Category: social security

Social Security Wage Index

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Every year we get a statement from the Social Security Administration (SSA) listing our wage history and an estimate of the monthly SS benefits we will receive when we retire. Our past earnings determine our future benefits. But how do they do that? Social Security Wage Indexing Factors. The SSA adjusts each person’s past wages for inflation, then takes the best 35 years as a benchmark for determining benefits.

If you have an extra half hour or so and want to look at your wage history in today’s dollars, go to the factor’s page at the SSA. Set the year to 2010. Copy the resulting table of years and index factors (two columns) into a spreadsheet. For each year, type in the reported earnings from your SSA statement into a third column. In a fourth column, set the formula to multiply each year’s actual earnings in the third column by the index factor in the second column. The result will be the inflation adjusted amount of your earnings for that year.

You may find a few surprises in the data. I did.

United States of Insurance

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The United States government has become the largest insurance company in the world.
Its citizens are among the most heavily insured people in the world. We are insured for many aspects of our lives, from our life itself to other people’s mistakes.

Some insurance fees we pay directly. These include insurance against getting old, Social Security and Disability Insurance, insurance on our health, home, car and mortgage. Some insurance fees are indirect in that the cost of that insurance is passed on to us in the price of a product we buy or income to us is reduced by these fees.

Examples of the first type of indirect insurance are “mistake” insurance, malpractice and liability. A business pays a fee to protect themselves in case they make a mistake. Those fees are passed on to us in higher prices.

Unemployment and FDIC insurance are examples of the second type of indirect insurance.
Unemployment insurance is a based on a percentage of the wages paid by an employer to an employee. An employer typically reduces the wages that it can pay an employee by that amount. FDIC insurance is a fee charged to banks to protect savings against bank failure. The bank reduces the interest it can pay on a savings account to offset the fee. Like individuals, businesses pay for many types of insurance, passing the cost on to their customers in the form of higher prices.

There is another indirect form of insurance in the form of taxes paid into a general fund.
We are insured against poverty in the form of SSI and food stamp programs, whose payments come out of general Federal and State tax revenues.

How have Federal and State governments become so heavily involved in the insurance business? With the passage of the Social Security Act during the 1930s Depression, the Federal government entered the annuity insurance business – sort of. Annuities are a type of insurance where a person pays premiums over a period of time and, at the end of that period, begins collecting payments from the insurance company. Insurance companies invest the premiums paid in order to make the payments at a later time. The Federal government, on the other hand, spends the premiums received each year, relying on future premiums to make payments. If our Federal government did not spend the premiums each year, Social Security would be more like an annuity program. Since the premiums are spent, it is a Ponzi scheme.

With the introduction of the Medicare and Medicaid programs in the 1960s, the Federal government stepped into the health insurance business. Unlike private health insurers who charge higher premiums for those with higher risks, the government charges higher premiums based on a person’s ability to pay higher premiums. This premium pricing system is most often used by those in the protection racket.

Ponzi schemes and protection rackets eventually collapse. What can we do? Elect representatives who are willing to make a transition to a valid business model. Elect representatives who will support a new law giving them a legal fiduciary duty to the voters and taxpayers. Without that duty, our elected reps have no responsibility to the public or liability for their actions other than the prospect of losing their jobs. They can enact laws and make promises with impunity. We, the voters and taxpayers, pay the price.

Social Security Decrease?

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Social Security recipients saw almost a 6% increase in their monthly checks in 2009.

The Consumer Price Index (CPI) is calculated from October to September every year. In 2008, the spike in gas prices during the summer overinflated the CPI. If the Social Security Administration had calculated the CPI on a calendar basis in 2008, the swift decline in gas prices in the fall and winter would have resulted in a truer CPI index and a lesser increase in monthly check amounts to retirees.

Because of the overinflation in the preceeding period, the current period Oct 2008 to Sept 2009 will probably show a decrease in the CPI. So, will SS recipients see their monthly checks decrease? No. By law, the SS benefit portion can not decrease from year to year.

In her weekly WSJ “Ask Encore” feature, Kelly Greene notes that “the Bureau of Labor Statistics has developed an experimental consumer-price index for Americans age 62 and older, referred to as the CPI-E.” This is weighted more heavily toward medical care and housing than the currently used CPI-W index for urban consumers. In the 25 years ending 2007, this CPI-E index has risen faster than the CPI-W.

Estimates are that Social Security recipients, including children and the disabled, will increase from 51 million today to 89 million by 2035. At the end of 2004, it was about 48 million. For the next 20 years, 10,000 people a day will become eligible for SS benefits as the baby boomers retire. According the U.S. census clock, there are an estimated 306 million people living in the U.S. The population rose by 8 while I wrote this paragraph.

In Jan. 2009, the Bureau of Labor Statistics counts a bit over 140 million working. That’s a ratio of a little under 3 contributing workers to 1 SS recipient, who also may be working at least part time.

It is a ratio of approximately one worker to one non-worker in this country. If someone, a hundred years ago, had predicted that over half of the population would not be working, everyone would have laughed. The productivity gains of the past century have been a remarkable synthesis of individual and community ingenuity and spirit.

Robert Ball was commissioner of Social Security under Presidents Kennedy, Johnson and Nixon. In a 2005 brief he made the case for returning the Social Security “cap” to the original design of 90% of the maximum annual earnings base: “over the past twenty years the earnings of the higher paid have been rising much more than average wages—so an increasing proportion of earnings exceeds the maximum earnings base and thus escapes Social Security taxation. Today [2005], only about 83 percent of earnings is being taxed.”

Ball recommended that the cap be raised slightly more than inflation, gradually getting back to the 90% target goal.

Budget 2009

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President Obama just released his budget proposal for 2010. Here’s some notes I made last year on the 2009 budget of the Bush administration.

The fiscal year of the U.S. is not the calendar year but October to September. So the 2009 fiscal year starts in Oct 2008 and ends in Sept 2009. The 2009 budget estimates that, in Sept 2009, the U.S. will owe the Social Security (SS) trust fund $2.6T (pg 350). That’s ‘T’ for trillion, a thousand billion. For many years, taxpayers have been paying more in SS taxes than the Social Security Administration (SSA) has been paying out to retirees. In 2007, the SSA paid out almost $600B but collected more than that in SS taxes. Each year our Congress and President have “borrowed” that extra money. In 2007, they borrowed $175B from the SS fund. In 2008 and 2009, they will borrow about $200B in each year. As the “boomer” generation (born 1946 to 1964) starts retiring in 2009, there will be more retirees and retirees are living longer. In 2010 or 2011, there won’t be any extra SS tax money for the Congress and President to borrow. As the number of living retirees continues to grow, the SS fund will need to be paid back with current year tax revenues. To do that, tax revenues will have to increase somehow.