We’ve been hearing from the other side of the aisle for some time now that Social Security is ‘broke’ and that it needs to be fixed. Maybe it’s semantics and the Republicans are using the term “broke” to mean that the system doesn’t work the way they want it to work, because in terms of bottom-line asset balances, Social Security is definitely, NOT broke.
By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed by the Federal government with respect to both principal and interest. All securities held by the trust funds are “special issues” of the United States Treasury. Those types of securities are available only to trust funds like the Social Security and Medicare trust funds.
To cast a dim light on cashing in some of long-held Treasury Bonds, a number of people have begun referring to the Trust Fund’s holdings as ‘worthless IOUs’ to emphasize that Social Security is ‘broke’. Again, that’s simply NOT the case. Those bonds are backed by the full faith and credit of the United States of America. The rub is that, Congress is currently running a massive budget deficit and a corresponding national debt, and in order to pay the OASI Trust fund for the bonds they’ll cash in, the Government will need to borrow more money.
Social Security actually consists of two trust funds, the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, and the Disability Insurance (DI) Trust Fund, which pays disability benefits. If we look at a summary of the December 2009 trustee’s report , we’ll learn that 42.8 million people received OASI benefits, 9.7 million received DI benefits. Balances in those trust funds are as follows:
| OASI | DI | |
|---|---|---|
| Assets (end of 2008) | $2,202,900,000,000 | $215,800,000,000 |
| Income during 2009 | 698,200,000,000 | 109,300,000,000 |
| Outgo during 2009 | 564,300,000,000 | 121,500,000,000 |
| Net increase in assets | 133,900,000,000 | -12.200,000,000 |
| Assets (end of 2009) | $2,336,800,000,000 | $203,500,000,000 |
Again, the above assets are held in U.S. Treasury bonds and as you can see, the ending OASI asset balance was larger than the beginning asset balance. Thus, the Social Security Trust fund was able to fund outgoing OASI benefits payments for retirees from current payroll withholding taxes and didn’t have to cash in any Treasury Bonds to pay retiree benefits. That wasn’t the case on the Disability Benefits side. The DI Trust fund had to cash in $12.2B in Treasury Bonds to pay out benefits for people on disability, but they still have a significantly positive balance of $203.5B in Treasury Bonds with which they can continue to pay out benefits.
This year, 2010, is the first year since the 1980s (when Social Security Funding was last addressed by Congress), that the Social Security retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more. With the first wave of baby boomers tapping into those Social Security benefits they’ve paid into throughout their working careers, the OASI trust fund will need to begin cashing some of those Treasury bonds they’ve been amassing all these years.
It appears that the Republicans are looking for way to avoid having to make good on those treasury bonds, so they’re looking for ways to delay eligibility for “full retirement benefits, and/or privatizing benefits for Americans under the Age of 55. They’re now calling it personalizing rather than privatizing … but in my book if it walks like a duck, and quacks like a duck, it’s a duck … and what they’re proposing is privatization of Social Security and increasing the eligibility ages.
Social Security is financed by payroll taxes – employers and employees must each pay a 6.2% tax on workers’ earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62 or full benefits if wait to draw their benefits until the “full eligibility date.” Full dates are different based on your year of birth.
| Year of Birth* | Full Retirement Age |
|---|---|
| 1937 or earlier | 65 |
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943–1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
| *If you were born on January 1st of any year you should refer to the previous year. | |
In my case, to receive “full” benefits” I’d need to wait to draw benefits until I reach the age of 66. The current discussion is, “whether to increase the full retirement age to 69” but I haven’t yet seen a chart similar to the one above to understand how “our children and grandchildren” would be affected by that proposal. However, doing a bit of quick checking, I came across this chart that you might find interesting
QuickStats: Life Expectancy and Years Free of Activity Limitations,* by Race and Sex — United States, 2006
In 2006, total life expectancy was greater for females than males and for whites than for blacks. Total life expectancy ranged from 80.6 years for white females and 76.5 years for black females to 75.7 years for white males and 69.5 years for black males. Expected years free of activity limitations was greatest for white females (69.1 years), followed by white males (65.7 years), black females (63.4 years), and black males (59.3 years).
* Estimates are based on data from the National Vital Statistics System and the National Health Interview Survey (NHIS). NHIS collects information in household interviews of a sample of the civilian noninstitutionalized U.S. population. Expected years free from activity limitations combines estimates of total life expectancy and prevalence rates of activity limitations associated with chronic conditions, which are determined from responses to several questions in the NHIS Family Core component. Questions and methods used to compute total life expectancy and expected years free of activity limitations are included in the source report (see related posts below).
Now, think about what’s going on in the Southeast with the massive number of tornadoes that just ripped through one community after another and another, wreaking absolute havoc and destruction in a huge swath across multiple states. Think of the infrastructure, like power poles and transmission towers that have been downed and that will now have to be re-erected to once again power up that region. Now imagine crew after crew of people who are 67-68 years old and not yet eligible to retire attempting to restore power, setting and climbing poll after poll and attempting to string wire from home after home. The toll of having to do that since their 20’s will have wreaked havoc on their bodies, just as those storm wrought havoc throughout the southern states.
So, my question is, are the GOP proposals really aimed at ‘fixing’ Social Security? Or, are they just taking a lesson from the insurance industry and looking for ways they can deny benefits for which Americans have worked a lifetime earning, just so they can transfer that to Wall Street as well?
Related Posts:
- QuickStats: Life Expectancy and Years Free of Activity Limitation
- Molla MT, Madans JH. Life expectancy free of chronic condition-induced activity limitations among white and black Americans, 2000–2006. National Center for Health Statistics. Vital Health Stat 2010;3(34).