THE Social Security Thread (merged)

Itch · Heavy Crude Joined: Jun 30, 2004 Posts: 338

I'm sure this has been discussed before, but I was unable to find anything about it. I've heard people talk about the economy collapsing when the baby boomers retire. Whenever I try to learn a basic concept of economics, I'll usually go into convuslions that usually result with foaming at the mouth from the confusion of the material. Why would the economy collapse with a certain generation retiring? Not all baby boomers are the same age, so is there a cut off date or something when the baby boomers officially retire?

JayHMorrison

OilBurner · Heavy Crude Joined: Jun 03, 2004 Posts: 417 Location: UK

Same kind of problem here in the UK.
After the war, loads of babies who will all be retiring in the next 10 years or so.
Since then, hardly any babies so that the number of people working is not sufficent to pay for pensions and healthcare for those in retirement.

Result? Collapse of pension schemes, taxes go up to fund the National Health Service and now the goverment is mooting the idea that the enforced retirement age should be 70 years of age. Yep - 70!!
Naturally, few people can afford to retire early and the current pensions are so poor that situation will get worse.
According to the trade unions, around 1 in 5 people will die before collecting their pensions at 70.
Not to mention the inability of people in certain trades to carry on to that age. How many people will have severe RSI after working with computers day in, day out for 50 years? That's a scary thought.

So, the solutions appears to be to increase immigration to ensure there's enough people in the working population. An unpopular strategy for many people, especially white middle class Brits - surprise surprise!
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Leanan · News Editor Joined: May 20, 2004 Posts: 4533

Aside from the government benefits...these days, the stock market is largely fueled by IRAs, pension funds, and ordinary folk investing for their retirements via mutual funds. (In fact, some people suspect that mutual funds are a way the rich and powerful sucker the masses into funding their lifestyles. When something goes wrong, as with Enron, it's not the rich who suffer.)

But when the Boomers - the biggest segment of our population - retire, they will stop funding their IRAs and mutual funds. Pension funds, currently flush and investing in the stock market, will have to cash out stock to pay retirement benefits. Individual Boomers will also have to withdraw their money from stocks, and put them in safer vehicles, such as CDs and bonds. The result will be a huge flow of wealth out of the stock market - a stock market crash.

At least that's the theory, according to some experts. Others point out that many Boomers may continue to invest, or to work until they die, rather than retire. So maybe there won't be a crash. Or maybe the crash will be more of a slow decline than a crash.

Of course, if you believe in peak oil, then the whole question is moot. The stock market will crash, Boomers or no Boomers.

DoctorDoom · Posted: Thu Jul 01, 2004 10:07 am Post subject: Social Security

Actually Social Security isn't in good shape, it's just an accounting illusion. Although the accounting for the system would have you believe that it's a savings plan for your retirement, in fact what has been happening is that money collected from people working now is paid out to those receiving benefits. People retired now are getting far more out of the system than they ever put in, and that's including the interest that might have been earned on the money if it had been invested instead of spent. In effect, an elaborate pyramid system.

And the system is running afoul of demographics. When it started, there were 30 workers paying into the system for every one receiving benefits. And people didn't live long past the age of 65. Now there are just 3 workers paying in for every one receiving benefits, and life expectancy at 65 is longer than it's ever been. This is a recipie for disaster. The boomers are a demographic bomb waiting to go off. Born between 1945 and 1965, we can expect the leading edge of the wave to hit 65 in 2010, and the peak to hit around 2020. During this time the worker-to-retiree ratio is projected to fall to 2:1.

Eventually, if the system is to reach a steady-state, it needs to be taking in enough money from each person to equal what he or she gets back in retirement. And, since people today are living off money they didn't put into the system, it means that between the steady-state future and today, some group of people have to have more taken from them than they get out. You don't have to be an Enron executive to realize that some generation has to get screwed. Guess who that's going to be?

Now, Jay has mentioned that the Social Security system is in reasonably good shape. This is based on the fact that Congress acted some years ago to try to bring the system into balance over time. They boosted the retirement age a bit and raised the taxes a bit. In effect, they picked the people who will get screwed (us). The system went into a surplus state where more money is being taken in than is going out. So that, later, when the boomers retire, we should be OK to put more money out than is coming in, right? From a purely accounting perspective, the system could make it through at least the tail end of the boomer demographic bubble before it collapses.

Here's the kicker, though. The overal Federal budget is in deficit, and that is net of the Social Security surplus! If Social Security were in deficit right now, the government deficits would be even bigger! The idea that the surplus is being saved for later is an accounting fiction. Compare this to the real world - ask anyone with a union pension, they can go and find out how their pension is being paid for, where the money is invested, etc. In reality, the Social Security isn't a retirement savings system, it's a goverment transfer system supporting an anti-poverty program for seniors, with money flowing in and out of the same giant pot as everything else.

OilBurner · Heavy Crude Joined: Jun 03, 2004 Posts: 417 Location: UK

Yeah, well, the solutions are going to have a "name your poison" feel to them. Raising the retirement age, cutting benefits to the well-off, those don't seem politically possible. But then, squeezing more out of the next generation is going to be problematic, too - how soon before they simply revolt? Seems like we agree there's trouble a-brewin'.

Doc Doom (don't know why the site thinks Oil Burner posted this)
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OilBurner · Heavy Crude Joined: Jun 03, 2004 Posts: 417 Location: UK

Another point I want to pick up on:
If the state pension/social security is just there to prevent abject poverty then many of us are in big trouble.
My personal pension scheme is rubbish, it will hardly pay out anything at all and that's assuming there's 4% annual growth in the stock market (ROFL!!). I'm actually paying more than I need too - the standard scheme is little better than sticking your money into a regular savings account.

I saw something in the news recently that said workers (in the UK) in their 20s now will need to work until the age of 72 before the will be able to retire using the current pension arrangements.
If they wanted to retire with a decent pension (like the old 1/60 final salary schemes) then they would have to work until the age of 86. Exclamation

It'd be funny if it wasn't so damned shocking!!

In the UK, house prices are forcing people to get longer and longer term mortgages too, so contributing more to pension schemes in middle age is pretty near impossible.
With people waiting to their 30s to buy their first home and then getting 30 or 35 year mortgages, it's not a pretty picture. Pensions will have to be a lower priority and then there won't be time to make up for it.
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Cool Hand Linc · Posted: Thu Jul 01, 2004 1:57 pm Post subject: already happening

a) benefit cuts
b) tax increases
c) raise retirement age eligibility
This is already happening. My retirement age is 68. It has already began. My mom tells me the benifits are not as good. (No facts just her opinion).
"in fact what has been happening is that money collected from people working now is paid out to those receiving benefits" This is difficult to prove but I believe it's so. When money is paid out to people who never paid into the SSI system. The money has to come from somewhere. I agree with you Doctor Doom.

Isn't SSI, the stock market being funded by retirement funds. Isn't this just another part of the puzzle that looks so bad. Pretty sure the world will go into resession in a few years when the decline of oil really hits.
Peace out!
Link

Leanan · News Editor Joined: May 20, 2004 Posts: 4533

When you really think about it...the drop in birthrates that marks "developed" nations is going to lead to a lot of pain down the way. Japan, Italy, even the U.S. (which has a more robust growth rate than most industrialized countries, thanks to immigration).
Everything - social security, pensions, even the stock market - is really kind of a pyramid scheme. It works as long as the population increases - as long as you have new "investors" coming in at the bottom, to support those at the top.
But with the sudden drop in birthrates, it's like a pyramid scheme that can't find new suckers. There's no cash flowing in with which to pay the people cashing out (the retirees). Within most of our lifetimes, we're looking at two or three workers supporting a single retiree. There's just no way that can work.

Heck, money aside, there's no way that can work. Even if you're as rich as Bill Gates, with only two workers for every retiree, who is going to maintain your golf course, take care of you when you're sick, serve your food at restaurants, cut your hair, fly your jet when you go on vacation? Old people generally use more services than goods; who is going to provide them?
The way I see it, either immigration will ratchet up to insane rates, just to provide cheap labor, or no one will be able to afford to retire. Seriously, as a nation, can we afford to have one retire for every two workers? I don't think so.

Aaron · Posted: Thu Jul 01, 2004 2:29 pm Post subject:

Chicagoan · Heavy Crude Joined: Jun 19, 2004 Posts: 315

We should not be allowing people to live so long. That is the root of the problem. A possible solution would be to stop providing medical care the moment you retire.

Leanan · News Editor Joined: May 20, 2004 Posts: 4533

Aaron · Posted: Fri Jul 02, 2004 8:44 am Post subject:

Leanan · News Editor Joined: May 20, 2004 Posts: 4533

I don't think white collar and blue collar have any meaning any more. Some "white collar" jobs (bank teller) pay very little. Some "blue collar" jobs pay very well. (My blue collar uncles - a plumber and a general contractor - make more money than my white collar dad, who's a scientist/college professor.)
Check out the latest census data: Link

Would you want to try and categorize all those jobs as either "white collar" or "blue collar"?
As for getting a true count of all workers...I don't think it's possible. Illegals are afraid of being counted, even though the Census Bureau will not turn them in. Then you have all the people who work "off the books," even if they're not illegal, just to avoid paying taxes. There was a big ruckus over the issue of the uncounted (who tend to be poor) after the last census, and nothing was resolved.

Aaron · Posted: Fri Jul 02, 2004 11:00 am Post subject: