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.