Social Security Update

Past

In April of 1935, politicians passed the Social Security Act through the U.S. House and in June through the Senate; it was signed into law by President Roosevelt on August 14, 1935.

Ida May Fuller became the first beneficiary of recurring monthly retirement payments on January 31, 1940, with a check of $22.54 ($493 in 2017 dollars).

She had filed her retirement claim in November of 1939 after having paid a total of $24.75 in Social Security tax.  Living to age 100, she collected $22,888.92 in benefits.

Present

Chapter 14 of the textbook (page 392) says that the Social Security trust fund will be depleted by 2044.  The textbook further notes: “ . . . the government is somehow going to have to come up with the funds to make good on its pile of IOUs to the Social Security trust fund.”

Allen W. Smith, Ph.D. (Ball State and IU grad) stated that “The government has embezzled all surplus Social Security revenue, generated by the 1983 payroll tax hike, and spent the money on wars and other government programs. None of the money was saved or invested in anything.” [2].

On July 13, 2017, the Social Security and Medicare Boards of Trustees released its annual report, and it’s now projected that the theoretical combined OASDI trust funds will be depleted in 2035, (see table below).  This is a year longer than last year’s projection, which is good news.

OASI is Old Age and Survivors Insurance and DI is Social Security Disability Insurance.  Others components are Medicare Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) [1].

KEY DATES FOR THE TRUST FUNDS
	OASI	DI	OASDI	HI
First year cost exceeds income excluding interesta	2010	2022	2010	2021
First year cost exceeds total incomea	2022	2019	2022	2023
Year trust funds are depleted	2035	2028	2034	2029

a Dates indicate the first year that a condition is projected to occur and to persist annually thereafter through 2090.

 Future?

According to last year’s projection, even after depletion, continuing tax income would be sufficient to pay 79% of benefits in 2034 and 74% in 2090.  This year they estimate that after depletion, tax income would be sufficient to pay 77 percent of scheduled benefits in 2034 and 73 percent in 2091.

Though I do not expect to ring in 2091 - and may not even see 2034 - some of you will see both!

Many hard-working Americans have paid the Social Security tax for decades, and I do not expect that all benefits will immediately evaporate.  Nevertheless, with nearly $20 trillion in federal debt (almost $166,000 per taxpayer) and no budget at all – let alone a balanced one - it is unrealistic to believe that our federal politicians will hold themselves accountable for unsustainable promises made decades ago by their predecessors.  After all, to be elected and to remain in office they’ve made quite a few of their own.

If Social Security happens to be there for you someday, that’s terrific!

But don’t bet your life on it.

--

[1] Source: Social Security and Medicare Boards of Trustees, Summary of The 2017 Social Security and Medicare  Annual Reports <http://www.ssa.gov/oact/trsum> accessed 07/20/2017.  Full report available at <https://www.ssa.gov/oact/tr/2017/tr2017.pdf> (269 pp).

[2] Source: Allen W. Smith <http://www.fedsmith.com/2013/05/23/government-owes-2-7-trillion-to-social-security> accessed 12/10/2014.

It’s what you spend

Yesterday while on the road I listened to Bob Brinker’s “Money Talk” show on WLS radio.

Mr. Brinker made it clear that we need to distinguish between assets and income, and then noted that a high proportion of professional athletes -  who had exceptionally high incomes for a several years - file bankruptcy just a short time into retirement.

It’s mindboggling to think of how much money that actor Johnny Depp must have taken in over the years, but he’s reportedly now going through financial difficulties.

So, you’ve never had a multi-million dollar income?

I counseled factory workers who were paid very well at forty hours per week.  But they had become accustomed to receiving overtime income month after month, for several years.  Then, when the overtime was cut back, they had trouble making the boat or motorcycle payment and were compelled to take “emergency” withdrawals from retirement savings.

It’s sad to see so much wasted potential.

There was a married couple of university professors who, even with a steady, six-figure income, were struggling to pay their debts.  With first and second mortgages, car loans, and credit cards, they were knee deep.  Undoubtedly brilliant in their fields, they simply were not good money managers.

High income or not, too many people fail to create wealth over their lifetimes, even when they could have.

It’s hard to feel sorry for someone like Johnny Depp.  But he’s probably feeling some of the same embarrassment, desperation and helplessness that the rest of us would.

Each of us must somehow find a way to live within our means, and often it involves making substantial lifestyle changes.

You may have heard the story of Anne Scheiber, a “normal” woman in New York who worked a “normal” job.  A very frugal woman, she didn’t eat out and she wore the same coat year after year.  In 1944 she invested $5,000 in the stock market, didn’t touch it for 50 years, and made headlines when she died in 1995 at the age of 101, with a net worth of $22 million.

As long as you’re meeting basic human survival needs, then it’s what you spend that makes the difference. 

In the News July 5, 2017

Here is recent news that caught my attention:

• My Masters in Saxophone Has Resulted in Impossible Students Loans And I Don’t Know What to Do
• 5 Lies Credit Repair Companies Tell (and How to Fix Your Score on Your Own)
• Women better at credit than men, they just don't know it
• FTC Stops Operators of Unlawful Student Debt Relief and Credit Repair Scheme
• FTC Returns Money to Victims of Abusive Debt Collection Operation
• How the Latest Credit Report Changes Impact Your Score
• Money Habits of the Millennials
• Despite High Employment, Credit Card Repayment Drops
• US Consumer Spending Near Nine-Year High in June, at $103
• 1 Way Entrepreneurs Kill Their Startups

John Ninfo: Beware the Porch Pirates — and credit card debt

        Personal finances are not about your Academic IQ, they are about your Financial IQ, and we all have to work to increase our Financial IQs. It is not like osmosis, it doesn’t just happen. It takes some time and effort. Take classes; read books, articles, and columns. Talk with friends or family members who seem to have it together when it comes to their finances. Way back in 2005, bankruptcy judge John Ninfo wrote, the “Top 20 Mistakes Made by People Who Have Filed for Bankruptcy”.  The principles still hold true today.

FTC Halts Operation That Unlawfully Shared and Sold Consumers’ Sensitive Data
        This is a lead generation firm that earned millions by falsely promising to match consumers with low-rate loans.  A few minutes ago I googled “debt relief”, and it returned 5,470,000 results in about ½ second.  From past experience I suspect that, of these more than five million results, only a handful of them are legitimate companies; most are for debt settlement or are merely lead generators..  For more information see the FTC’s Choosing a Credit Counselor that describes options such as debt management programs, bankruptcy, and debt settlement.  For people who are knee deep in debt, I can only recommend a NFCC agency.  See the June 26^th Credit Counseling announcement for more information.

Credit Scoring Fun

This week the Consumer Federation of America and VantageScore Solutions released their 7th annual credit score survey results.

When you have a few minutes for fun, take the Credit Score Quiz and see how you do; then read the survey press release.

Here is the link to the PDF quiz and answer key, in case you’d like quiz someone else (take the quiz yourself before you see the answers on page 2).

ID Theft

In  2002 Walter Kevin Scott worked as benefits manager for the Indiana Public Employees’ Retirement Fund (PERF).  Mr. Scott had used a false Social Security number in the hiring process, and the State of Indiana had hired him unaware that he had served time in a federal penitentiary -  for identity theft!

During his trial it was disclosed that from November 2001 to August 2002, Scott had unlimited access to the Social Security numbers of 1.2 million current and former public employees and their families  -  the equivalent of nearly one in every six Hoosiers.  Investigators found personal information and pension fund balances of 750 people during a search of Scott's home after he quit working at the fund. 

A few years later we began to hear more about breaches, most notably in universities.  In May of 2005, the Lafayette Journal and Courier listed ten universities that had already reported breaches in that year, including Purdue and IU.  Also in 2005 it was reported that identity thieves set up fake businesses and gained access to up to 160,000 consumer records from data broker ChoicePoint.

Heartland Payment Systems Inc. - one of the largest processors of credit and debit card transactions in the U.S – was hacked in 2009.  With vague explanation, one local bank sent new debit cards to replace ones that were not even near expiration.  When the Target and Home Depot names appeared in the news we all noticed, but how many of us would even recognize the name Heartland Payment Systems or ChoicePoint?

In 2014 Krebs on Security reported that a nationwide beauty products chain discovered a breach in its payment systems and a fresh batch of 282,000 stolen credit and debit cards reportedly went on sale in a popular underground crime store.  That same month, Indiana University reported that information including names, addresses and Social Security numbers of those who attended any of the university’s campuses from 2011 to 2014 was unsecured for more than 11 months because security protections weren’t working correctly.

Purdue associate professor of communication Josh Boyd stated, “The recent security breaches . . .  are a good reminder that the online environment involves no guarantees.  If you put information online and somebody really wants it, it’s vulnerable.”

The use of a credit monitoring service cannot prevent ID theft, but it may help you to discover fraud.  About the well-publicized Target security breach during the 2013 Christmas shopping season, Purdue professor of cyber forensics Marcus Rogers warned, "People have to be vigilant for the next six months, year, even up to two years.”

The ProtectMyID credit montoring service offered by Target is a product of Experian, a credit reporting agency, and monitors changes only to a consumer's Experian credit report.

According to Consumer Reports, “The service can give consumers a false sense of security, and Consumer Reports can recommend this deal in its present form only as being better than nothing, and only for consumers who understand its significant shortcomings.”

In 2014, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray warns, "your information is always at risk, every day."

Credit Karma is a popular service that provides no-cost (“free”) credit scores, credit reports, and credit monitoring from TransUnion.  In 2014, Credit Karma settled with the Federal Trade commission on charges that the company “failed to take reasonable steps to secure” its mobile apps, ‘leaving consumers’ sensitive personal information at risk.”

A 2012 BankRate.com article  explains that paying with a credit card or debit card makes you vulnerable, and mobile phone users are also a target.  The founder and president of Javelin Strategy & Research, a company mentioned in a popular 2012 Identity Theft Video, has warned that social media users are a growing target for identity theft.   Below is a report about the company's 2016 identity fraud study.

Javelin’s 2017 study reveals that the incidence of identity fraud increased by 16% from the previous year, a record high since the company began tracking identity fraud in 2003.  There were two million more victims and the amount rose by nearly one billion dollars, to $16 billion.

Considering the outrageous number of major breaches reported during the past few years I’ve just been unable to keep up with tracking.  Nevertheless, quite some time ago I reached the same conclusion as Lafayette editorial cartoonist Dave Sattler following Jimmy John’s September 2014 breach, “The recent security breach by Jimmy John’s as well as Target, eBay, and Home Depot has many wondering How do we protect our identity . . .  One way is to bring back an old friend . . ."  (i.e., cash).

In the News

Half of Non-Homeowners Expect to Buy Homes in Five Years (Gallup)

Highlights:

• 49% of non-homeowners expect to buy a home in the next five years;
• An additional 20% expect to buy a home in the next 10 years;
• One in five homeowners plan to sell in the next five years.

US Consumer Spending Up in April, at $107 (Gallup)

Highlights:

• April average up $7 from March;
• Exceeds December 2016 holiday spending average;
• Highest spending average since May 2008.

Most U.S. Employed Adults Plan to Work Past Retirement Age (Gallup)

Highlights:

• 63% say they will continue to work, but work part time;
• 25% say they will stop working altogether;
• More Americans say they will retire after, rather than before, age 65.

Economic Security for Seniors Facts (National Institute of Senior Centers)

Highlights:

• Nearly half a million older adults aged 55-64, and 168,000 aged 65+ who wanted to work were unemployed 27 weeks or longer in 2014;
• 21% of married Social Security recipients and 43% of single recipients aged 65+ depend on Social Security for 90% or more of their income;
• In 2013, 61.3% of households headed by an adult aged 60+ had some form of debt. Among senior households with debt, the median total debt was $40,900;
• In 2013, 33.8% of senior households owed money on a mortgage, home equity line of credit, or both;
• Approximately 3.5 million older homeowners are underwater on their loans and have no home equity.

2017 PwC Employee Financial Wellness Survey (PwC)

Employees who are stressed about their finances are both less productive and in worse financial shape than other employees.  They are:

• Nearly five times more likely to be distracted by their finances at work (48% vs. 10%);
• Twice as likely to spend three hours or more at work dealing with financial matters (50% vs. 26%) and three times more likely to spend five hours or more (20% vs. 7%);
• Twice as likely to miss work on account of their personal financial issues (16% vs. 8%);
• More inclined to cite health issues caused by financial stress (35% vs. 20%).

Those impacted by student loans are more likely to be stressed about their finances, have difficulty meeting household expenses each month, and use credit cards to pay for monthly necessities they can’t otherwise afford.  They are also more likely to be distracted by their finances at work and to withdraw money from their retirement plans.

Only 42% of Millennials feel that they should have primary responsibility for supporting themselves in retirement, down from 60% in 2016.  40% now say that their employers should have that responsibility (up from 24%), and 19% the government (up from 16%).  Click here for the 50-page report.

How I learned to read — and trade stocks — in prison   (11:03 TED video)

Financial illiteracy is a disease that has crippled minorities and the lower class in our society for generations and generations, and we should be furious about that.”

“ . . .  I discovered that according to MarketWatch, over 60 percent of the American population has under 1,000 dollars in savings.  Sports Illustrated said that over 60 percent of NBA players and NFL players go broke.  40 percent of marital problems derive from financial issues.”

“How in the world were members of society going to help incarcerated individuals back into society if they couldn't manage they own stuff?”

“. . . Financial Empowerment Emotional Literacy (FEEL) . . . teaches how do you separate your emotional decisions from your financial decisions, and the four timeless rules to personal finance: the proper way to save, control your cost of living, borrow money effectively, and diversify . . .”

Live like no one else

Dave Ramsey said, “Live like no one else so later you can live and give like no one else.”

A man who was a great inspiration to me was a college professor who saved 50% of his income since he first began teaching in the 1970s.

Yes, over the years his income finally grew to become higher than average for our area, but throughout it all he maintained relatively simple needs and wants.  He could have lived far more lavishly than he did, but he was a hard worker, lived comfortably enough to suit him, and never felt denied of anything really important in life.

When he died he left a great deal to his loved ones, plus a substantial amount to student scholarships and to other charities that were dear to him.

High income or not, if every one of us could find some level of contentment and live even a bit below our means, our lives would be far less stressful and worrisome.

And at the end, there just might be something left to pass along.

Credit Reporting and Scoring: Part 1

Lenders use credit reports and/or scores to make the decision whether to lend and, if so, at what rates.  Today, prospective landlords, insurance companies, and even employers may make decisions about us based on this information.

Fair or unfair, right or wrong, that’s the way it is for now.

I remember when I first checked my own reports with Equifax, Experian, and TransUnion.  Among all three there were 23 errors!  Though there was nothing on any of them that jumped out to me as derogatory, the one with the most errors issued a score 100 points lower than the one with the fewest.

In February 2013 CBS 60 Minutes ran an eye-opening segment about credit reporting; according to Steve Kroft, "The problem is that it's not really within the power of the average person using this system to fix the mistakes.  You feel like you're up against this machine, and there's no way to break through."  Ohio Attorney General Mike DeWine alleges criminal conduct by the credit reporting agencies.

Later that year the U.S. Senate held a hearing about industry practices and writer Jennifer Streisand interviewed a few local experts (including yours truly) for a Credit Monitoring Tips article in Lafayette Magazine.

In 2015 the three agencies settled with 31 states and agreed that they would make it easier for consumers to get errors corrected.

Have the agencies finally cleaned up their acts?  Well, maybe you can help me decide.

In January of this year, the Consumer Financial Protection Bureau (CFPB) found that TransUnion and Equifax “deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises.”  The two companies are ordered to pay $17.6 million in restitution to consumers and fines totaling $5.5 million to the CFPB.  

Let’s see, $17.6 million + $5.5 million . . . as near as I can tell that’s less than 1% of a single year’s gross.

Credit reporting agencies never did have the “Plays well with others” box checked off on their report cards.

Will they ever?

60 Minutes links:

• 40 Million Mistakes: Is your credit report accurate?  February 10, 2013 (13:14)
• The ONE thing to know about your credit report August 25, 2013, (4:04)
• How to dispute errors on your report August 25, 2013 (1:43)
• How mistakes can harm your credit August 25, 2013 (2:11)

America Saves Week 2017

America Saves Week starts this Monday, February 27^th, and runs through Saturday March 4^th; Clearpoint, a division of Money Management International is sponsoring a video and photo contest.

 

Here's how to participate in the contest:

 

1) Create a short video featuring your savings story by answering at least one of these questions:

• What are you saving for?
• What is your savings story and how can it help other people?
• What is your favorite savings tip?

2) If you can’t (or don’t want to) create a video, then take a picture illustrating your savings goal.

 

3) Enter at americasavesweek.org/imsavingfor.

 

4) Share your video or photo on social media with the hashtag #ImSavingFor.

 

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