"Do not rely on social security": Inflation adjustments are punishably low and benefits become Insufficient Insurance (DI) Trust Fund as the age increases – the end of September 2019 with a balance of $ 2.80 trillion concluded, as the Social Security Agency announced. This balance increased by $ 3 billion from September last year, but declined $ 16 billion from September 2017.
The balance tends to reach annual highs in June. The peak of all time in June 2017 was $ 2.846 trillion. In June 2018, the balance decreased by $ 13 billion. In June 2019, the balance of $ 2.834 trillion was $ 1 billion above the prior-year level, but still $ 12 billion lower than the June 201
7 peak. See 2017 was a record year and 2018 was one alarming downtrend. Year and 2019 reversed the downward trend, but not materially:
The Social Security Trust Fund benefits from the increase in workers – especially the millennia, the largest generation of all time – and from rising wages the higher social security deductions trigger. And the date on which the trust fund is used up is being postponed, which is currently estimated at 2034.
The depletion of the trust fund does not mean that social security collapses or whatever. This means that workers either have to pay a bit more or the benefits will be cut or a little bit of both. Social security has been previously set. One possibility would be to increase the maximum amount of income subject to social security tax.
Over 63 million retirees receive social security benefits (in addition, 8 million people receive SSI disability benefits).
At that time I was a senior in high school, my sweetheart's father told me that social security was a "scam" and that it would not be for him to use it when he retired. He was a CPA and had his own business, an accounting and tax consulting firm. In the end, he retired and collected the social security that still existed. And a few years ago he died, and his wife began to collect survivor benefits. The social security that has existed for 84 years has survived it, and it will survive me too.
But he gave me some wise and right advice – for the wrong reason: "Do not rely on social security security. "It's hard to live off social security benefits, and as we grow older, it becomes more difficult, as we'll see in a moment.
Of the assets of the SS Trust Fund, nearly $ 2.79 trillion was invested at the end of September in long-term US Treasury bonds with a weighted average maturity of 7.8 years. The remaining $ 12 billion (less than half of 1% of the total) was invested in short-term debt, much like Treasury bills.
US Treasury notes are among the most conservative assets. The investment of the Fund in government bonds is very similar to the investment of a pension fund or a regular pension fund in government bonds. The Funds receive interest payments and are paid out by the Ministry of Finance at par on maturity of the security.
However, there is a difference: bond funds, pension funds and other investors buy "marketable" treasury securities that can be traded in the bond market. The SS Trust Fund buys non-marketable, non-tradable securities, which has an advantage: as they can not be traded, their value does not change daily. The Trust Fund reports at face value and the face value is the amount received by the Trust Fund when the Securities become due.
The interest rate cut by the Fed depressed interest income.
In September, the weighted average interest rate of the securities was calculated in the trust fund fell to 2.73%, the lowest value in my life. The annual average rate of interest for each year has been steadily declining since 2009, dropping from 4.8% in 2009 to 2.8% in fiscal 2019:
This means that the SS Trust Fund, despite rising Balance has declined, interest income has fallen. The assets of the trust fund increased by 24% between 2009 and 2019. Interest income, however, declined 28% in the same period, from around $ 108 billion in 2009 to $ 78 billion in 2019) versus trust assets (right column):
This decrease in interest income accelerates the deterioration of the trust fund. At the current level of the Trust Fund, any decrease in the average annual interest rate of 1 percentage point lowers the Fund's interest income by $ 28 billion a year, replaced by securities with significantly lower interest rates.
Cost of living (COLA) with extremely low cost.
Benefits for 2020 will only increase by 1.6% from January 2020, the Social Security Board said on Thursday
Social security benefits are calculated on the basis of the inflation measure of the Bureau of Labor Statistics for "urban wage earners and Employees "(VPI-W) adjusted for inflation. The fundamental problem is that the consumer price index does not measure changes in the cost of living. It measures price changes of the same item or the same service at of equal quality over time. And if the quality of goods (such as electronics or cars) or services (such as housing) improves, BLS removes the cost of these improvements from the index.
In other words, CPI only measures the loss of purchasing power that leads to a situation where the consumer price index for new vehicles has remained constant over the last 20 years, even though actual retail prices have risen, while cars have recorded a price increase much better, such as from two airbags to 10 airbags and from a 4-speed automatic transmission to an 8-speed automatic transmission, etc. Here's my in-depth discussion of these "hedonic quality adjustments" for new vehicles and how they relate to the VPI.
But today it is impossible to buy these products or services without the quality improvements, and therefore retirees have to pay more even if they do not want these quality improvements.
Increase of 1.6% in benefits not included Include price increases due to quality improvements. It only compensates for the loss of purchasing power of the dollar (price changes of the same item with the same quality). This is a serious problem with the COLA adjustments.
Another serious problem with the COLA adjustments is that the cart of goods and services used by older people is different from the goods and services of an average urban worker. For example, the average older person has a much greater need for health care than the average worker. And health spending has lagged well behind the consumer price index.
The inadequate COLAs occur every year and year for retirees who depend on social security, from which it is already hard to live in the beginning. Imagine a gradual and ruinous reduction in the standard of living for which you can pay.
That's why the father of my high school sweetheart was right, but for the wrong reason, and yes, dear millennials, that's for you: Don I'm not relying on social security, not because it's not there for you it), but because the COLAs are purposely inadequate as you draw benefits, and benefits become inadequate with age] This scheme worked wonders for a while, but is now in trouble and there is a lot on the horizon Game. Read … How the SoftBank Schema Opens the Start Bubble
Enjoy reading WOLF STREET and want to support it? Using ad blocking – I understand why – but you want to support the site? You can donate "beer money". I really appreciate that. Click on the beer mug to find out how:
Would you like to be notified by e-mail when WOLF STREET releases a new article? Login here.