5 huge myths about social security

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5 Huge Myths About Social SecurityBy Ilan Moscovitz | More ArticlesOctober 15, 2012 | Comments (188)

Social Security has been providing Americans with old age, disability, and widow and orphan insurance for as many as 77

years. But like so many of today's crucial financial topics, it's also shrouded in myth. Here are five big ones.

Myth No. 1: Social Security is going bankrupt

The biggest misunderstanding out there relates to Social Security's financial challenges. (A Google search for "Social

Security bankruptcy" turned up 50 million hits.) But the fact is that Social Security isn't going bankrupt, nor is bankruptcy

really possible as the system is currently set up.

Here's the source of the confusion: Historically, Social Security has collected more than it paid out. The extra money built

up in a trust fund that collects interest. But due to demographic and economic changes (more on that in a minute), it's

expected that insurance payments will begin to exceed income in 2021. Around 2033, the fund will run out.

But even then, the revenue Social Security collects each year would still be enough to pay out about three-quarters of

scheduled benefits as far as the eye can see.

Source: Social Security A dministration.

In short, to say Social Security is going bankrupt, you have to ignore its revenues. But by such a weird standard --

ignoring revenues and seeing how long it would take expenses to drive tangible net assets to zero -- the average member

of the Dow would go "bankrupt" in just under three months. (Fascinating bonus trivia: At nine months, Microsoft would

survive the longest, while United Technologies wouldn't last two hours, and eight Dow blue chips DuPont, Boeing,

IBM, Pfizer, Hewlett-Packard, Procter & Gamble, AT&T, and Verizon -- would already be bankrupt. Again, that'sbecause ignoring revenues doesn't make sense.)

Of course, doing nothing would mean that Social Security won't be able to meet its full obligations two decades from now.

But it's not going bankrupt.

Myth No. 2: Meeting Social Security's future shortfall is really hard

We only need to come up with about 0.9% of GDP in order to make Social Security's revenues match up with its

expenses for the next 75 years. To put that into perspective, 0.9% is close to the cost of unemployment insurance, the

high-end Bush tax cuts, or one-fifth of the Defense budget. That's not insignificant, but it's hardly apocalyptic.

There are two basic ways to close that gap. We could increase payroll tax revenue by raising the cap (currently any

personal income beyond $110,100 is exempt from Social Security payroll taxes) or raising the rate. Or we could cut

benefits by lowering payments and/or raising the retirement age. Other strategies could include things like allowing more
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immigration to reinforce the population of working-age citizens or paying for it out of the general fund, but they aren't

discussed as often.

Generally speaking, polls tend to show more support for revenue increases than benefit cuts, though there are plenty of

different options. To get a sense of what they are, here are a bunch of different tweaks the Congressional Budget Office

examined that could help us reach that 0.9% threshold:

Source: Congressional Budget Office.

Myth No. 3: Social Security's financial challenges are due to rising life expectancies

This one's only partially true. For the past few decades, there have been about three workers for every Social Security

beneficiary. It's estimated that ratio will fall to around two by 2035. Since Social Security's revenue is generated by

workers, a rising proportion of beneficiaries to workers puts a strain on the system. The idea that it makes sense to cut

benefits by raising the retirement age naturally arises out of the fact that life expectancies are rising.

However, three things are important to keep in mind. First, a declining proportion of workers to beneficiaries doesn't

automatically mean Social Security can't support its beneficiaries because workers become more productive over time.

Since 1980, productivity per worker has increased by 78%.

Second, although it's true that life expectancies at birth have risen quite a bit over recent decades, the more important

metric -- life expectancies for 65-year-olds have only risen by about two years since 1980. What's more, the same

seniors who don't have sources of income besides Social Security haven't seen the same gains in life expectancy and often

work in physically demanding jobs that are harder to perform at 70.

Finally, there are other, perhaps more significant reasons for the projected shortfall, including declining birth rates and

rising income inequality over the past several decades.

Myth No. 4: Social Security adds to the deficit

Social Security can't add to the deficit, because it has its own funding source (Social Security payroll taxes) and isn't

allowed to spend any money it doesn't have. Much of the confusion comes from the fact that under federal accounting

practices Social Security is represented in the consolidated federal budget, as well as from the fact that Social Security'strust fund, like many insurance funds, invests in Treasury bonds. (Bonds are debt investments.)

The exception has been the payroll tax holiday, which lowered payroll taxes starting in January 2011 in order to stimulate

the economy. During that period, the federal government made up the lost revenue to Social Security that would have

been collected. The holiday is expected to end next year.

Myth No. 5: Social Security only provides retirement benefits

Social Security isn't a retirement savings plan. It's actually a universal insurance program that helps protect workers,

retirees, and their families from life's unknowns. Most Social Security benefits do support retirees via old-age insurance,

but some also provide insurance in case people become disabled, widowed, or orphaned.
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Source: Social Security A dministration.

Keep in mind...

Social Security makes up the majority of income for two-thirds of all retirees. And it will continue to be around unless wedecide to eliminate it.

At the same time, Social Security was never meant to cover our full income needs during retirement. The average

retirement benefit last month was $1,235 -- an important chunk of income -- but probably not enough by itself to live off

of comfortably. Retirement experts generally estimate that maintaining a preretirement lifestyle requires about 70% of

preretirement income.

So, if you're still in your working years and have paid off any high-interest debt, make sure that you're setting aside and

investing some money each month. When it comes time to retire, you'll thank yourself.

For more in our retirement series, check out:

17 Frightening Facts About Retirement Savings in America

Are 401(k) Plans a Failed Experiment?

How to Fix the Retirement Savings Crisis

Ilan Moscovitzdoesn't own shares of any company mentioned. The Motley Fool owns shares of International Business

achines and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Procter & Gamble.

otley Fool newsletter serviceshave recommended creating a synthetic long position in International Business

achines.Motley Fool newsletter serviceshave recommended creating a synthetic covered call position in Microsoft.

The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe that

considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter services free for 30

days.

Comments from our Foolish Readers

Correct me if I'm wrong, but isn't 100% of the Social Security trust fund invested in US Treasury

securities? Although it might not be GAAP, won't "cashing in" those securities increase the general deficit

as they would have to be covered by addtional borrowing?

With respect to life expectancy, I think you're looking at the wrong time frame. Where the life expectancy

issue affected Social Security's solvency came when our grandparents and great grandparents, who paid in

something $30. per year for a chunk of their working lives, not only outlived the longivity projections

when the system was started but got COLA increases starting in 1972 that they (nor anyone else) didn't

pay for.

That being said, you are correct in your statement that even if unchanged Social Security would never pay

On October 15, 2012, at 2:46 PM, mdk0611 w rote:
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our zero to future beneficiaries.

so the author of this nonsense suggests we stop worrying about putting our money into the ponzi scheme?

Oh, ok. I feel much better now!

I tried printing this article - twice - no luck. All that prints is the chart. Any suggestions?

This article is a myth. All social security taxes go to the general fund and is spent with an IOU going the

the Social Security trust fund. When the cash is required to make Social Security payments it is borrowed

and funded by yet again another tax (on income).

According to Boston University economist Laurence Kotlikoff, the present value gap is $222 TRILLION

and increasing at the rate of $11 trillion each year.

http://teapartyeconomist.com/2012/08/10/11-trillion-increase...

Copy and paste the article into MS Word or OpenOffice/LibreOffice Writer or probably even intoWordPad and print from there.

I talked to a real economist about this. I called it a pyramid scheme. He was nicer and called it a pay-as-

you-go system.

Before 2010 there were 4 workers per retiree (4:1). Sometime after 2010 when Baby Boomers retire the

ratio will change to three workers per retiree (3:1). The result is that to keep the same pay-as-you-go

system the three workers must contribute 33% more to make up for the missing worker, or else the

retirees must accept 25% less due to lost revenue. Or some combination of the two. All talk about "fixing"

Social Security must revolve around these two points.

I state that SSA suffers two grave issues (1) funds are not invested in the private sector where they can

earn more, and (2) political control. To illustrate the political problem consider this; congress LOWERED

ssa contributions this tax year. If you understood the previous paragraph you know why this is so bad.

Congress thinks of ssa as their personal piggy bank.

The obvious permanent solution is to privatize Social Security. It has already been done successfully years

ago in Chili. All we have to do is copy their pattern, no reinventing needed! The person who did this is

Jose Panera. See en-dot-wikipedia-dot-org/wiki/Jos_Piera or www-dot-cato-dot-org/people/jose-pinera.

i appreciate that mf has a democrat leaning but please try to be a bit more balanced for those of us

independents out there. last time i looked, bankruptcy occurs when an organizations assets exceedliabilities. on going cash flow is only a factor in how much the creditors (the public) ultimately recovers

from the BANKRUPT SYSTEM.

good points on methods for bring ss back into economic sound footing but there is no myth about it: rome

is burning and all the efforts to sugar coat the problems only increases the pain that is being pushed down

the road. we need action on so many problems now before we can no longer afford the costs of dealing

with all ot them in the future!!!!!! frankly i am tired of the left leaning articles from mf. you can do

better!!!

I love it. If the government invests in rock-solid treasury bonds, it is called self-dealing. If the government

On October 15, 2012, at 4:02 PM, StopPrintinMoney w rote:

On October 15, 2012, at 6:19 PM, CBD1960 w rote:

On October 15, 2012, at 6:31 PM, xetn w rote:

On October 15, 2012, at 6:36 PM, AgAuMoney w rote:

On October 15, 2012, at 6:36 PM, neamakri w rote:

On October 15, 2012, at 6:48 PM, OMGREALLY w rote:

On October 15, 2012, at 7:49 PM, neelvk w rote:
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were to invest in the private sector - the same people would be screaming about takeover of the private

sector by the government.

Are there flaws in the SSA? Heck yes! For one, things have not been adjusted for life expectancy

increases. Second, only wages are taxed by SSA (so trust fund babies can be shielded) and then on top,

there is a cutoff mark. Why is the cutoff mark there? So that people making millions in wages don't get

dinged.

But it is truly laughable that the SSA funds should be invested in the private sector. Why? So that we can

all collectively ride the roller-coaster?

neamakri brought up one of the most important points this article misses, and that is the baby boomer

problem. That changes the math dramatically. Also, with unemployment rate going up (and full time

employment going down hard), revenues have to be coming down as well no? I wonder how well that is

factored in above?

I am new here, but surprised to see such rosy articles coming out on an investment website about things

that are really not rosy from an investment perspective.

I would suspect most serious investors here could do a LOT better with their money than what the

government is going to do, no?

When I look at my retirement calculations I leave social security completely out, actually ~120% out

because I know I will be taxed to make up the shortfalls.

If I were counting on SS to finance my retirement, I would be very worried that 25-year old folks are

going to be fed up paying into a system to finance the lifestyles of people who had a lifetime to save but

chose not to.

"Myth No. 4: Social Security adds to the deficit"

Not a myth since the trust fund has no value.

I'll explain.

Current system - 'trust fund'

When expenditures exceed revenue, SS admin pulls some amount of the special SS bonds, turns them in

to Treasury for cash. Treasury, probably with congressional action, must either take the funds from other

appropriations, issue new bonds or default on SS claim.

Now, suppose we didn't have a trust fund.

When expenditures exceed revenue, SS admin would go to congress and request additional funding.

Options are take the funds from other appropriations, borrow the money or let SS default on some of itsobligations.

Exact same outcome with or without a trust fund. Since the outcome is identical, the so called trust fund

adds no value to the system. And the most likely outcome is to borrow the money since congress won't

cut other spending to fund it and can't risk ticking off the most reliable voting block there is.

Therefore, Social Security WILL add to the deficit.

And, since "During that period, the federal government made up the lost revenue to Social Security that

would have been collected.", it already has added to the deficit.

I enjoyed the column.

On October 15, 2012, at 7:54 PM, neocolonialist w rote:

On October 15, 2012, at 8:55 PM, Tomohawk52 w rote:

On October 15, 2012, at 9:19 PM, rd80 w rote:
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What's the difference between going bankrupt and not being able to pay everyone in full?

@neelvk

"Why is the cutoff mark there?"

Because there's also a cutoff on the benefit side.

Let's try a little exercise here. Everyone get a piece of paper, and write yourself an IOU for $1 billion.

How many new billionaires have we made today? None. Because an IOU is both an asset to the holder

and a liability to the issuer. When the holder and issuer are the same entity, the net effect is zero.

The same is true for government bonds held as 'assets' by a government agency. To consider the bonds

held by the trust fund as assets, we have to ignore the inconvenient fact that they are also liabilities to the

government.

In short, the 'trust fund' in broke right now.

" First, a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't

support its beneficiaries because workers become more productive over time. Since 1980, productivity per

worker has increased by 78%"

And precisely how does that result in more money into the Social Security system?

" Correct me if I'm wrong, but isn't 100% of the Social Security trust fund invested in US Treasury

securities? Although it might not be GAAP, won't "cashing in" those securities increase the general deficit

as they would have to be covered by addtional borrowing? "

It's the same as when anyone sells a treasury bills -- the holder changes, but the total amount doesn't

increase.

"last time i looked, bankruptcy occurs when an organizations assets exceed liabilities."

Not exactly -- as the article stated 8 out of the 30 Dow companies actually have negative net tangible

assets. Bankruptcy occurs when an organization is unable to pay its bills. In SS's case, the bills by law

decline if the trust fund were to run out so that they don't exceed revenue.

"neamakri brought up one of the most important points this article misses, and that is the baby boomer

problem."

See myth #3 above

"Also, with unemployment rate going up (and full time employment going down hard), revenues have to

be coming down as well no? I wonder how well that is factored in above?"

The numbers are the most recent figures, which the SSA actuaries adjusted for revenue lost due to the

recession.

"I am new here, but surprised to see such rosy articles coming out on an investment website about things

On October 15, 2012, at 9:22 PM, TheSoulofaShark w rote:

On October 15, 2012, at 9:24 PM, rd80 w rote:

On October 15, 2012, at 9:50 PM, FoolZim w rote:

On October 16, 2012, at 9:54 AM, TMFMurph w rote:

On October 16, 2012, at 10:58 AM, TMFDiogenes w rote:

On October 16, 2012, at 12:34 PM, TMFDiogenes w rote:

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that are really not rosy from an investment perspective."

Welcome, and thanks for posting! The goal wasn't to paint a rosy picture of retirement -- see another

article in the series by John:

http://www.fool.com/retirement/general/2012/10/15/17-frighte...

Nor does the article paint a rosy picture of Social Security -- benefits would be reduced considerably in a

couple of decades without changes to raise revenue or reduce benefits.

"I would suspect most serious investors here could do a LOT better with their money than what thegovernment is going to do, no?"

Agreed, that's why serious investors probably shouldn't rely on Social Security for all their retirement

income needs, as noted at the end. Keep in mind too, SS isn't a retirement investing program, it's an

insurance program. The goal is to insure, not to generate the highest possible returns.

" First, a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't

support its beneficiaries because workers become more productive over time. Since 1980, productivity per

worker has increased by 78%

And precisely how does that result in more money into the Social Security system?"

You end up with more Social Security payroll tax revenue per worker.

^ Precisely!

You mentioned "rising income inequality" as an explanation between the shortfall between revenues and

expenses. Can you please elaborate on that? What is the logic behind this?

"You end up with more Social Security payroll tax revenue per worker."

How do you figure? Just because each worker is more productive doesn't mean that everyone is being

paid for being productive.

Since the 1980's I believe purchasing power has generally stayed level, if not slipped in certain areas

(housing). Standard of living has risen due to technology increase, but outside of inflation, how are you

generating more revenue? Theoretically, if we have 100 million workers 70% more efficient than they

were 30 years ago, what market incentive is there to pay any one of them more than they were valued 30

years ago, inflation aside?

@smartmuffin

"You mentioned "rising income inequality" as an explanation between the shortfall between revenues and

expenses. Can you please elaborate on that? What is the logic behind this?"

My take on that would be that a larger growth of income in the upper income brackets doesn't contribute

anything to SS since it falls above the maximum income cap, so the increase in SS funds from an

increasing GDP are not materializing in the same way as if the income growth had occurred more evenly

across the income spectrum.


On October 16, 2012, at 12:57 PM, TMFMorgan w rote:

On October 16, 2012, at 1:21 PM, smartmuffin w rote:

On October 16, 2012, at 1:55 PM, mattsoundworld w rote:

On October 16, 2012, at 2:13 PM, TMFCrocoStimpy w rote:

On October 16, 2012, at 2:22 PM, TMFCrocoStimpy w rote:
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One question that has always bothered me about the idea of privatizing SS is that of market impact.

Currently, the SS trust fund is around $2.7T or so, and the estimated value of the US equities market is

maybe $15T. So, we're looking at the SS trust fund being on the order of 18% of the total value of the

market. Annually, SS brings in around $0.8T, or about 5% of the market. Suddenly allowing this amount

of money to filter into the markets, even if it where only the annual SS taxes and not the trust fund itself,

seems like it would cause a massive distortion of the marketplace fare in excess of anything that QEXX

has ever done, and it would do so on an ad-infinitum basis.

So, though we as investors see how to place our money wisely for our own future, doesn't this open up a

serious systemic issue that would likely result in another equities bubble?

^ I've though about that too. Some of the money would go into corporate bonds and the like, but you can't

just suddenly dump $2.7 trillion into any market and not have deep distortions.

Given the saving and investment track records of many, the idea of privatizing SS is just scary. One of the

mantras hammered ad nauseum on this site is how most professionals can't even match (nevermind beat)

the market.

With how far the market fell a few years ago, can you imagine all the panicking elderly pulling their money

out at the low points and ending up penniless under a highway overpass?

It's called 'social security' not 'nationwide risk' for a reason.

""You end up with more Social Security payroll tax revenue per worker."

Just because each worker is more productive doesn't mean that everyone is being paid for being

productive.

Since the 1980's I believe purchasing power has generally stayed level, if not slipped in certain areas

(housing)."

Good question!

Taxes are paid on a nominal basis; nominal (non-inflation adjusted) wages have increased since 1980

(even though real, inflation adjusted wages haven't increased much since 1980.)

Yeah, you're right though that social security would have more revenue if wage growth since the 1980s

would have kept up with its previous pace.

So productivity per worker helps measure our economy's ability to support social security with a smaller

workforce taxed at the same rate, and nominal payroll is the actual revenue base.

"@smartmuffin

"You mentioned "rising income inequality" as an explanation between the shortfall between revenues and

expenses. Can you please elaborate on that? What is the logic behind this?"

My take on that would be that a larger growth of income in the upper income brackets doesn't contribute

anything to SS since it falls above the maximum income cap, so the increase in SS funds from an

increasing GDP are not materializing in the same way as if the income growth had occurred more evenly

across the income spectrum."

^ Yeah, there wasn't enough time in the article to get into it, but that's the idea.


On October 16, 2012, at 2:47 PM, mclaugph w rote:



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"Given the saving and investment track records of many, the idea of privatizing SS is just scary."

How many individuals do you know that are $16 trillion in debt and whose annual cash flow is negative $1

trillion+?

It's all relative. Nobody is saying the average individual American is a great saver and investor. Just that

they're a HELL of a lot better than the collective entity of the state.

Re Myth #4 -- When the fed issues that new bond to cover the IOU that is being cashed in, are theyincreasing the federal debt or just rolling over the existing debt and thus keeping the debt the same?

The fed will still have accruing interest payments to make, but it seems that if SS could balance the front

end income and outgo (or even make it positive), then in theory they could pay down some of the amount

they have to roll over and thus reduce the unfunded liability. Unlikely, but possible?

My concern with a private SS system would be what do you do with the people that lose all of their

money in it? As a population we have poor investment knowledge which would probably lead to lots of

broke people. I find it difficult to believe that this type of issue could be ignored.

Also with such poor investment knowledge how big do you think the scams would be? That much moneywith so many poorly informed people equals easy targets.

If SS is a Ponzi scheme, then every insurance company in the world is a Ponzi scheme. If using one

person's premiums to pay another person's claims freaks you out, you should keep your distance from

Berkshire Hathaway, too.

Depends on what kind of insurance you're talking about. Most forms of insurance do not guarantee a

payout, whereas once you have your 40 quarters (as the vast majority of SS contributors will) you are

guaranteed one. For those that do guarantee a payout there is a long term reliance on investment returns.

I wonder if anyone has done a long term analysis (and we're talking about 40-50 years) of what the return

would have been if an average workers FICA withholding had been contributed to an S&P 500 mutual

fund. Obviously a nuber of different starting dates would have to be considered. In additon, you would

have to consider whether the employer's share should go into the existing system and whether there would

be a required, long term transition to debt investments after the age of 50 or 55.

"whereas once you have your 40 quarters (as the vast majority of SS contributors will) you are guaranteed

one. "

Not true. If you die before you turn 65 (and never become disabled, a survivor, etc.) and have no

dependents, there will be no payout of any kind. Your money will have been taken from you and you willhave received absolutely nothing in return.

I've always thought it to be somewhat amusing that people supposedly need retirement insurance

(insurance that pays off if you live too long) AND life insurance (insurance that pays off if you die). Isn't

that sort of like owning and shorting the same company?

^ One is for you, the other for your heirs.

On October 16, 2012, at 3:21 PM, debitthat w rote:

On October 16, 2012, at 3:22 PM, CluckChicken w rote:


On October 16, 2012, at 4:33 PM, mdk0611 w rote:



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Right, but my point stands.

Rather than buying insurance for two opposite events, someone could simply save their money for a rainy

day, and it could accomplish either end without involving government breaucrats OR corporate fat-cats.

If you live "too long" your savings can provide for you, and if you die "too soon" then your savings can be

passed on to your heirs.

When you keep and save your own money, it manages to be both a defined benefit AND a defined

contribution. Imagine that.

Wow, Morgan. I'll give you points for willingly stepping into the room with the tiger and then closing the

door behind you!

"I would suspect most serious investors here could do a LOT better with their money than what the

government is going to do, no?"

I don't think SS was created for serious investors here.

I would bet that most people could not/would not do better If, given the money paid on their behalf.

Morgan and stimpycocoapuffs, the argument to privatize is being distorted by you, why I don't know. The

framework for privatizing centers around giving younger workers the opportunity to invest using individual

accounts. Investable assets would include stocks, corporate bonds, precious metals, us bonds, and foreign

government bonds. A much bigger market than what you indicate.

Also, the entire yearly revenue wouldn't be going into the market every year, as revenues are paid out

every year also.


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much hype, misinformation and outright lies (for political reasons) shrouding this topic that it is absolutely

refreshing to get a ray of facts for a change.

Those who advocate for privatizing SS should really consider the state of our union. Unlike most of the

TMF members, very few Americans have the smarts, the means or even the basic understanding of how

to balance their pocketbook let alone plan and manage their retirement plan. The majority don't have a

household budget at all, and millions can't even comprehend the compound interest charges on their credit

cards. Consider also the millions that depend on food stamps, those that live paycheck to paycheck, and

the millions who don't even have bank accounts or access to the Internet. Consider how many millions of

Americans don't have even elementary level reading, writing and arithmetic skills. Do you really expect

such folks to comprehend retirement investing/planning, and to make such crucial investment decisions

with their retirement funds?

Even many of my own family and close friends, with college educations and serious incomes don't have

the first clue when it comes to investing and financial planning. Many of them never get beyond auto-pilot

401K deductions in overhyped and high-fee mutual funds, and never even take the time to think about a

retirement strategy, or even read a mutual fund disclosure document.

Let's get serious about this problem and let's not pretend that anything that involves government is

doomed to failure. From what I have seen and experienced, most Americans are better off with inept

government bureaucracy than swimming the predatory Wall Street banksters.

I really like these kind of fact based articles. Thanks very much. Here's what the gvt did in canada:

1- Put in some real money. The Canada Pension Plan is not an actuarial notation in the gvt's books. It has

actually money in an actual trust that can't be raided or underfunfed by the gvt.

2- Real money means real investments; not just treasuries. the CPP is run exactly like a pension fund by

pension fund managers. It buys anything including companies all over the world. It's like a sovereign

wealth fund.

3- Here's the kicker: Over the last 10 years or so, the contribution rate has been increasing by about 1%-

point per year, from about 3% of salary (capped at about 40K) to 12% now. Once again, boomers make

out like bandits and Gen X and Y get the shaft.

This article seems slanted to me. We may not YET be bankrupt but we are surely on the road. if we don't

fess up to the real structural problems in SS then we will never solve them. Means testing, Reducing

Benefits, Raising the retirement Age and other changes are the only solution.

You don't have to follow the Chile example, 2 Texas counties (Galveston and I think Beauford) opted out

of SS in 1985 for county employees in favor of a private system.

Their plan included life and disability insurance.

Last article I read on this, the employeesand plan were doing fine.

Seems you can never overcome people's prejudice when it comes to Social Security. All the ponzi

schemes and government stealing makes for good science fiction, but without any economic truth. I

especially enjoyed the definition of bankrupt (assumed he mixed up assets and liabilities) which would

define about half of corporations as bankrupt including almost every company in the financial sector.

No mention that Social Security uses interest from Government bonds? And that interest is now

On October 17, 2012, at 4:25 PM, irvingfisherw rote:

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On October 17, 2012, at 6:05 PM, venturen w rote:


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dramatically lower....pushing up the date of insolvency. Was this put out by the Obama balanced budget

committee?l

An IOU to yourself is not an asset. If so, we could all instantly make ourselves billionaires.

The federal govt has borrowed from the fund because govt can't pay its bills and promised to pay the fund

back with interest. At the same time the govt continues spending more more than it takes in. It's kinda like

loaning money to a junkie and expecting to get it back.

I find it interesting that one of the earliest comments accused TMF of being left leaning. It is pretty

obvious that from most of the comments that the majority of MTF subscribers are right leaning. Not a

criticism, since we are all trying to make money out of investing, just an observation.

Author is so wrong so many ways.

Myth 1: When payments exceed income, that's bankrupt. You can argue definitions. Don't. It's bankrupt.

Myth 2: It IS hard. The solution is simple, sure. Getting Congress to implement it is hard. Much more fun

to show granny pushed off a cliff than to implement simple fixes. Author is wrong again.

Myth 3: If it's true it's not a myth. Seriously. Just write an article making your points without resorting to

"myth busting" and "fact checking".

Myth 4: You gave an example refuting your own claim. It can add to the deficit because it already has.

Myth 5: Score! You got this one right.

"Then there is the brother of the President, Jose Piera, who is today revered in many economic circles

for his application of Chicago School-inspired principles, yet whose connections to Pinochet run even

deeper. Jose Piera was a minister in the Pinochet cabinet from 1978 to 1981, first as the Secretary ofLabour and Social Security and then as Secretary of Mining (much of Chiles economy is dependent on

the vast copper and nitrate mines in the north of the country). During his period in office, Jose Piera

introduced legislation that saw large-scale privatisation of the pensions system and healthcare, and the

repeal of laws introduced after the coup that had effectively banned trade unions, following the threat of a

boycott of Chile from North American trade unions, something that would have had severe implications

for the Chilean economy."

Above excerpt from:

Pieras administration haunted by ghosts of Pinochet era...by Nick MacWilliam..

Google up the entire article for a real eye opener on this guy

Some may see him(Pinera) as a savior..I see him as a smug manipulative neofascist.

The people calling social security system a ponzi scheme make me laugh. If you as a private investor

invested in government debt, would you expect to get repaid/earn interest? Why is it any different for SS

tax payers?

To further aggravate my irritation, when the trust fund was originally raided the government essentially

replaced cash with so called IOUS at face value. In other words they replaced it with the maturity value of

the debt instead of the free market equivalent value if purchased by a retail investor.

On October 17, 2012, at 7:06 PM, ahochau w rote:

On October 17, 2012, at 7:14 PM, 102971 w rote:

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On October 17, 2012, at 7:35 PM, GRTTT7 w rote:

On October 17, 2012, at 7:50 PM, eldetorre w rote:


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The solution to SS is very simple:

1-It should be converted to a DEFINED CONTRIBUTION SYSTEM the exact equivalent of retail

investors purchasing Gov't debt. Gov't debt purchased by SS taxes should not be a second class citizen to

retail purchasers or bank or foreign government purchasers. Just like other debt holders SS recipients

receive just what they paid into it plus interest, nothing more except in cases of poverty

2-The cap should be raised, but only on the employee, not employer portion of the contribution.

Oh as for the counties that opted out of social security are you kidding me? For all you know they are

investing in Gov't debt, plus charging service fee. They guarantee 3-4%, but on what basis? Sounds like

they just pulled a number that sounded conservative out of the air. The fact is until most of those people

actually start retiring you don't know how sound the plan is. If there were a large number of retirees 4-5

years ago, how would they fare?

I love the Fool. But this loses credibility. Those IOUs are going to come due soon.

Have you ever seen this viewpoing?

I am 73, drawing Soc. Sec. since age 67+.

Started at approx. $17,500 per year, less medicare insurance, and this year I am receiving $21,480.

So...I have collected approx. $112,480 in SocSec benefits since retiring.

I'm in pretty good health so let's say I live 10 more years to age 83. I will receive a minimum of $215,000

more in the next ten years, plus the $112,000 I have already collected for a total of $327,480.

I know how much I have paid into SocSec according to SocSec statements they send to you.

If you were to take the annual interest rate being paid for each year you were paying in, and used your

cumulative sums that you paid in each year, adjusting for the different interest rates each year, andcomputed how much your "nest egg" would grow as you add to your annual contribution, plus interest at

the going rate, there is no way, even with the compounding of interest and my contributions up until

retirement that I am "entitled" to receive this much money.

I, and all other SocSec recipients who live for a reasonable time past the start of their retirement are

receiving much more than we should be getting. That is why the Soc Sec is corrupt and a "ponzi" scheme.

And now, there are not enough poor souls working who can support the system with all the baby boomers

retiring.

FDR never intended for SocSec to allow people to live on it. You were supposed to have your own

money set aside for retirement and not spend it all foolishly, expecting the government and SocSec to take

care of you in retirement.

Moreover on pt #5, if there are 2/3 of retirees that SS is majority of income, that still allows that over 50%

could be effectively relying on something else besides SS. Yet tha gov. took over 12% of their lifetime

earnings (both sides of employer/employee shares) and the worker has no control of their funds. They rely

on the future whims of lawmakers and financial journalists to decide their money's fate. But they

sawthewriting on the wall and the reality and saved for themselves as a true fool would.

Let's get our myths and realities in a clearer picture.

On October 17, 2012, at 8:00 PM, eldetorre w rote:

On October 17, 2012, at 8:19 PM, atking w rote:

On October 17, 2012, at 8:29 PM, BHOmustGO w rote:

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The Federal government's Social Security program has one advantage no private business retirement plan,

or stock investment can ever have. The government can print an infinite amount of money which you

have NO CHOICE but to use inside the United States. That money may be worth less and buy less, but it

will NEVER be worth zero. The United States government can never go 'bankrupt' because it can print all

the money it needs. It has the power to create cash from nothing, without borrowing it from anywhere,

should it chose to do so. Private businesses can go bankrupt and their retirement plans can go broke, and

the stock market can crash. Let a war cut off oil from the Middle East for 6 months and you will witness a

lot of both.

The idea that Social Security is a ponzi scheme is totally absurd. Of course, some very wealthy people,

especially associated with Wall Street, would love to destroy the Social Security system, because it would

force more money into their pockets as people are forced to invest more into private investments in order

to provide some retirement income. That is where the recent bashing of the SS system is coming from. As

evidenced by what happened that led to 2008, their lying and greed knows no bounds. And they are richer

and more powerful than ever as evidenced by the fact that Citigroup alone got $45,000,000,000 of the

taxpayer's money after they nearly destroyed the global economy with their reckless financial

instruments.That is peanuts compared to what they dream of getting their hands on if they can destroy

Social Security.

These five points don't add up to much. Sounds like they were not written by a true fool but by a

politician.

1. Failing to be able to meet financial obligations is the definition of the road to bankruptcy.

2. Solve the shortfall by raising taxes, great idea. Better cut benefits to those who have already paid in

fully. Raise the age, good luck collecting.

3. If life expectancy is up only 2 years , then raise eligibility by 5 years, Ouch!

4. SS doesn't add to the deficit. But out of the blue stop paying SS taxes and the deficit is put to the Gen.

Fund. No Act of Congress, just whim. How easy. Try to sort that out after a few more such episodes.

My experience is that any time there is a pile of money someone will come along with a superficiallyplausible reason why they should take the money.

Social Security in its present form is a pile of money that Wall Street cant touch. To bankers, that money

is like a naked woman and they just want to get in bed with her.

If you doubt the principle that when there is a pile of money someone will come along with a reason why

they should take the money, consider what the states are having to do now in regulating long term care

insurance. The insurance companies have been collecting the premiums for years and now that it is time to

pay they are trying to avoid their contractual obligations.

To me, the present situation with long term care insurance is beginning to resemble the way health insurers

have behaved prior to the enactment of Obama Care.

You would think that with the surge of baby boomers just finishing up the highest-earning years of their

lives, tax revenues would be at an all-time high and the govt would be enjoying massive surpluses. Instead,

our government is in terrible financial shape, and things will only get worse as those high-earners stop

earning and start collecting benefits. We're in big trouble.

The deficits and so called SS bankruptcy are charade invented by the elite. SS is not the problem.

Take a look at the US budget; you should note that the US spends more on defense than virtually all other

On October 17, 2012, at 8:53 PM, rashworth w rote:

On October 17, 2012, at 9:46 PM, DonSchreiberw rote:

On October 17, 2012, at 10:14 PM, mikew12345 w rote:

On October 17, 2012, at 11:01 PM, FoolSolo w rote:
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countries combined, almost 5 times what #2 - China spends, and 10 times what #3 - Russia spends. Yet

the defense budget is a sacred cow no politician dares touch. Frankly, I would prefer if the fiscal cliff

actually went into effect - maybe then people will realize what a scam our defense budget really is.

This is a well written article but there is such widespread distrust of SS and government finance that it is a

challenge to explain. So I will try to clarify the matter of adding to the public debt. As all should know, by

law the Trust Fund was created to allow for an accumulation of revenues to ease the impact when the

annual receipts were less than the income. It was mandated that the fund was to be invested in a special

class of treasury bonds, only redeemable by the treasury, and with interest paid at the time of redemption.Presently, the treasury owes the fund about $6.3 trillion, which is a great deal more than is owed to all

foreign countries combined. The debt to the Trust Fund is included in the national debt just like a privately

owned long term bond or money borrowed from China. This does not make it a contributor to the national

debt as it is not the cause of the debt. If you personally buy a treasury bond the government owes you the

value of the bond and that amount will be counted in the national debt. But you didn't cause the debt.

How the government gets the funds to redeem your bond is irrelevant. If there is a budget surplus that

year, it can be paid with cash. If not, the government will have to sell more bonds, which is how most of

the debt is rolled over.

For those who think privatizing is the answer, make a list of the pitfalls, risks, bookeeping, investment

costs etc. and ask, "If we are willing to take more risk then turn large amounts of the Fund over to private

investment managers (such as those who run Harvard's endowment) and hopefully increase the Fundsincome".

Seems that you forgot to include the fact that their is no "Lockbox" since Congress saw fit to include it in

the general revenue fund for the past so many years...and because of that little fact, it would not run out

of money, but in the real world, anything that takes in less money than goes out ultimately goes bankrupt!

PeakOilBill : The only reason the money will not got to zero value is the government controlled lands that

"belong to us" (yea, right!) have $trillions in assests on and below them. If it weren't for that little matter,

our money would be zero value around the world!

@irvingfisher

I think you need to check your numbers. The contribution rate for the Canadian Pension Plan is only

4.95% of your salary (quite a bit different from 12%), with a mzximum payment of $2,306.70 (Which

means anyone making over $47,000 pays less than 4.95%)

As far as SS is concerned, if you raise the age of eligibility, that is a de facto bankruptcy for anyone who

dies between age 65 and the new age, because instead of the payments they're expecting now, they get

none.

I'd prefer that people were more panicked about this rather than less, because then the problem mightactually get dealt with.

Quit calming people down and start fear-mongering!

I have a few problems with this article, aside from the political leaning. One, relying on a government that

allows itself to accumulate $16 trilion in debt is sorta like relying on your spendthrift sibling that has 3

mortgages on their house and all the credit cards maxed out to support you during retirement. Two, the

shortfall will be made up with either higher taxes or reduced benefits. The chart, when you boil it all down,

essentially gives combinations of those two options. Three, what is the opportunity cost of relying on a

government funded system as opposed to either a completely private system or some type of hybrid to

On October 17, 2012, at 11:35 PM, lmrohde w rote:

On October 17, 2012, at 11:54 PM,jfrankh57 w rote:

On October 18, 2012, at 12:01 AM,jfrankh57 w rote:

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cover disability and survivors benefits for younger workers who die without having contributed for a

standard working life? In other words, instead of the government holding debt to fund a retirement system

that doesn't give you enough to live off of anyway, why not have a private system (or at least offer the

option to those who are astute enough to manage their own investments) that allows people to accumulate

wealth outside of a government system? Four, Social Security is an unfunded liability on the books of the

US government (and future taxpayers) that has got to be in the hundreds of trillions of $$$.

The tea party types never let the truth affect their anti American attitudes. Yes, the govt is us.

Going bankrupt means you restructure or close down, in SS case you change benefits and pay out an

amount equal to income, nothing like going out of business. SS covers a minimal standard of living that

assures that massive numbers of elderly and people with disabilities are not made homeless and destitute.

Consider this: if we increase poverty people wil spend less and businesses will suffer, too.

" just save more" bull the minimum wage and other wages without unions are so low millions of folks need

fod stamps to feed families. That includes military members who do the actual fighting. How does that

person save for retirement when all income is needed for rent and food? Get real, are you that out of

touch?

hmmm

I wonder if those who dislike social security, or who accuse it of being a ponzi scheme, also dislike life

insurance, health insurance, property insurance, auto insurance, etc., or think that they are also ponzi

schemes.

"Two, the shortfall will be made up with either higher taxes or reduced benefits. "

This is simply not true. The shortfall will be made up with BOTH higher taxes AND reduced benefits.

And if history is any indicator that trend will continue until it is just a tax.

In all seriousness though, if someone making $250,000 is "rich", and should be made to pay more of their"fair share" as the leadership keeps touting, it worries me greatly for the future. While I am not in that rich

category, that category will drop as well as money gets tighter. And I have no doubt that some in the govt

have the same idea as some of the geniuses posting on here that want to remove the caps.

I had always dreamed of "making it" someday, but I am seriously doubting that will be an option for very

much longer. Even if I have a decent ride through retirement, no way my kids will. I am not confident this

ship can be turned either. If I had a dollar for everytime my Dad said "nobody in this life owes you a

damn thing and you always remember that" I would be in that rich category. Unfortunately, that mindset

seems to be something out of the past. Everyone wants security and fairness now instead or opportunity

and freedom.

Maybe it is indirectly addressed through one of the methods in the article, but another (and possibly most

likely) remedy the goverment will take to address the shortfall is to raise the general income tax rate on

deferred compensation plan (401k, IRA, etc) withdraws.

Hence the people that did the "right thing" and saved for their retirement in these plans get screwed again.

You'll pay for the shortfalls and short-sightedness of others.

Pay the taxes on income now, save tax free (i.e. income taxes already paid) money in a taxable or Roth

account.

On October 18, 2012, at 12:42 AM, Arneschonb w rote:

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On October 18, 2012, at 1:58 AM, neocolonialist w rote:

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Good article, for the most part.

Social Security is just FINE except that: 1. Because of current United States demographic trends in about

2033 the Social Security Trust Funds will start to experience greater cash out-flows than cash in-flows.

That "problem" too can be fixed, sort-of by increasing the Social Security wage tax rate, and expanding the

Social Security wage earned income base to the first five hundred thousand dollars of wage income. The

out-flow "problem" can be fixed by not allowing Retirement payments to be made to any US Citizen who

earns more than $250,000 per year. The easiest "Fix" is also available by simply using the "normal" Full

Social Security Retirement age to reach age seventy. Many, many of the United States' Retired Senior

Citizens are still well able to work productively until age seventy or greater.

The funding of the Trust Fund can also be improved if the Trust Funds are allowed to own stock in large

FORTUNE 1000 United States Corporations. Many, many of these companies pay dividends whose yield

greatly exceeds the yield on long-term U.S. Treasury securities. Also, the Trust Fund should actually

purchase real, marketable U. S. Treasury securities rather than the "Funny-money," non-marketable paper

they now receive.

Kahuna, CFA

Venture Capital

General Partner

2012 - 2019 or 20

Social security is adding to the financial problems of the USA (and other developed countries), there is no

way to skirt around it.

It makes no difference how you like to apportion the liabilities and separate out trust funds etc. the bottom

line is that money COULD instead be more productively allocated in a country which has the biggest debts

in the history of this planet. It's about prioritising tax spending. It is still yet another tax funded burden

being placed on the working citizen however you cut it.

By the logic of this article, we can fix the entire sovereign debt problem just by putting the state's revenue

into that trust fund and hey presto! problem solved. Maybe we can create a trust fund for bailing outbanks run by incompetent crooks since that seems to be another big area of spending?

Author please get real - NET SPENDING MUST BE CUT!!!!! It makes no difference how you separate

it out, because social security is not the only thing our government spends our money on.

Sorry to say this, because I like MF, but this article is just socialist propaganda.

This is a sad sad article and total nonsense! Social Security is a complete PONZI scheme that is a disgrace

to America.

This idiot says the shortfall doesn't effect the deficit. If the government has obligations of X dollars and is

taking in less than X it is a deficit. The source is the same as all government expenditures. TAXES FROM

PEOPLE.

The Social Security surplus has been used by our lying cheating congressmen to balance the budget. The

"great" Bill Clinton's surplus was only because of the Social Security Surplus.

Social Security was created for RETIREMENT ONLY!! Again the criminals in congress have bought

votes by making it for disability, and widow and orphans.

It is a PONZI scheme that needs to be phased out!! Motley Fool should be using this as an opportunity to

On October 18, 2012, at 4:46 AM, Noneleft01 w rote:

On October 18, 2012, at 4:49 AM, Noneleft01 w rote:

On October 18, 2012, at 7:38 AM, wvowell w rote:
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18/42



show people that if they could keep their Social Security and invest it on their own they would be far

better off.

Articles like this are so disgusting to me, and to have people that actually think this is a good program.

Hopefully the non-thinking liberals can understand this.

A 26 year old makes $20,000 with NO raises until they are 62. In other words 37 years of an income of

$20,000 each year. If they kept their own social security and the company match. If they got 5% growthper year. They would have in their account at age 62 --- $256,102.91. This would be THEIR MONEY.

They could do what they wanted with it!!! If they died they could pass it on to their heirs. WOW, wakeup

wakeup realize government is a burden not an assest to all of us!!!

One other thing about this article. There never has been a TRUST FUND for Social Security. It does not

draw interest as the government keeps the money and uses it for all government programs.

Social Security is a farce, PONZI scheme, and it's a shame that we don't have enough citizens to realize

this. It is simple math and experience of what are socialized government does with OUR MONEY.

One other thing. All taxes are paid by citizens. When corporations are taxed, that tax expenditure is pastedon to customers of that corporation. PEOPLE and only PEOPLE pay taxes.

Hey, how about this!

If Social Security was on the Stock Market would any of you invest a dime into it?

How about the author of this socialist propaganda, would you invest money in this scheme?

People use the phrase "Ponzi scheme" to describe anything in the financial world they're unhappy with.

The worst case scenario for SS is that future beneficiaries receive 75% of what they're currently promised.

That's if no changes to the system are put in place, which is highly unlikely.

We went through this same thing in the early 1980s. The standard opinion towards SS then was that it was

a ponzi scheme destined to soon go bankrupt -- 1990 was the breaking point at which the system was said

to go bust. Then Reagan and Tip Oneil tweaked payouts and taxes, and the world went on.

SS can be made permanently sustainable with tweaks that most wouldn't even notice -- changing PIA

factors to rise with inflation instead of earnings. It seems those most critical of the article won't even

acknowledge this, and choose dogmatic gloom over facts.

"choose dogmatic gloom over facts."

Well why let those peasky facts ruin a good doom and gloom?

Myth #1 should be that "SS is a benefit" or "there is a trust fund." According to the law passed in 1947

and the Supreme Court ruling in 1948, SS IS A TAX which is placed into the General Fund for Congress

to do with as they see fit. Congress gets to decide- always- IF and WHAT we get paid when. Much like

Obama-Care, SS is a TAX. There is NO OBLIGATION on Congress or the gov't to pay a nickel to

anyone.




On October 18, 2012, at 8:28 AM, TMFMorgan w rote:

On October 18, 2012, at 8:35 AM, CluckChicken w rote:

On October 18, 2012, at 8:51 AM, Rudder99 w rote:
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Why are "facts" so hard to discern these days?

@Tomohawk 52: Bingo.

Lefties: if Social Security is not meant to be a retirement program and it is to 'insure' against 'long-life' (an

outcome which is highly probable by current age definitions), then WHY do so many seniors rely solely on

Social Security for retirement? Who is to blame for their lack of savings?

"There are two basic ways to close that gap. ... Other strategies could include things like allowing more

immigration to reinforce the population of working-age citizens or paying for it out of the general fund, but

they aren't discussed as often."

So you want to bring more people into an economy that cannot support the people that are already here

...brilliant!

Rudder99 ,

Who has argued that payroll taxes aren't taxes?

SS HAS borrowed to pay out! See: http://cnsnews.com/news/article/15-last-25-months-treasury-n... Now,

I've paid in almost a quarter$million to the SS program. At a conservative rate of 4% I'd have all I'd want

for retirement but now will pay "tax" on my taxed SS!

It is a PONZI scheme. The stock market investors

by accounts are 85% institutional investors with federal state and local municipalities providing a huge

amount. That leaves only 15% private investors. Making SS a private institution would skew the market

even more. A previous writer is correct. Do away with it. By the way, what happens to the SS paid in to

the system of those who die without drawing (younger than retirement age) or without drawing out their

amount they paid in? I've never seen figures on those statistics.

BigDwayne,

I think you are mistaken.

You say you have paid almost a quarter million into SSI.

The taxable maximum in 2011 was $110,000 at 10.4% employer/employee combined for SSI.

The taxable maximum in 1937 when the program started was $3000.

At 10.4% the maximum you contributed in 1937 was $312.00, and the percentage was lower then.

Had you paid the maximum every year you would have had to start before the inception of SSI to have

contributed $250,000. The most you could have paid in at 10.4%, if you had started in 1937 is $216,200

and it is probably much less because the rate used to be much lower.

had you begun paying at birth, before you began working you would be 75 years old today and you would

have already taken out more than you had put in, plus had the pitifully low security of disability benefits.

had you begun paying the maximum contribution in at age 20 you would be 95 years old and gotten far

better than a 4% return on your investment of less than $216,200.

Kahuna, or someone, please feel free to check my math and feel free to calculate the maximum

On October 18, 2012, at 8:54 AM, SwampBull w rote:

On October 18, 2012, at 8:54 AM, smacunalum w rote:


On October 18, 2012, at 9:10 AM, BigDwane w rote:

On October 18, 2012, at 10:04 AM, devoish w rote:
http://boards.fool.com/Profile.asp?uid=42911479http://boards.fool.com/Profile.asp?uid=640960819http://boards.fool.com/Profile.asp?uid=1663498006http://boards.fool.com/Profile.asp?uid=1596820179http://boards.fool.com/Profile.asp?uid=478176842http://cnsnews.com/news/article/15-last-25-months-treasury-needed-borrow-money-pay-social-security-benefits


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contributions at the correct tax rates if you wish.

I have to go to work.

http://www.ssa.gov/policy/docs/policybriefs/pb2011-02.html

Best wishes,

Steven

^ Facts!

I notice Moscovitz did not address the non myth of the massive abuse of the SS disability program, which

has exploded recently. I sure all have seen the attorneys Binder & Binder commercials on TV. They have

made a lucrative practice of promoting the abuse of the system.

The system is broken; period.

Yikes! Weird article--each point (except Point 5)could have been written under the headline "Truth No 1""Truth No 2," etc. Most of the data referenced under each heading is actually relevant, but it takes very

naive worldview to review that data and then say that the conclusion that there is a problem constitutes a

myth. By the way, as the author no doubt intended, the label "myth" is particularly demeaning to people

who actually care about this stuff. It is inevitable that corrections will need to be made to the SS system.

But it is unlikely that those corrections, which will overwhelmingly be on the side of the payors, will be so

painless that you can refer to them as tweaks.

This seems like a political piece in a political season. I don't like it, nor will I waste my valuable time

replying.

So, your definition of bankruptcy means an entity has no revenues?

Bankruptcy, to the rest of us means you have bills you can't pay, and won't be able to pay in the

foreseeable future, without significant concessions from your debtors - a restructuring.

Point 5 you make is eye-opening. When I think of our "rate of return" in SS, it completely ignores these

facts. Thanks!

@rd80:

So you're saying if SS has a shortfall and cashes some of its treasury bonds that's adding to the deficit? By

the same logic, when I get around to cashing all of my treasury bonds (which are paying less than the rate

of inflation, but that's another story) I'll be adding to the deficit. It's a strange piece of accounting, if

lenders calling in their loans under the terms of the loans (collecting any interest or forfeiting any penalties

as appropriate) adds to the deficit. Even if Congress is forced to find other lenders to meet its budget, how

is that adding to the deficit? Borrowed money is borrowed money.

The notion that SS is a Ponzi scheme is pure political hyperbole, taking advantage of the Madoff scandal

current at the time it was first used. I don't think it's "left-leaning" to point that out.

In case it's not obvious, there is a huge difference between paying old investors with money from new

investors to give the illusion the investments have been profitable, and a pay-as-you-go system with an


On October 18, 2012, at 10:20 AM, ginger2375 w rote:

On October 18, 2012, at 10:30 AM, vitom999 w rote:

On October 18, 2012, at 10:52 AM, KyleSanDiego w rote:

On October 18, 2012, at 11:00 AM, iamtheschmitzerw rote:

On October 18, 2012, at 11:05 AM, ziq w rote:
http://boards.fool.com/Profile.asp?uid=42618340http://boards.fool.com/Profile.asp?uid=1576345369http://boards.fool.com/Profile.asp?uid=1533700096http://boards.fool.com/Profile.asp?uid=1650509190http://boards.fool.com/Profile.asp?uid=402316766http://boards.fool.com/Profile.asp?uid=1663498006http://www.ssa.gov/policy/docs/policybriefs/pb2011-02.html


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honest discussion of the fact that it's not structurally sustainable past 2033: transparency.

The TRUTH is what you BELIEVE!

LEAD, FOLLOW, or MOVE ON!

"By the way, as the author no doubt intended, the label "myth" is particularly demeaning to people who

actually care about this stuff. It is inevitable that corrections will need to be made to the SS system."

Not at all my intention; I care about this topic. Nor do I think corrections won't need to be made (see the

discussion under myth #2 of possible corrections.) The goal was just to address some of the most

common misconceptions about the program. If we're going to fix things, it helps to be working off of facts

and numbers rather than rumor.

"So, your definition of bankruptcy means an entity has no revenues?

Bankruptcy, to the rest of us means you have bills you can't pay, and won't be able to pay in the

foreseeable future, without significant concessions from your debtors - a restructuring."

When people say "Social Security is going bankrupt" what they're suggesting in everyday speech is that

Social Security is going out of business. That's the mistake I was pushing back against, because the only

way to reach that conclusion is to ignore the revenues Social Security collects.

Adding to the mythology...

A. We could raise the cap on earnings. ah, we do this every year (3% this year, yet maximum benefits do

not increase 3%).

B. We could remove the earnings cap all together. ah, this, along with the current means testing of ss

benefits (you know treating ss benefits as income subject to taxation, thanks to Bill Clinton and AARP),recategorizes SS all the way from the old definition of SSI (I = insurance) to a welfare program. Sorry

Grandma, you're on the dole. Oh, and once you remove the cap, you can't do it incrementally anymore. I

wonder if anyone might modify their behavior if the cap is removed.

C. Privatizing ss is a risky republican scheme. Ah, allowing an individual the option (that means you don't

have to do it), to have their own (that means they own it) account that they can invest in is risky, but just

giving everyone (that means they have to do it) 32.2% of their employee contributions willy nilly with no

requirements to invest them (how about buying lottery tickets) is not risky because obama proposed it

(reduced employee share of ss from 6.2% to 4%).

Thanks for reading.

Mr. M of MF;

Pretty good article that needed to be writen. I thank you, and I'm sure lots of others think the same. Don't

be too sad because some folks are wearing ideological blinkers (if not blindfolds).

They are too busy grinding their axe to think about anything but saying NO.

The CBO has the solutions, or tweaks, to the system. No system is going to work perfectly forever. Even

our constitution has been tweaked a few times. Hang in their M, some of us are listening. (Some of us

actually think about solutions instead throwing the baby out with the bathwater)

On October 18, 2012, at 12:52 PM, Rebud w rote:



On October 18, 2012, at 2:28 PM, LouisDous w rote:

On October 18, 2012, at 3:27 PM, FEP w rote:


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Pressed Ham.

A large number of glaring errors need to be corrected:

-- "Historically, Social Security has collected more than it paid out."

NOT TRUE.

Social Security was designed as a transfer-payment system, ie. pay-as-you-go. The current generation of

recipients got their money from teh current generation of workers. In 1983, I believe, Congress passed a

law to create the Social Security surplus because they actuaries warned them that the baby boomers

wouldn't have enough youngsters around to support them financially.

-- "... it's expected that insurance payments will begin to exceed income in 2021"

NEWSFLASH!!

It already started and was widely reported.

-- "There are two basic ways to close that gap. ... increase payroll tax revenue by raising the cap or raising

the rate. Or we could cut benefits by lowering payments and/or raising the retirement age."

There is nothing sacrosanct about the amount of money that people get. This is completely arbitrary anddecided by the government, based on people's contributions. The problem is that everyone who is retired

or retiring has structured their lives around these payments. This has to be done gradually.

-- "a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't

support its beneficiaries because workers become more productive over time."

What does productivity have to do with anything?? Social Security is based on monies contributed. If

workers aren't bring in the cash, you can't make the payments.

-- "... other ... reasons for the ... shortfall, including declining birth rates and rising income inequality"

What does income inequality have to do with it?? The bulk of the workers support the bulk of the retirees.

Their pay is what should be driving payments. Income inequality is PC talk.

-- "Social Security's trust fund, like many insurance funds, invests in Treasury bonds."

There's a very big difference. Unlike insurance companies, Social Security can't sell its bonds to raise

money. Instead, the Treasury must redeem the bonds and go to the market to pay for them. It makes

complete sense to include this debt in the budget.

"-- "... it's expected that insurance payments will begin to exceed income in 2021"

NEWSFLASH!!

It already started and was widely reported."

^ Insurance payments recently began to exceed non-interest income, not total income. From the report

linked to the article:

Annual OASDI cost exceeded non-interest income in 2010 for the first time since 1983. The Trustees

project that cost will continue to exceed non-interest income throughout the 75-year valuation period.

Nevertheless, total trust fund income, including interest income, is more than is necessary to cover costs

through 2020, so trust fund assets continue to grow. Beginning in 2021,

cost exceeds total income and combined OASI and DI Trust Fund assets diminish until they become

exhausted in 2033. After trust fund exhaustion, continuing income is sufficient to support expenditures at a

On October 18, 2012, at 4:07 PM, zgrinerw rote:

http://boards.fool.com/Profile.asp?uid=435114538http://boards.fool.com/Profile.asp?uid=201619


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level of 75 percent of program cost for the rest of 2033, declining to 73 percent for 2086.

"What does productivity have to do with anything?? Social Security is based on monies contributed. If

workers aren't bring in the cash, you can't make the payments.

-- "... other ... reasons for the ... shortfall, including declining birth rates and rising income inequality"

What does income inequality have to do with it?? The bulk of the workers support the bulk of the retirees.

Their pay is what should be driving payments. "

^ This is addressed earlier in the comments. Productivity measures the economy's ability to support social

security on a per worker basis, explaining why it's possible to handle some of the demographic changes.

Higher nominal wages over time mean more revenue into the system per worker. (Not to downplay the

problem of real wages stagnating since 1980; that's an important but separate problem.)

"There's a very big difference. Unlike insurance companies, Social Security can't sell its bonds to raise

money. Instead, the Treasury must redeem the bonds and go to the market to pay for them. It makes

complete sense to include this debt in the budget."

^

I'm not so sure. If someone lends you $100, your net debt hasn't increased ($100 in cash + $100 in debt =

$0 net debt.) Nor does debt increase when they redeem their $100.

Really all that happens is that you've reduced your reliance on other lenders like CHINA, a country which

we're always hearing supposedly has a debt gun to our collective heads and stuff, despite the fact that they

only hold a fairly small percentage of our outstanding debt.


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with that. The other goal is to serve as a sort of govt. sponsored pension program.

It is truly scary that so few enter their elder years with almost no savings as has been reported lately in the

news and on this site. They just count on SS to take care of them.

Oh, and I may say signing your posts "Eric Kingson

Professor, Syracuse University

Founding Co-director, Social Security Works

Co-chair, Strengthen Social Security Campaign ( www.strengthensocialsecurity.org )." makes you sound

like a big douche.

It has often been estimated that by 2033, Social Security won't be able to pay out full scheduled benefits.

Proposals for fixing the problem range from lifting the payroll tax cap, or raising rates on wage earners, or

cutting benefits through payment reductions, or introducing ever-higher retirement ages. It should be noted

that while average lifetimes have increased somewhat (with more folks living in retirement communities

and nursing homes), the number of years when a person could actually be expected to stay employed full-

time (because his/her health has not declined) haven't significantly changed. Also, many corporations nowlook upon experienced employees in their '40s and '50s as "overqualified" -- a common euphemism for

"too old." Therefore, how are well-seasoned, healthy citizens suppose to support themselves for the

intervening 10-20 years when both decent jobs AND Social Security are not available to them? Higher

retirement ages will only aggravate this situation.

By the logic of this article, we can fix the entire sovereign debt problem just by putting the state's revenue

into a trust fund and hey presto! problem solved. Maybe we can create a trust fund for bailing out banks

or auto companies run by incompetent crooks too, since that seems to be another big area of public

spending?

Back in the real world, it actually makes no difference how you apportion liabilities and separate out trustfunds etc. because the bottom line is that money all comes from taxes on working people, and COULD

instead be more productively allocated in a country which has the biggest debts in the history of this

planet.

The golden rule which socialists never understand is "money doesn't grow on trees". Someone has to earn

it before it can be taken away and spent by the state. SS is still just another tax funded burden being

placed on the working citize

5 huge myths about social security

Documents