Thursday, January 11, 2018

Are Grandparents Stealing From their Grandchildren?

That’s the theme of a recent article in The Atlantic, which by its title – “It’s the Grandparents Stealing from the Grandchildren” – gives you the author’s answer. The article is worth a read for context.

But I don’t totally agree with its conclusion. Yes, it used to be the case that retirees received an incredible deal from Social Security, receiving far more in benefits than they paid in taxes. But for people retiring today, expected lifetime benefits are about equal to lifetime taxes, meaning that they’re neither big winners nor big losers.

Still, we know that future retirees will be big losers. Whether it’s via tax increases or benefit cuts, they can’t get the same deal from Social Security that today’s retirees are getting. So, for the sake of fairness and economic efficiency, it makes sense to spread the costs of Social Security’s $10 trillion-plus unfunded liability over as many generations as possible. Putting off reform exempts more cohorts from bearing those costs and puts more of the cost on younger Americans. That’s not right.

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2 comments:

WilliamLarsen said...

"The share of workers’ taxable earnings needed to fund Social Security will grow from its current 13.7 percent (roughly what we’re already paying in payroll tax) to 17.0 percent in 2038, but it will start to decline after that—as the Boomers die off and the relatively smaller Generation X predominates—until 2051, when Millennials start to retire. But paying for even the larger Millennial generation at that point will not present as severe a challenge as the Boomers do."

This is a myth. Due to the continued zero population growth "2.1 births per woman", the worker to beneficiary ratio will continue to decrease until the millennial generation has passed at which time the ratio will be the lowest of any generation and equilibrium has been reached. The ratio will not increase once the millennial generation is gone. This is a mathematical impossibility unless the life expectancy is dramatically reduced.

The article is much like the Wall Street Editorial of the 90's titled "To My Fellow Greedy Geezers."

Like all ponzi schemes, there is no solution to make everyone who lost money whole. The sooner a ponzi scheme is stopped the fewer the injured parties.

WilliamLarsen said...

"But I don’t totally agree with its conclusion. Yes, it used to be the case that retirees received an incredible deal from Social Security, receiving far more in benefits than they paid in taxes. But for people retiring today, expected lifetime benefits are about equal to lifetime taxes, meaning that they’re neither big winners nor big losers."

The difference between my grandparents payment of SS taxes and benefits are huge. My dad paid $21,700 in taxes and his employer paid the same. He retired at age 62 and lived to age 86. The problem with my dad's payments and most of his cohort was that he paid 2/3 rds of the payroll tax in the last seven years he worked. He also maxed out his wages as did many of his cohort.

At the time of his retirement, based on the US Treasury rates paid to SS on the trust fund, his theoretical balance (employee & employer) payroll tax was just under $85K. Based on his benefit,he recouped every penny within eight years, then there is mom, a nonworking spouse who also collected 50% of my dad's benefit which made the payback years more like 5.

To say "people retiring today, expected lifetime benefits are about equal to lifetime taxes, meaning that they’re neither big winners nor big losers."is just uninformed or did the calculation wrong or is use "actual" versus "buying dollars/real dollars". Monetary expansion of the dollar has reduced its buying power.

Yes, it may be true that if I paid in $250K in payroll taxes and my benefit is $20K a year, I would draw more in dollars out, but the last dollar out is not even close to the first dollar in.

So if we truly are getting the same "expected lifetime benefits are about equal to lifetime taxes" then why is there a financial shortfall with Social Security? If we are all paying the same amount for our benefits and we are all getting the same amount of benefits, then why is there a $13 Trillion 75 year horizon and a $35 Trillion+ total unfunded liability?

Ida May Fuller received every penny she and her employer paid in in 2.05 months. Her cohort life expectancy was a good 14 years.