
http://ssa-custhelp.ssa.gov/app/answers ... [quote]The maximum benefit depends on the age you retire. For example, if you retire at your full retirement age in 2013, your maximum benefit would be $2,533. But if you retire at age 62 in 2013, your maximum benefit would be $1,923. If you retire at age 70 in 2013, your maximum benefit would be $3,350.[/quote]
Bogleheads spend countless hours and bandwith in this Forum to discuss claiming "options" and other stuff. Meantime, I'm near certain that those I first mentioned are WELL aware of the program's value - even when some may not understand all of those numbers mentioned by Mr. Burns in OP's link.
[OT comment removed by admin LadyGeek]
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Re: The Incredible Importance of Social Security
Yes, I think nearly all of us here generally understand there's no better deal out there at this point in time, and that it would be nearly impossible for the private sector to ever provide something better. So the actionable strategy becomes: 1. maximizing our salaries to get the most benefit possible from SS, working for pay raises and such; 2. keeping some political vigilance to assure that the system remains solvent; and 3. utilizing SS's options to the best advantage of our individual life situations. -- Tet
Re: The Incredible Importance of Social Security
This board often has the tone of SS is just another means or program to invest in and manage. What can I get out of it for me? When you read the Burns article it helps you to understand that most people have nothing else. Consider that?
Jump in the way back machine and go back to when there was no SS. And just for the record most people had no pensions either. Just think about where those people lived and under what conditions. There is a reason we have SS.
Jump in the way back machine and go back to when there was no SS. And just for the record most people had no pensions either. Just think about where those people lived and under what conditions. There is a reason we have SS.
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Re: The Incredible Importance of Social Security
I believe the moderators have made it abundantly clear that the overall "desirability" of SS is off topic, as are any discussions of changes or reforms.
With that limitation in mind does anyone have any recent experience in DELAYS in the SS disability process? How long are they taking to process the applications?
With that limitation in mind does anyone have any recent experience in DELAYS in the SS disability process? How long are they taking to process the applications?
Re: The Incredible Importance of Social Security
It's very important to our plan, and we are in the top decile.
As for the typical American household approaching retirement - they have SS and $12,000.
"We have millions of Americans who have nothing saved for retirement," says Diane Oakley, executive director of the NIRS. "We have 38 million working-age households who do not have any retirement assets." For people 10 years away from retirement, the median savings is $12,000. "Of the people between 55 and 64, one third haven't saved anything for retirement," Oakley says.
http://www.usatoday.com/story/money/per ... p/2464119/
As for the typical American household approaching retirement - they have SS and $12,000.
"We have millions of Americans who have nothing saved for retirement," says Diane Oakley, executive director of the NIRS. "We have 38 million working-age households who do not have any retirement assets." For people 10 years away from retirement, the median savings is $12,000. "Of the people between 55 and 64, one third haven't saved anything for retirement," Oakley says.
http://www.usatoday.com/story/money/per ... p/2464119/
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Re: The Incredible Importance of Social Security
Return on investment:
just wanted to add for the table above indicating $44600 each for a couple retiring in 2012 at age 65, over a 43 year (roughly 43 working years starting at college graduation) stretch with an employer contribution of ss and medcare included, this equates to a 3% real return.
Very Respectfully
just wanted to add for the table above indicating $44600 each for a couple retiring in 2012 at age 65, over a 43 year (roughly 43 working years starting at college graduation) stretch with an employer contribution of ss and medcare included, this equates to a 3% real return.
Very Respectfully
Re: The Incredible Importance of Social Security
Social Security, among other things provides an inflation adjusted annuity to recipients. In attempting to find another source to determine the cost of an inflation-adjusted annuity I found an article from USA Today titled, "Should you buy an inflation-adjusted annuity?" In the article I found this paragraph that quotes the cost range of an inflation-adjusted annuity from Vanguard:
Link: http://www.usatoday.com/story/money/col ... y/1639119/Incidentally, the average Social Security payment, which bears strong similarities to an inflation-adjusted annuity, is $1,234. An inflation-adjusted annuity yielding the same amount would cost a 65-year-old $325,877 to $348,600, according to Vanguard. That's without benefits to survivors or disability benefits, which Social Security also provides.
Best wishes, |
Michael |
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Re: The Incredible Importance of Social Security
"Bogleheads spend countless hours and bandwith in this Forum to discuss claiming "options" and other stuff."
Yes.
"I believe the moderators have made it abundantly clear that the overall "desirability" of SS is off topic"
Really?
There once was a fella named sscritic who posted here (God bless him!). There's never been his like at this site.
But one thing can be confidently said: his detailed comments re questions about Social Security were never viewed as "off topic."
Please: let's not rewrite the history of commentary on this site.
Thanks.
lev
Yes.
"I believe the moderators have made it abundantly clear that the overall "desirability" of SS is off topic"
Really?
There once was a fella named sscritic who posted here (God bless him!). There's never been his like at this site.
But one thing can be confidently said: his detailed comments re questions about Social Security were never viewed as "off topic."
Please: let's not rewrite the history of commentary on this site.
Thanks.
lev
Re: The Incredible Importance of Social Security
Not a personal experience, but :Professor Emeritus wrote:I believe the moderators have made it abundantly clear that the overall "desirability" of SS is off topic, as are any discussions of changes or reforms.
With that limitation in mind does anyone have any recent experience in DELAYS in the SS disability process? How long are they taking to process the applications?
http://articles.baltimoresun.com/2012-1 ... rement-age
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Re: The Incredible Importance of Social Security
You are, I believe conflating the personal "desirability" of actions you take e.g. deferring SS, or its role in asset allocation etc, with the social utility of SS, which is clearly a political question.Levett wrote:"Bogleheads spend countless hours and bandwith in this Forum to discuss claiming "options" and other stuff."
Yes.
"I believe the moderators have made it abundantly clear that the overall "desirability" of SS is off topic"
Really?
There once was a fella named sscritic who posted here (God bless him!). There's never been his like at this site.
But one thing can be confidently said: his detailed comments re questions about Social Security were never viewed as "off topic."
Please: let's not rewrite the history of commentary on this site.
Thanks.
lev
one is on topic the other is not.
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Re: The Incredible Importance of Social Security
I can't speak much to the delay feature, but I had at various times heard rumors that one was likely to be first turned down, then granted disability after an appeal. That said, a friend who was diagnosed with congestive heart failure had his application approved in, I can't remember the exact time frame but it was fast like the wind, given that we're talking a bureaucracy), one or two months.Professor Emeritus wrote: With that limitation in mind does anyone have any recent experience in DELAYS in the SS disability process? How long are they taking to process the applications?
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Re: The Incredible Importance of Social Security
One thing that interests me is the claim that Social Security is "going broke," and that older people are "living off younger people."
I did some number crunching when I reached Social Security age, with the list of taxes they nicely supply that had been taken from my salary over the years. I assumed compound interest and an interest rate of 5%. I suppose I could have looked up the average interest rate each year for decades, but I didn't. Remember in the 1980s interest rates were double digits. I also took into account that the accumulated amount minus benefits paid out was still earning interest after Social Security benefits payments start.
I wound up with a number substantially larger than I am likely to ever see in benefits.
I did some number crunching when I reached Social Security age, with the list of taxes they nicely supply that had been taken from my salary over the years. I assumed compound interest and an interest rate of 5%. I suppose I could have looked up the average interest rate each year for decades, but I didn't. Remember in the 1980s interest rates were double digits. I also took into account that the accumulated amount minus benefits paid out was still earning interest after Social Security benefits payments start.
I wound up with a number substantially larger than I am likely to ever see in benefits.
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Re: The Incredible Importance of Social Security
That's interesting, I'd been underestimating the potential value of SS. I'm a little unusual here in that I do have aspirations to hit the top 10% wealth-wise, but at the same time don't plan to spend a whole lot more than SS (which will cover most or all of the heat in the house, food and water, etc., core living expenses for me). My savings will be used to cover additional health insurance/expenses and lifestyle comforts at the most modest withdrawal rate I can manage. My current estimates are that about 2/3 of my goal income is covered by SS, although I have considerable flexibility on the upside in terms of what I can spend out of my savings if I decide to.
But if you look at the statistics, for the vast majority of people, SS is the cornerstone of their retirement survival. I'm poor by Boglehead standards, but my household net worth and invested assets are 3-5x that of the demographic median I'll enter in 5.5 years (55-64), higher if you consider I'm a one-person household. I look at the data from the US Statistical Abstract and wonder how people are going to get by.
But if you look at the statistics, for the vast majority of people, SS is the cornerstone of their retirement survival. I'm poor by Boglehead standards, but my household net worth and invested assets are 3-5x that of the demographic median I'll enter in 5.5 years (55-64), higher if you consider I'm a one-person household. I look at the data from the US Statistical Abstract and wonder how people are going to get by.
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Re: The Incredible Importance of Social Security
Sorry server connection not working and printed my reply three times.
Last edited by SnapShots on Tue Sep 10, 2013 8:47 am, edited 1 time in total.
the best decision many times is the hardest to do
Re: The Incredible Importance of Social Security
2nd deletion. Sorry server connection not working and printed my reply three times.
Last edited by SnapShots on Tue Sep 10, 2013 8:47 am, edited 1 time in total.
the best decision many times is the hardest to do
Re: The Incredible Importance of Social Security
$500K puts you in the top 7% of households. All depends on how old you are. $500K at 65 and retired isn't all that much. $500K at 40 looks fairly rosy, as long as, you hang on to it and build from there. $500K at 90...one might feel wealthy.Incognito wrote:Thanks for posting it and from the article
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
the best decision many times is the hardest to do
Re: The Incredible Importance of Medicare
The Incredible Importance of MEDICARE
SS is very important to the retirement security of nearly all Americans, but Medicare is also very important. The present value of lifetime Medicare benefits to a 65 year old couple retiring this year is approximately $400,000. Most American households could not possibly pay $400,000 in medical insurance premiums out of their own financial resources during retirement.
While SS benefits are fixed in real terms over time , Medicare benefits in real terms are going up over time as medical costs continue to climb. Researchers at the Urban Institute estimate that for many Americans retiring in 2020 the present value of lifetime Medicare benefits will be about the same or exceed the present value of lifetime Social Security benefits. For Americans retiring in 2030 the researchers estimate that the the present value of lifetime Medicare benefits will exceed the present value of lifetime Social Security benefits for most households.
Link to paper - http://www.urban.org/UploadedPDF/412660 ... fetime.pdf
BobK
SS is very important to the retirement security of nearly all Americans, but Medicare is also very important. The present value of lifetime Medicare benefits to a 65 year old couple retiring this year is approximately $400,000. Most American households could not possibly pay $400,000 in medical insurance premiums out of their own financial resources during retirement.
While SS benefits are fixed in real terms over time , Medicare benefits in real terms are going up over time as medical costs continue to climb. Researchers at the Urban Institute estimate that for many Americans retiring in 2020 the present value of lifetime Medicare benefits will be about the same or exceed the present value of lifetime Social Security benefits. For Americans retiring in 2030 the researchers estimate that the the present value of lifetime Medicare benefits will exceed the present value of lifetime Social Security benefits for most households.
Link to paper - http://www.urban.org/UploadedPDF/412660 ... fetime.pdf
BobK
Last edited by bobcat2 on Tue Sep 10, 2013 8:58 am, edited 1 time in total.
In finance risk is defined as uncertainty that is consequential (nontrivial). |
The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
Re: The Incredible Importance of Social Security
The non working (old, sick, young, unable, etc) will always live off the working. Most of what we consume cannot be stored and has to be produced relatively close in time to when it is used. It is just a question of distribution.frugaltype wrote:One thing that interests me is the claim that Social Security is "going broke," and that older people are "living off younger people."
We could all save up a billion dollars, but we won't collectively be any richer. We will still only be able to consume as much as we produce.
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Re: The Incredible Importance of Social Security
Actually, it may NOT depend on how old you are, which makes it an even more useless statistic.SnapShots wrote:$500K puts you in the top 7% of households. All depends on how old you are. $500K at 65 and retired isn't all that much. $500K at 40 looks fairly rosy, as long as, you hang on to it and build from there. $500K at 90...one might feel wealthy.Incognito wrote:Thanks for posting it and from the article
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
It's quite possible to look at investment worth across the entire country regardless of age and even marital status.
Forbes is trying to sell ads, not present academically useful data...
Attempted new signature...
Re: The Incredible Importance of Social Security
Your analysis does not really address the question of whether or not "older people are 'living off younger people.'"frugaltype wrote:One thing that interests me is the claim that Social Security is "going broke," and that older people are "living off younger people."
I did some number crunching when I reached Social Security age, with the list of taxes they nicely supply that had been taken from my salary over the years. I assumed compound interest and an interest rate of 5%. I suppose I could have looked up the average interest rate each year for decades, but I didn't. Remember in the 1980s interest rates were double digits. I also took into account that the accumulated amount minus benefits paid out was still earning interest after Social Security benefits payments start.
I wound up with a number substantially larger than I am likely to ever see in benefits.
While the value of your contributions may well have been "substantially larger than [you are] likely to ever see in benefits", it is also quite possible that the cost of your benefits plus your subsidy of others of a similar age who contributed less than they will receive, plus the cost of administrative expenses and sub-optimal returns results in a deficit.
Re: The Incredible Importance of Social Security
A very important point, often not understood. It's not possible to stockpile the goods and services one needs to consume when no longer working. But note that production is a function of both labor and capital. So, to the extent that older/retired folks were able to defer consumption in favor of building or acquiring productive capital assets, they could be said to live off of this accumulated capital, either off of the production thereof, or by slowly selling off those assets to the later generations who will repeat the cycle.momar wrote: The non working (old, sick, young, unable, etc) will always live off the working. Most of what we consume cannot be stored and has to be produced relatively close in time to when it is used. It is just a question of distribution.
We could all save up a billion dollars, but we won't collectively be any richer. We will still only be able to consume as much as we produce.
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Re: The Incredible Importance of Social Security
SS is an insurance/social welfare/pension system. You are insured against disability up to age 66. SS has some clear subsidies e.g. non working spouses and lower paid workers. Those subsidies are paid for by the middle to "semi upper class workers" in the system. A married couple, both employed earning the maximum SS amount get the "worst deal. A lower income person with a non working spouse gets the best deal. Administrative costs are trivialhand wrote:Your analysis does not really address the question of whether or not "older people are 'living off younger people.'"frugaltype wrote:One thing that interests me is the claim that Social Security is "going broke," and that older people are "living off younger people."
I did some number crunching when I reached Social Security age, with the list of taxes they nicely supply that had been taken from my salary over the years. I assumed compound interest and an interest rate of 5%. I suppose I could have looked up the average interest rate each year for decades, but I didn't. Remember in the 1980s interest rates were double digits. I also took into account that the accumulated amount minus benefits paid out was still earning interest after Social Security benefits payments start.
I wound up with a number substantially larger than I am likely to ever see in benefits.
While the value of your contributions may well have been "substantially larger than [you are] likely to ever see in benefits", it is also quite possible that the cost of your benefits plus your subsidy of others of a similar age who contributed less than they will receive, plus the cost of administrative expenses and sub-optimal returns results in a deficit.
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Re: The Incredible Importance of Social Security
Many theorists define capital largely as "stored labor" plus natural resources. Production is a function of current labor. stored labor and natural resources.dmcmahon wrote:A very important point, often not understood. It's not possible to stockpile the goods and services one needs to consume when no longer working. But note that production is a function of both labor and capital. So, to the extent that older/retired folks were able to defer consumption in favor of building or acquiring productive capital assets, they could be said to live off of this accumulated capital, either off of the production thereof, or by slowly selling off those assets to the later generations who will repeat the cycle.momar wrote: The non working (old, sick, young, unable, etc) will always live off the working. Most of what we consume cannot be stored and has to be produced relatively close in time to when it is used. It is just a question of distribution.
We could all save up a billion dollars, but we won't collectively be any richer. We will still only be able to consume as much as we produce.
Re: The Incredible Importance of Social Security
On a personal level, certainly SS can be either a "good" deal or a "bad" deal, depending on lifetime income, lifetime SS taxes and how long one lives after starting to collect. But what bothers me - using figures provided in prior posts - is if SS retirement is "worth" $350,000 and Medicare is "worth" $400,000 to the average recipient, where will that money come from? Unlike a pension nest egg that can be drawn down or annuitized, there is no $750,000 per person invested anywhere. Consequently, the money has to come from concurrent taxes taken from current and future workers, and we all know the ratio of workers to retirees is declining, without even adding in all of the people collecting SS disability and survivor benefits.hand wrote:Your analysis does not really address the question of whether or not "older people are 'living off younger people.'"frugaltype wrote:One thing that interests me is the claim that Social Security is "going broke," and that older people are "living off younger people."
I did some number crunching when I reached Social Security age, with the list of taxes they nicely supply that had been taken from my salary over the years. I assumed compound interest and an interest rate of 5%. I suppose I could have looked up the average interest rate each year for decades, but I didn't. Remember in the 1980s interest rates were double digits. I also took into account that the accumulated amount minus benefits paid out was still earning interest after Social Security benefits payments start.
I wound up with a number substantially larger than I am likely to ever see in benefits.
While the value of your contributions may well have been "substantially larger than [you are] likely to ever see in benefits", it is also quite possible that the cost of your benefits plus your subsidy of others of a similar age who contributed less than they will receive, plus the cost of administrative expenses and sub-optimal returns results in a deficit.
There are lots of threads about bubbles and unsupportable investment schemes, and the SS system has been, and continues to be, just that. "Contributions" or "taxes" (call them what you wish) have been increased periodically, yet the program is still not sustainable. From an actionable perspective, I can't fault my kids from thinking that the SS taxes taken from them are just that - taxes. They don't view the deductions they expect to pay over the next 40 years as "their" money in any way, shape or form.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson
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Re: The Incredible Importance of Social Security
I'm not sure where the numbers comne from either.SnapShots wrote:$500K puts you in the top 7% of households. All depends on how old you are. $500K at 65 and retired isn't all that much. $500K at 40 looks fairly rosy, as long as, you hang on to it and build from there. $500K at 90...one might feel wealthy.Incognito wrote:Thanks for posting it and from the article
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
http://blogs.wsj.com/wealth/2007/02/01/ ... h-o-meter/
and selecting household wealth,
$500K shows as 80th percentile.
$711K shows as 86th.
On problem I've had with reports on the deciles is that they usually report the average and median of each decile,
but not the floor. So you can see the floor of the 5th percentile, the 15th percentile, ...95th percentile,
but not the 80th and 90th.
Re: The Incredible Importance of Social Security
SS won't be there in 25 years when I retire. Let's face it, the system is broke. Ive been creating my own fixed savings by plowing money into EE bonds which double in value every 20 years.
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Re: The Incredible Importance of Social Security
If we do nothing, Social Security will, in around 20 years, exhaust its excess revenues, taxed primarily from the baby boomers which was done to take account of the known demographic issue, and invested in US Treasury securities not unlike Savings Bonds; and from then on will be able, under present law as adopted by Congress and signed by the President, to pay about 3/4 of presently-calculated benefits. That's the way the finances and the law stand today.
Two other things could happen.
1 - Congress could revisit the issue.
2 - We could take likely future increases in immigration into account, rather than just the expected declining birthrate.
In any event, Social Security is sound, so far as we know today, for about 3/4 of the contemplated benefits for a long, long time.
Actionable suggestion: In my long-term financial projections I discount presently-calculated social security, taken at age 70, by a quarter.
[Political prediction not inserted to save LadyGeek the trouble of removing it.] [Thank you. --admin LadyGeek]
PJW
Two other things could happen.
1 - Congress could revisit the issue.
2 - We could take likely future increases in immigration into account, rather than just the expected declining birthrate.
In any event, Social Security is sound, so far as we know today, for about 3/4 of the contemplated benefits for a long, long time.
Actionable suggestion: In my long-term financial projections I discount presently-calculated social security, taken at age 70, by a quarter.
[Political prediction not inserted to save LadyGeek the trouble of removing it.] [Thank you. --admin LadyGeek]
PJW
Re: The Incredible Importance of Social Security
A system that captures 12.4% of nearly all reported wages up to $113,700 (and adjusted annually) is by definition not broke.crowd79 wrote:SS won't be there in 25 years when I retire. Let's face it, the system is broke.
In 25 years a significant portion of the baby-boomers are going to be dead so for all you know, it could be a "new dawn" as far as the SS revenue inflow versus outflow.
The baby-boomers represent a "pig in the python" demographic challenge for old-age entitlements, but we all know that the remains of the pig will reach the other end of the snake.
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Re: The Incredible Importance of Social Security
All depends on how old you are......AND where you live.SnapShots wrote:$500K puts you in the top 7% of households. All depends on how old you are. $500K at 65 and retired isn't all that much. $500K at 40 looks fairly rosy, as long as, you hang on to it and build from there. $500K at 90...one might feel wealthy.Incognito wrote:Thanks for posting it and from the article
"At $643,100, their Social Security wealth is only slightly behind their $711,000 in financial assets."
Recently, a letter from one of the financial planners stated 'if you have more than $500,000 in financial assets, you are in the top 7% of households' quoting 2012 Forbes Wealth Survey. This article puts the top 10% at $711,000. Where do they get these numbers from?
1210
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Re: The Incredible Importance of Social Security
Why are people surprised that it is a huge chunk of net worth? It's eaten up 12.4% of all your earnings (at least up to the ~ $106K limit) for your entire life. It darn well better be the equivalent of a huge chunk of net worth.
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Re: The Incredible Importance of Social Security
We are a SS "success" story. Our benefits make the difference in living contently with 'only' the usual challenges of growing old. Lifestyle of choice and moderate draw down of assets are enabled by our SS benefits. Add Medicare and retirees have a reliable safety net.nedsaid wrote:Social Security enables the seniors to live independently after quitting work.
My grandparents (my dad's parents) took care of grandfather's dad and grandmother's mom. Grandfather's dad and Grandmother's mom both moved in after the death of their spouses. That was the norm, at some points parents moved in to live with one of their kids.
Yes, Social Security and Medicare are incredibly important to our society.
My opinions have changed on Social Security. I no longer favor privatized individual accounts. We just have to make sure the current system is actuarily sound which means adjustments will have to be made. This is an issue that the country needs a serious discussion on.
This is an important and vital program. Social Security was a huge help to my grandparents, my parents, and hopefully for me someday.
As opposed to an "I got mine" attitude, I have much concern for my kids and grandchildren having the same options when they age into the system. I remember 30+ years ago when I was thinking SS would not be there for me; rational and reasonable attention must be paid to continuing the process. Rich
Don't it always seem to go * That you don't know what you've got * Till it's gone
Re: The Incredible Importance of Social Security
It should also be noted that the projections for the exhaustion of the trust fund typically recede further and further into the future. The shock of 2008 and the subsequent slow recovery reversed this trend temporarily, but barring another catastrophic recession we can expect that the date will again be pushed back every year.Phineas J. Whoopee wrote:If we do nothing, Social Security will, in around 20 years, exhaust its excess revenues, taxed primarily from the baby boomers which was done to take account of the known demographic issue, and invested in US Treasury securities not unlike Savings Bonds; and from then on will be able, under present law as adopted by Congress and signed by the President, to pay about 3/4 of presently-calculated benefits. That's the way the finances and the law stand today.
Two other things could happen.
1 - Congress could revisit the issue.
2 - We could take likely future increases in immigration into account, rather than just the expected declining birthrate.
In any event, Social Security is sound, so far as we know today, for about 3/4 of the contemplated benefits for a long, long time.
Actionable suggestion: In my long-term financial projections I discount presently-calculated social security, taken at age 70, by a quarter.
[Political prediction not inserted to save LadyGeek the trouble of removing it.]
PJW
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Re: The Incredible Importance of Social Security
My other Savings ate up well over 30% of all my earnings !!EmergDoc wrote:Why are people surprised that it is a huge chunk of net worth? It's eaten up 12.4% of all your earnings (at least up to the ~ $106K limit) for your entire life. It darn well better be the equivalent of a huge chunk of net worth.
Your employer paid half of the 12.4%......I'm sure that if they didn't have to pay S.S., the rest would have went to the CEO, rather than your pocket.
Re: The Incredible Importance of Social Security
Only if your negotiating skills are terrible. The "employer" half is still "payroll" or "compensation" from the employer's perspective. And it is still a "tax" from my perspective, being self-employed.Cut-Throat wrote:My other Savings ate up well over 30% of all my earnings !!EmergDoc wrote:Why are people surprised that it is a huge chunk of net worth? It's eaten up 12.4% of all your earnings (at least up to the ~ $106K limit) for your entire life. It darn well better be the equivalent of a huge chunk of net worth.
Your employer paid half of the 12.4%......I'm sure that if they didn't have to pay S.S., the rest would have went to the CEO, rather than your pocket.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson
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Re: The Incredible Importance of Social Security
Most all American and Global workers cannot negotiate, as they have little power, so yes their negotiating skills are terrible. That is why unions were formed. But, the workers do ALL of the 'Real' work in the U.S. and elsewhere. BTW, I was self-employed and do not view S.S. as a 'Tax'.deanbrew wrote: Only if your negotiating skills are terrible.
Eliminating taxes is very simple however. You just move to a deserted island. No taxes at all. No services at all either. But, you get what you pay for.