The Social Security Shell Game
A friend sent me the recent announcement about the Social Security Cost-of-Living Adjustment (COLA) for 2021.
“Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 1.3 percent in 2021.
The 1.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021.”
Brian Anderson tells us, “The average Social Security benefit was $1,503 per month in January 2020.”
The average recipient is going to get a $19.54/month COLA increase. I sarcastically responded with “whoopee!”
They make a great fanfare out of telling recipients about their increases.
Since January 2010, COLA increases have averaged 1.375%.
As a 15-year Social Security recipient, I know in December they send out the notification about how much you will receive the following month. Most, if not all, of the increase is taken back with increases in Medicare Premiums.
Brian Anderson continues:
“Social Security benefits have lost 33% of buying power since 2000. TSCL’s (The Senior Citizens League) analysis found that, over a 10-year period, average Social Security benefits of $1,075 per month in 2009 lost a total of $15,258 in financial growth from 2010 to 2019 when compared to the previous decade when COLAs averaged 3%.”
Why don’t benefits keep up?
Wolf Richter explains, “Status of the Social Security Trust Fund, Fiscal 2020: Beware of Vicious Dog”:
“These annual adjustments are based on a formula that uses the “Consumer Price Index for All Urban Wage Earners and Clerical Workers” (CPI-W).
…. Actual costs of living for retirees – or really for anyone – are going to increase far faster, depending on where they live, how they live, and where they spend much of their money. Even if the actual cost of living increases by only 1 percentage point faster than the annual COLA every year, after 10 years, 20 years, or 30 years, you’re talking about a serious deterioration in purchasing power of the Social Security payments. Inflation will eat more than retirees’ lunch.
So, Social Security will be there for you, but…
You can rely on the Social Security payments. But they will lose purchasing power. The purchasing power of the payments will diminish every year, year after year, because the COLAs are not enough to cover the actual increases in the cost of living.
This is just a simple fact, and it’s not an accident, it’s purposefully built into the system. And this decline in purchasing power might shave 20% or 30% off your standard of living over the first 20 years of retirement. If it was tough to live on Social Security early on, it will be brutal after 20 years.”
Our friend Tim Plaehn at The Dividend Hunter has set up a unique Monthly Dividend Paycheck Calendar system that can provide you with an average of $4,000 a month in extra income based on a model portfolio of $500,000.
For a limited time, he’s offering us a 50% discount on the first year of a subscription: just $49.
CLICK HERE for more information.
More government shells in the game
Wolf Richter tells us the Social Security Administration paints a rosy picture of the Trust Fund:
“The Social Security Trust Fund – officially the Old-Age and Survivors Insurance (OASI) Trust Fund – closed the fiscal year 2020 at the end of September with a balance of $2.81 trillion, the second highest fiscal-year close, behind 2017, up by $6.8 billion from a year ago, and up by $10 billion from two years ago, according to figures released by the Social Security Administration.
The Trust Fund invests exclusively in special issue Treasury securities, of two types: $2.797 trillion in interest-bearing long-term special issue Treasury securities and $14 billion in a short-term cash management security, called “certificates of indebtedness.” These securities are not publicly traded…. The Trust Fund purchases them at face value, and the US Treasury redeems them at face value.
…. By investing exclusively in Treasury securities that are not exposed to market whims, the Trust Fund follows the most conservative – meaning, low-risk – strategy possible.
…. In September, the weighted average interest rate earned on the securities was 2.53%, still higher than current Treasury yields, thanks to long-term securities that carry the higher interest rates of yore. But since 2009, it has fallen by about half. And at current interest rate policies, the declines will continue.
Despite the 27% growth of the Trust Fund from $2.22 trillion in 2009 to $2.81 trillion in September 2020, interest income has dropped by 30% over the same period:
The Trustee Report for fiscal 2020 – the 2021 Trustee Report – is not yet available, but we know already that the Trust Fund grew by $6.8 billion this year. So far so good.”
So far so good – by what measure?
Hard working Americans have been paying into their retirement fund over their working career. The government spent the money to pay current bills and put Treasury Bonds into the fund.
|What are treasury bonds? Nothing more than government IOU’s backed by political promises.
The US Debt Clock lists Social Security promises as “unfunded liabilities”, meaning there is no money, only politicians’ promises to pay current and future retirees. Currently it is approaching $21 trillion, in addition to $32 trillion in Medicare Liabilities.
Things went well for the politicos when the money they collected from taxpayers exceed the benefits paid, they happily spent the surplus. The Heritage Foundation shows us that things changed around 2010:
The government now spends more in benefits than it collects and borrows the difference – in addition to all other government borrowing and spending.
Heritage Foundation paints a bleak picture of what it would take to make social security solvent”:
“One of the biggest advantages of Social Security is that it is supposed to provide guaranteed benefits; but what was once considered a sure thing is increasingly uncertain.
|In fact, for anyone under the age of 47, the only guarantee is that Social Security cannot provide its scheduled benefits. Even people already retired and receiving Social Security could have their benefits cut within 10 years to 15 years.
Not surprisingly, more than 80 percent of Generation X and Millennials are concerned that Social Security will not be there for them when they retire.
…. Since 2010, every dollar that workers contribute in payroll taxes has gone straight out the door to pay retirees’ benefits. This is unfair to current workers and unhelpful to the American economy because shifting incomes from younger to older generations displaces savings, reduces productivity and output, and results in smaller incomes for younger and future workers. According to Heritage Foundation analysts, this lack of investment opportunity on Social Security taxes will strip $4,320 worth of retirement income per year from someone who makes about $20,000, while extracting $47,712 per year of potential retirement income from someone who makes about $60,000 per year.” (Emphasis mine)
What happens when the fund is depleted?
AARP tells us:
“According to the 2020 annual report of the Social Security Board of Trustees, the surplus in the trust funds that disburse retirement, disability and other Social Security benefits will be depleted by 2035.
That does not mean Social Security will no longer be around; it means the system will exhaust its cash reserves and will be able to pay out only what it takes in year-to-year in Social Security taxes. If this comes to pass, Social Security would be able to pay about 79 percent of the benefits to which retired and disabled workers are entitled.”
The government collects receipts, pays benefits, and reduces the balance in the trust fund by the shortfall. Each year the treasury pushes a button, theoretically paying interest into the trust fund and the balance goes up.
|Talking about the trust fund is moving shells around the table hoping the stooges don’t realize the game is rigged.
The politicians could solve the problem by passing a law requiring the government to pay 10% interest into the Trust Fund; thereby “protecting and securing” the retirement income for all Americans. Just a simple matter of moving the shells quickly around the table.
The trust fund would grow, politicians would rejoice; however, it would not change a simple fact. When you look at cash flow, the deficit between receipts and benefits paid continues to grow each year. No matter how they want to fudge the number in the trust fund, America’s retirement future is dependent on ever growing political hype and promises.
Social Security is an annuity where the insurer (politicians) can unilaterally make changes, has a history of doing so, and the customer has no recourse. FDR was wrong!
The Fed creates fake money out of thin air, buys government debt from authorized dealers and pretends that all is well. Friend Chuck Butler has warned, eventually no one will want to hold our dollars. Inflation will destroy the buying power of our benefits.
What can be done?
Many experts recommend downsizing, living below your means, saving, owning gold and diversification to grow and protect your wealth.
Discussing what congress should do is a waste of time; they play the shell game and will continue to do so.
Our Constitution was designed to have citizen legislators who sacrifice to temporarily serve their country; not a permanent ruling class. Congress kicks the can down the road, accuses the other party of wanting to cut social security for political hay, but does nothing. They ignore the problem, worried more about the next election cycle.
Without congressional term limits, and representatives willing to solve problems for the benefit of all, the shell game will continue.
I once worked with a good old country boy named Charlie H. He became a wealthy man, but often said, “When my daddy died, he left me 40 acres and a mule and I don’t ever plan on selling it.” Those who protect themselves will come out on top.
A little help means a lot!
Five years ago, I vowed to keep our newsletter FREE! I plan to keep my promise.
It’s an expensive, time consuming hobby, but also a labor of love.
Recently a reader asked why I didn’t charge for our weekly letter. I explained that I want it available for everyone. Some readers may be on limited budgets and may benefit the most from our advice.
He pressed on with his questions. How much does your letter cost? How many readers do you have? He concluded, “If each reader paid $10/year, you would be fine.
I responded, “Yes, $10 per reader would work, BUT I am committed to keeping it FREE even if it costs me money.”
Several readers suggested we add a donations button to help us offset the cost of our publication. It helps when people pitch in and we certainly appreciate it.
If readers want to donate, it sure helps out, however, it’s strictly voluntary – no pressure – no hassle!
Click the DONATE button below if you’d like to help.
You do not have to sign up for PayPal to use your credit card.
And thank you all!
On The Lighter Side
I hope everyone had a great Thanksgiving.
I love the American Spirit. From 1974-1995 the federal maximum speed limit was 55 mph. Most Americans, including police, simply ignored what they knew to be a stupid law, turned on their CB radio, and got on with their lives.
If you think the backlash against politicians issuing COVID-19 lockdown executive orders about Thanksgiving family gatherings was bad, see what happens if they try to do the same at Christmas. Opposition candidates are licking their chops!
Sometimes Big Brother goes overboard, and the people just shake their head.
Thanks to those providing feedback on my closing video experiment. It was mixed; I may use them occasionally. Readers did enjoy the Quote of the Week, so I will keep that going. This one seems appropriate.
QUOTE OF THE WEEK
“The most dangerous man to any government is the man who is able to think things out for himself.” — H. L. Mencken
Friend Tom G. supplies some Basic Laws of Life:
- Law of Logical Argument – Anything is possible IF you don’t know what you are talking about.
- Law of Physical Surfaces – The chances of an open-faced jelly sandwich landing face down are directly correlated to the newness and cost of the carpet.
- Law of the Bath – When the body is fully immersed in water, the telephone will ring.
- Variation Law – If you change lines (or traffic lanes), the one you were in will always move faster than the one you are in now.
- Law of Gravity – Any tool, nut, bolt, screw, or pill, when dropped, will roll to the least accessible place in the universe.
And my favorite…
- Law of Mechanical Repair – After your hands become coated with grease, your nose will begin to itch and you’ll have to pee.
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
Affiliate Link Disclosure – This post contains affiliate links. If you make a purchase after clicking these links, we will earn a commission that goes to help keep Miller on the Money running. Thank you for your support!