Social Security’s Ridiculous Actuarial Predictions

NY TimesSocial Security’s Flawed Forecasting:

For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall. Those funds — a $2.7 trillion buffer built in anticipation of retiring baby boomers — will be exhausted by 2033, the government currently projects.

Those facts are widely known. What’s not is that the Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out — to the tune of $800 billion by 2031, more than the current annual defense budget — and that the trust funds will run out, if nothing is done, two years earlier than the government has predicted.

The article doesn’t tell the story very well and lots of people will miss it. You need to click on the multimedia link to appreciate just how bad Social Security’s actuarial models really are. Read more of this post

Another Pension Fund Fraud

Megan McArdleAssets in Name Only

Big news in pensions today: Silverdex, a major US-based conglomerate with fingers in just about every economic pie, from mining to solar cells, turns out to have been stuffing its main pension fund full of . . . it’s own corporate bonds.  For decades.  It’s still not clear how this happened without anyone noticing, but essentially the pensions that current workers have been counting on for thirty years turn out to be backed by nothing more solid than the company’s promise to pay.  Amazingly, when confronted by reporters about this behavior, a representative declared that this was a big fuss over nothing.

Read more of this post

Many retirees getting less out of Social Security than they contributed

Associated PressIs Social Security still a good deal for workers?:

People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It’s a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.

Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades.

That’s how Ponzi schemes work. People who get in early make out like bandits. People who get in late get shafted.

A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.

And if you die earlier than that, you get even less. To be fair, there’s also the insurance component of Social Security. If you get disabled you can collect benefits for the rest of your life. That’s no small thing.

A national retirement system isn’t fundamentally absurd. In theory you could save and invest for your retirement and get a better return. In reality the majority of Americans in the example above wouldn’t wind up with $556,000 in retirement savings if they had to voluntarily set the money aside every paycheck. Many would wind up with the same retirement fund they have now, which is nothing.

I do think Social Security was implemented badly. People in the early days paid in little and got out a lot. That poor planning created a structural deficit that we’re unlikely to ever make up.

Like most of these inter-generational wealth transfer systems, the Social Security architects assumed stable to growing populations. That hasn’t happened:

Even with low tax rates, Social Security could afford to pay benefits in the early years because there were more workers paying the tax for each person receiving benefits than there are today. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.

That declining worker to retiree ratio is one of the reasons Social Security is heading towards insolvency. In 2010 for the first time Social Security paid out more in benefits than it raised in contributions, an event that wasn’t supposed to happen until 2017.

I always thought it was odd that young workers paid the same Social Security tax rate as older workers. They’re farther away from retirement and less likely to see benefits (from program insolvency or from early mortality). It would make sense to have a progressive SS tax rate based on age. Younger workers would pay a lower rate and older workers who were closer to retirement would pay a higher rate.

Steve Crowder and I Got Taken in by a Ponzi Scheme

Social Security a Ponzi Scheme?! (CROWDER CALLS THE SEC!)

Hungary, Bulgaria, Poland, Ireland, France, Bolivia Seize Private Pensions

Via Instapundit, European nations begin seizing private pensions:

People’s retirement savings are a convenient source of revenue for governments that don’t want to reduce spending or make privatizations. As most pension schemes in Europe are organised by the state, European ministers of finance have a facilitated access to the savings accumulated there, and it is only logical that they try to get a hold of this money for their own ends. In recent weeks I have noted five such attempts: Three situations concern private personal savings; two others refer to national funds.

That’s on top of this month’s seizure of pensions in Bolivia. Argentina did the same thing in 2008.

Rope, tree, politician. Some assembly required.

This is a fine argument for having cash and precious metals

One argument you’ll hear against gold is that the U.S. government might seize it, as Roosevelt did by executive order in 1933. The counter-argument is that if a government is willing to seize one asset class, then none of them are safe.

If a government’s willing to seize gold, they’ll be willing to seize pensions, 401Ks, IRAs, CDs, stock portfolios, passbook savings accounts, you name it. And frankly there’s a lot more money in any of those asset classes than there is in gold double eagles held privately by U.S. citizens.

Since all of those other assets are electronic they’re even easier to seize than a handful of gold coins buried in a Mason jar. The government wouldn’t even have to send goons to your vault to get your IRA. They could do it at the stroke of a key while they harvested their crops in Farmville.

Meanwhile gold is over $1,400 an ounce. You can secrete $10,000 using just 7 U.S. Gold Double Eagles that weigh 7 ounces Troy and fit in a pants pocket. Gold won’t rust or rot and the worst it will do in a fire is melt if the temperature reaches 1947 degrees F.

PreviouslyWhere do you put money if you’re concerned about bank failures?

Gold would need to go to $3500 to match the 1980 high

Gold is on a 10 year winning streak. It was $300 per ounce in 2000 and is $1,335 today. The question everyone is asking is how high will gold go?

No one knows for sure, but one reference point is the 1980 high of $850 an ounce. Obviously you have to adjust that for 30 years of inflation, but Doug Casey points to a reason the inflation adjustment is much larger than most people think.

The government’s formula for measuring inflation changed in 1993. The change had the effect of – surprise! – lowering inflation numbers. Shadowstats.com uses the government’s pre-1993 inflation formula, which produces much higher inflation numbers than what’s coming out of the Bureau of Labor Statistics using the post-1993 formula.

Why would the government want to understate inflation? Many government contracts, wages, and benefits have an annual cost of living adjustment, which is based on the BLS’s official inflation numbers.

Example. Thanks to an official inflation rate of effectively zero percent Social Security will have no cost of living adjustment for the second year in a row. In contrast, Shadowstats shows an inflation rate this year of almost 6% and argues that Social Security payments should be almost double their current levels based on the pre-1993 formula.

So, going back to gold, how high would gold need to go to equal its 1980 high? Doug Casey:

There are lots of numbers out there from people making different projections. If you think of a manic peak similar to that of 1980, you get an inflation-adjusted figure of $2250, just to match that peak. If you use John Williams’ Shadow Government statistics, which I believe are much more accurate, you get a number over $3500.

And of course in 1980 the Federal Reserve wasn’t printing trillions of dollars in new money. It isn’t hard to believe gold could go higher this time.

Previously

France Raises Retirement Age from 60 to 62

About damned time.

Me, I was born in 1968 so I get to retire at 67.

You know what this is? It’s the world’s smallest violin playing “My heart bleeds for the French people who can’t retire until 62.”

Things that can’t go on forever, don’t, though I’ll grant that the laws of economics are somewhat less-precisely defined than the laws of physics.

Contract Notice: UT MD Anderson Cancer Center Issues Solicitation for Kitchen Expansion Services (Texas) this web site md anderson cancer center

US Fed News Service, Including US State News May 20, 2010 HOUSTON, May 20 — UT MD Anderson Cancer Center has posted a solicitation on May 19 for obtaining services for the expansion of patient room service kitchen. go to site md anderson cancer center

The Agency Requisition number is 503037/ME.

Open Date: June 10, 2.00 p.m.

Agency: UT MD Anderson Cancer Center (506)

“Texas doctors opting out of Medicare at alarming rate”

Houston Chronicle:

The problem dates back to 1997, when Congress passed a balanced budget law that included a Medicare payment formula aimed at reining in spending. The formula, which assumed low growth rates, called for payment cuts if spending exceeded goals, a scenario that occurred year after year as health care costs grew. The scheduled cuts, expected to be modest, turned out to be large.

Congress would overturn the cuts, but their short-term fixes didn’t keep up with inflation. The Texas Medical Association says the cumulative effect since 2001 already amounts to an inflation-adjusted cut of 20.9 percent. In 2001, doctors receiving a $1,000 Medicare payment made roughly $410, after taking out operating expenses. In 2010, they’ll net $290. If the scheduled 21.2 percent cut goes through, they’d net $72, effectively an 83 percent cut since 2001.

In 2008, 42 percent of Texas doctors participating in the survey said they were no longer accepting all new Medicare patients. Among primary-care doctors, the percentage was 62 percent.

PreviouslyWA State Walgreen’s to Stop Taking New Medicaid Patients

“Social Security is earning interest on those sweet, sweet Treasury notes”

In response to yesterday’s post, Social Security Outlook Worsens. Again, a reader named Patricia comments:

The Social Security Trust Fund holds $2.5 trillion in government bonds. At the current interest rate of 4.5%, it receives around $112 billion in interest income annually.

$112 billion in annual interest – $29 billion in payouts this year = + $83 billion INCREASE in the SS Trust Fund this year. So, no, they will not be tapping the principal this year. Associated Press can’t do arithmetic. What is our country coming to?

I realize you may be ideologically opposed to Social Security, which is fine, but that is no reason to outright lie about it.

My reply: The government that owes Social Security checks to millions of retirees every month is the same government that owes the interest on those bonds.

Try this experiment: loan yourself money out of your savings account at 4.5% and see if you turn a profit. Go ahead – get that sports car you’ve wanted, cruise the Mediterranean for a month, or treat yourself to some cosmetic surgery. If you’re right the interest you’re paying yourself will pay for your indulgences.

SPOILER ALERT!!!

It doesn’t work. If it did, you’d make more money by charging yourself 45% interest or even 450% interest or 4500% interest.

An entity can’t make money by paying itself interest.

WA State Walgreen’s to Stop Taking New Medicaid Patients

Seattle TimesWalgreens: no new Medicaid patients as of April 16:

Effective April 16, Walgreens drugstores across the state won’t take any new Medicaid patients, saying that filling their prescriptions is a money-losing proposition — the latest development in an ongoing dispute over Medicaid reimbursement.

The company, which operates 121 stores in the state, will continue filling Medicaid prescriptions for current patients.

In a news release, Walgreens said its decision to not take new Medicaid patients stemmed from a “continued reduction in reimbursement” under the state’s Medicaid program, which reimburses it at less than the break-even point for 95 percent of brand-name medications dispensed to Medicaid patents.

Walgreens follows Bartell Drugs, which stopped taking new Medicaid patients last month at all 57 of its stores in Washington, though it still fills Medicaid prescriptions for existing customers at all but 15 of those stores.

And if Walgreen’s was losing money on those Medicaid customers, it means the Medicare shortfall was being subsidized by private health care, as is often claimed. So what will happen if Obamacare wipes out the private health care market? Hat tip to Instapundit.

Previously

Social Security Outlook Worsens. Again.

ReutersSocial Security to start cashing Uncle Sam’s IOUs:

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

I’ve been blogging about Social Security since 2004. The outlooks keeps getting worse, not better. From a 2006 post:

  • The projected point at which tax revenues will fall below program costs comes in 2017 — the same as the estimate in last year’s report.
  • The projected point at which the Trust Funds will be exhausted comes in 2040 — one year earlier than the projection in last year’s report.

Just two years ago, those same projections were for 2018 and 2042.

The actual time of the first projection will apparently be 2010. Same crisis, but eight years earlier, and at a time when our economy is least able to cope with it. The outlook for Medicare is even worse. Together, those two programs account for about 45% of federal spending and that’s set to rise as the ratio of workers to retirees decreases.

Generational Inequities in Social Security Payments

Will Baby Boomers Bankrupt Social Security?:

Count Gen-Xer Tom Firey among those younger workers who think they’re getting the short end of the stick. The managing editor of the conservative Cato Institute magazine, Regulation, first wrote about the subject nearly 10 years ago in a column headlined, “Boomers Fleece Generation X with Social Security.”

“Ever since we Gen-X/Yers began working, we’ve paid 12.4 percent of our earnings to Social Security,” he wrote. “In contrast, the Boomers will get a bargain. When they entered the workforce in the late 1960s, they paid only 6.5 percent of their earnings to Social Security. Only from 1990 on, when the Boomers had earned paychecks for a quarter-century, did they start paying 12.4 percent to Social Security, the same percentage we Gen-X/Yers have paid our whole lives.”

Medicare/Medicaid is even more under-funded than Social Security, yet Medicare holdings are lower. I fully expect a hike in Medicare withholding rates in my lifetime.

P.S. A major inequity that bugs me about Social Security is that millions of people will pay into the systems for decades and die before drawing a penny. It would make sense to me that your payments to these retirement programs would increase as you got older, and therefore more likely to use them.

Glendale, AZ Mayo Clinic Stops Taking Medicare

PattericoGlendale Mayo Clinic Won’t Accept Medicare:

“The Mayo organization had 3,700 staff physicians and scientists and treated 526,000 patients in 2008. It lost $840 million last year on Medicare, the government’s health program for the disabled and those 65 and older, Mayo spokeswoman Lynn Closway said.

Mayo’s hospital and four clinics in Arizona, including the Glendale facility, lost $120 million on Medicare patients last year, Yardley said. The program’s payments cover about 50 percent of the cost of treating elderly primary-care patients at the Glendale clinic, he said.”

Yet part of the plan for ObamaCare is to reduce Medicare expenditures. With lower payments and more people on that plan the reasonable prediction is that fewer doctors will take government insurance. It’ll be universal health insurance, except that doctors won’t universally take it.

Is that unexpected? Hardly. That’s exactly what happened in the French experience with universal health insurance:

A couple of things you can learn if you’re in France:

First, the meaning of “universal.” It doesn’t mean what you think if you’re a poor person in France, where “universal” health care is arguably better than elsewhere in the EU. It means about 75 percent. Le Parisien reports this morning that, as in the U.S., the more money you have the better care you get. Shocking. The paper backed up a recent study with a small-scale sting of their own and discovered that if you rely on France’s medical insurance alone, 25 percent of French doctors will refuse to treat you. That’s how you say ObamaCare in French.

PreviouslyAre Medicare cuts being subsidized by private health care?

CBO: Social Security headed for crisis ahead of schedule

The Market TickerHere Comes Trouble: Three Problems:

The CBO’s annual Social Security Update is out, and it’s pretty ugly:

This is pretty ugly; we were not supposed to have a negative income-to-outlay view on Social Security for another decade or so.

Well, the recession fixed that.  Tax receipts are in the toilet but outlays sure aren’t.

In case that graph isn’t clear: Social Security has been running a surplus. That surplus is about to turn into a deficit. So instead of SS revenues funding the general budget, SS is about to become a drain on the general budget. This is bad, bad news. Everyone knew this day was coming, but it’s coming much sooner than expected.

A+ Makes The Grade While Rapping on a Positive Tip

Los Angeles Sentinel November 7, 1996 | Marsha Mitchell Marsha Mitchell Los Angeles Sentinel 11-07-1996 A+ Makes The Grade While Rapping on a Positive Tip.

In 1983, the year rap artist A + was born, Reganomics had besieged the country, after school programs (a haven for many students with working parents) were gutted leaving children wearing keys around their necks and music classes that had been a part of most school curriculums were ravaged. All of this gave rise to a popular new culture that would come to be known as hip-hop.

Then in it’s infancy, rap grew up with a generation of children who shaped and honed the art in the streets of New York. With all that said and done, it’s not surprising that 13-year-old A + (Andre Levis), the newest kid to put his phat rhymes and solid tracks out there, would entitled his debut album “The Latch-Key Kid.” site art in the streets

Of his rapping moniker A + said he chose the name “because you can’t get any higher than an A + and I’m young.” Of the title for his freshman project he explained, “there are a lot of kids who raise themselves, and those are some of the kids who end up selling drugs, doing stick-ups and in jail. I wanna grab all the latchkey kids and let them know that they don’t have to live like that.”

Even more impressive than his socially conscious mission and message is the alacrity with which this pint-size poet flows. Rhyming since he was a small boy, A + has earned the respect of rap impresarios from the old and new schools including Flava Flav (Public Enemy), Russell Simmons (CEO of Def Jam), Q-Tip (Tribe Called Quest) and Prodigy (Mobb Deep). While still trying to get put on, he delivered his demo to Flava Flav at a radio station. Flav liked what he heard and let A + flip the script off the top of his dome live and on the air.

Soon after, the self-proclaimed “latch key kid” won first place in a talent show sponsored by Russell Simmons. He took first place honors again the following year in the same talent show and from there he was on his way to the top.

As the first artist to be released on the new Kedar Entertainment label, A + less it be know that he is platinum material. Signed and sealed, A + has delivered 14-tracks that have the rhyme skills and tight production necessary to blow up the charts. The first single released “All I See” debuted on The Box at #25 and on BET at #17 simultaneously. It got decent radio rotation, but should have gotten more air play. here art in the streets

Described by industry insiders as a carefree R&B based single that showcases…a raspy Method Man Jr. delivery,” A + keeps it real on his other tracks too. Not jut a rapper, it should be mentioned that rapping rug rat wrote “All I See” and co-wrote the other 13 tracks.

Other pick hits include “Me & My Microphone” on which Q-Tip makes a guest appearance, “Move On” and “A+Z” (which show cases AZ).

Ethnic NewsWatch SoftLine Information, Inc., Stamford, CT Marsha Mitchell

10 year deficit raised $2 trillion

Zero HedgeLong-Term Budget Deficit Revised, Now $2 Trillion Dollars Worse:

White House budget review set for release Aug. 25 will show cumulative deficits over the next decade amounting to $9 trillion, up from $7.1 trillion that the administration predicted in May, the official said on condition of anonymity because the figures have not been made public.

So that’s another $2 trillion that can’t fund health care.

My theory is that if Obamacare-style nationalized health care doesn’t happen by 2016 it won’t happen for the foreseeable future. By 2016 the depth of the government’s deficits will be so great that no national health care will be unfundable. Besides the deficit itself, the liabilities for Social Security and Medicare/Medicaid will eat up so much of the budget that we’ll face a crisis just trying to keep the existing programs intact. The public will finally realize how badly the government has managed its finances and promises.