The Future of Social Security

How many of the 38 million AARP members have repeatedly contacted their representatives in Congress to demand action? The last time SS was reformed was 1983 and it was done with bipartisan legislation. What are the chances of that happening now? The Congressional Budget Office projects the balance of the Old-Age and Survivors Insurance Trust Fund is exhausted in fiscal year 2033 two years sooner than the SS projections.

Options to reform SS: https://www.crfb.org/socialsecurityreformer/

Let's get a few things straight. I'm 68 and learned decades ago that there is no "Trust" and there are no "Funds". The Trust was all spent by congress over the years and now has turned into a Ponzi scheme

Dave, please explain how SS is a Ponzi scheme, the idea is brought up by some but when asked for an explanation none is given.

Since SS was created the program was required by law to put excess payroll deduction money into government backed securities, so yes Congress has spent the money but the money has always been repayed with interest. In 2023 the interest payed to SS was nearly $67 billion. That $67 billion helps pay your benefits. Would you rather the government borrow from China and pay them $67 billion and make the system insolvent sooner? To my thinking the $67 billion in interest is a great investment.

The Ponzi scheme and Congress has has spent the money slogans are rampant, help undermine confidence in the system and do nothing to help return solvency to SS.

My gosh, this persistent conspiracy theory that Congress has spent the money keeps popping up its head like a whac-a-mole! It's just not true! The nonsense that some people believe today is staggering, and this myth one of them. See Mike's link to Paul Krugman's explanation for the facts of the situation. Facts matter. https://paulkrugman.substack.com/p/the-clean-little-secret-of-social

Your first problem is believing anything that Paul Krugman says

and from Friedman himself....much smarter than Krugman

https://www.nytimes.com/1999/01/11/opinion/social-security-chimeras.html

I'd rather put my trust in Milton Friedman and the Hoover Institution

https://www.hoover.org/research/biggest-ponzi-scheme-earth

If you read the article and then follow another link to AARP's article about solvency, the benefit level of 83% is a combined analysis of both OASI and Disability benefits. The article stated that OASI funds with be exhausted by 2033 with a reduction of 21%.

Furthermore, everytime I hear the Glen Campbell song "Galveston", it reminds me how lucky those municipal employes from that county and the two surrounding counties are. There was a brief window of time during the Reagan years that counties could opt out of the SS system and form their own. The results of that experiment are in! Those retirees get 4 times the amount each month than compared to SS. What's even better, after they die, their heirs get all the rest of the money, compared to SS where it stops cold when the person dies! Look it up!

Dave,
Where is the information that proves "Those retirees get 4 times the amount each month than compared to SS. What's even better, after they die, their heirs get all the rest of the money, compared to SS where it stops cold when the person dies!" A link to your source would be helpful instead of "look it up!
As Reagan said "Trust but verify"

""An employee who worked the same amount of time, but earned $75,000, would get $3,663 a month, compared with $1,301 on Social Security, he said""

https://www.starnewsonline.com/story/news/2005/03/29/opting-out-of-social-security-how-one-county-fared-privately/30777415007/

Dave, that 20 year old article includes a lot of skepticism about the alternative plan — from experts and benificiaries. The strongest proponent for the plan is the guy who runs it, and benefits from it. (And a sheriff whose attitude is “I’m not going to worry about it.”) Yes, giving your money to the government to invest in your behalf is like giving it to your brother-in-law…or to the guy who ran the Galveston fund. But the government has not failed to make good on its promise — not yet, at least. Your brother in law could be a different story.

Larry, I would love to find an update on the results since 20 years ago. I bet Galveston has done even better! SS can only invest in bonds. Galveston can and did invest in broad based stock funds. We all know how that has gone over the last decades. To the moon, Alice! LOL!

The only problem people are having with the Galveston plan is that employees were allowed to withdraw lump sums during their lifetime. That should have been prevented, just like it is with SS.

Dave, since the blog is about the future of SS I assume you believe shifting SS to a private system like the Galveston plan is the way to go and will cure the coming insolvency problem SS faces.

The article you cite does not support your claims about 4 times greater payments and heirs getting all the rest of the money while SS stops dead cold.

After a beneficiaries’ death SS payments can transfer to a spouse, unmarried ex spouse, disabled child or dependent parent. That is not stopping dead cold. Without seeing the payment options in the Galveston plan there is no way to know all money goes to the heirs as you claim, or if it is a better option than SS provides.

If the SS figure of $1301 in the article is correct 4 times that is $5204 per month not $3663, a shortfall of 42%. According to the county of Galveston Public Transparency webpage the fund return over 30 years is around of 7.5%. Please show the math how those returns and the contribution rates listed in the next paragraph produce the 4 times benefit of SS you claim or the amounts claimed by the fund manger in the article.

The webpage shows employees contributes 7% of their salary to the plan and the taxpayer contributes a whopping 14% to the plan, a 21% contribution rate versus the SS total of 12.4 The 70% contribution advantage in the Galveston plan makes comparing the two systems impossible. The contribution rates, not the fact the plan is private and has higher investment returns, has to be the biggest factor in claimed larger payoffs. Apply the Galveston contribution rates to SS and it closes the SS funding gap by 236%. There is also an eight year vesting requirement and not portable to a new job. I could not find anything showing if the plan is fully or underfunded. There is no mention of the fees that the plan is paid to run the program. The payments are not adjusted for inflation and contrary to what the fund manager in the article inflation adjustments do matter. If inflation averages 3% for 20 years the $3,663 payment is reduced by 46% Pension benefits are 100% taxable by the Federal government and reduce the value of the pension benefit. Less then half of SS recipients pay income tax on their benefits and the taxable benefit amount is capped at 85%.

It seems the Galveston plan was cited many times in the 1990s as an example of how to privatize SS . SS did a study in 1999 comparing SS to the Galveston plan. Using numbers supplied by the plan administrator SS found the private plan offered higher initial benefits to only half of the earners but those higher benefits disappeared over the years due to inflation. None of the benefit amounts supplied by the plan for the study were anywhere near what the manager in the article cited. The full report: https://www.ssa.gov/policy/docs/ssb/v62n1/v62n1p47.pdf

Looks like the search continues for a unbiased source to help get a rough comparison. But the fact remains, that investing in the stock market since the Reagan years has done much better than treasury bonds. And let's not forget the downgrade of US debt (no longer AAA rated! Yikes) not too many years ago.