Social Security Bubble to Explode Someday?

Black Swan

Social Security beneficiaries are to receive another historically low COLA (Cost of Living Adjustment) of 1.5 percent in 2014. The calculation by the SSA is based upon the low increases in the cost of living during the past year. There are about 58 million retirees, disabled workers, spouses, and children that will be receiving an average $17 USD (12.5 euros) increase in payments per month for 2014.

The average monthly payment of $1,162 USD (857 euros) per person is low in terms of the standard of living in America, and would need to be supplemented by additional retirement monies, etc., to avoid falling below the poverty level, especially if the retiree elects to participate in supplemental Medicare Part B medical insurance offered by a private-for-profit medical insurance corporation.

The average cost of this supplemental medical insurance is over $100 USD (74 euros) per month, and is automatically deducted from the retiree's Social Security check (for SSA approved medical insurance corporations), further reducing the retiree's check to an average monthly payment of $1,062 USD (784 euros). If the retiree elects not to deduct this supplemental medical insurance from their monthly SSA paycheck, they could be wiped out by medical debt should a severe illness occur (as well as associated healthcare costs that are typical with aging).

Why is this discussion about Social Security COLA important to US Politics? The current shutdown negotiations between the Democrats, Republicans, Tea Party Republicans, and President Obama could result in a freeze of future COLA benefits. There are millions of voters that would be affected by such legislative actions, and given that these generally older voters have a tendency to vote more often than more youthful voters, this could impact on the November 2014 mid-term elections. Such voters also tend to vote conservatively, often benefiting the GOP, and if they saw their paychecks shrink as the result of a Republican blamed shutdown, then the GOP may lose the 17 seat majority in the US House (and the highly powerful Speaker position) in the 2014 mid-terms.

Social Security is a Sacred Cow in US politics, with both the Republicans and Democrats fearful of a voter cross-over in the event of losses in benefits, even if the originally designed SSA system is dysfunctional and doomed to failure. If not changed, Social Security is a bubble that will burst someday on the American taxpayer and its retirees, especially with the increasing number of Baby Boom retirees (approximately 70 million) beginning to impact on the system. The consequences will be huge for US politics.

If you could solve the Social Security problem in America, with the least amount of damage to all interested parties, you could run for high political office and probably win by a landslide. Any ideas?

nagilum2

Social Security is fine in the near term. Long term it's an issue but the US is going to have debt issues long before SS busts.

The way to deal with it is exactly what's happening - debase the currency and make the debt worth less while providing no cola. Bang, you've just reduced SS obligations. Keep doing that a couple decades and there won't be a problem with SS debt, just SS recipients who aren't getting enough to live on anymore. But that's tomorrow's problem.

IMO there is no way to *fix* Social Security without a massive technological breakthrough in production capacity for food & good PLUS a completely different way in which the economic gains from said advances ripple through the economy.

So keep kicking that can...

TL:DR - Highly unlikely it'll be fixed but the good(?) news is, things will go pear-shaped way before SS causes it.

Black Swan

nagilum2 wrote: »

...SS recipients who aren't getting enough to live on anymore. But that's tomorrow's problem.

We are talking about tens of millions of retirees that tend to vote in greater numbers than most in America. This group is now growing significantly. If these millions start slipping into poverty, and their numbers are now increasing with the beginning of the leading edge of Baby Boom retirement (70 million born 1946 to 1964) that's now occurring, along with the perceived threat of poverty before they realise it, political consequences may not be deferred so far off into the future to where they may not affect 2014 and 2016 elections.

EDIT: I would not underestimate the huge numbers of retirees that are now occurring. According to the Pew Research Center, an average of 10,000 Baby Boomers turn age 65 each day for approximately the next 2 decades. How many Florida votes in the 2000 presidentials gave GW Bush the lead in that swing state? Roughly 500, if you believe the counting systems they used. Swing state Florida continues to become saturated with retirees and probably gets their share of 10,000 per day that turn 65.

nagilum2

Black Swan wrote: »

We are talking about tens of millions of retirees that tend to vote in greater numbers than most in America. This group is now growing significantly. If these millions start slipping into poverty, and their numbers are now increasing with the beginning of the leading edge of Baby Boom retirement (70 million born 1946 to 1964) that's now occurring, along with the perceived threat of poverty before they realise it, political consequences may not be deferred so far off into the future to where they may not affect 2014 and 2016 elections.

EDIT: I would not underestimate the huge numbers of retirees that are now occurring. According to the Pew Research Center, an average of 10,000 Baby Boomers turn age 65 each day for approximately the next 2 decades. How many Florida votes in the 2000 presidentials gave GW Bush the lead in that swing state? Roughly 500, if you believe the counting systems they used. Swing state Florida continues to become saturated with retirees and probably gets their share of 10,000 per day that turn 65.

Well, I didn't say it was good or even politically palatable. It will be a political disaster for whichever party gets blamed for it. But it will happen, because mathematically, this is nearly what must happen (again barring some amazing technological productive capacity breakthrough coupled with a major change in the distribution of the wealth accruing from said breakthrough).

Social Security is a Ponzi scheme. A lot of people recoil when that's stated, but the definition of Ponzi is such: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation."

That is Social security. The program depends on paying out money from subsequent "investors" to the current recipients because there is no actual money in the social security trust fund - just IOU's. The fact that the IOU's are backed by "the full faith and credit of the US government" doesn't make it not a Ponzi scheme. It just means that there are additional options available to pretend like you're honoring your commitments - like debasing the currency to introduce inflation to reduce the debt load relative to the tax base. Like taking food and fuel out of the core inflation rate in order to tell people that inflation isn't actually that bad.

The incentive for both parties is to avoid getting blamed, while assigning blame to the other. Of course they're both to blame, but they'll kick the can as long as possible.
Eventually it will break. But other things will probably break first because a huge portion of US federal spending will have to be redirected away from existing programs to pay for the large numbers of new retirees you mention (even with debasing the currency).

Permabear

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