"Don't rely on social security": because inflation adjustments are immediately low and the benefits become more insufficient as you age.
OASI (Trusted Fund) – does not include Disability Insurance Fund (DI) Trust Fund – which ended its fiscal year 2019 at the end of September with a balance of $ 2.80 trillion, according to figures released by the Social Security Administration. This balance increased by $ 3 billion from September last year, but was down by $ 16 billion from September 2017.
The balance sheet tends to hit annual peaks in June. The all-time high was in June 2017, at $ 2,846 trillion. In June 2018, the balance was down by $ 1
The Social Security Trust Fund benefits from the rise of workers – especially millennials, the largest generation ever – and from rising wages that trigger higher Social Security deductions. And the date when the trust fund is depleted continues to be relocated, currently projected to happen in 2034.
Depletion of the trust fund does not mean that social security will collapse or whatever. That means either workers have to pay a little more, or the benefits will be cut, or a bit of both. The insurance has been fixed before. Increasing the maximum income amount that is subject to Social Security tax will be one way to do that.
Over 63 million pensioners withdraw social security benefits (in addition, 8 million people withdraw SSI disability benefits).
Back when I was a junior in high school, my boyfriend's dad told me that Social Security was a "scam" and that it would not be for him to use when he would retire. He was a CPA and had his own business, an accounting and tax office. He ended up retiring and collecting social security, which was still around. And a few years ago he passed away, and his wife began to collect survivor benefits. Social security, which has been around for 84 years, has survived him, and it will survive me too.
But he gave me a piece of wise and correct advice – for the wrong reason: “Don't trust Social Security. “It is tough to make a living from social security benefits, and it gets much tougher as you get older, as we will see in a moment.
Of the SS Trust Fund's assets, nearly all, $ 2.79 trillion, were invested in long-term US government bonds at the end of September, with a weighted average maturity of 7.8 years. The remaining $ 12 billion (less than half of 1% of the total) was invested in short-term "debt securities," similar to state taxes.
US government securities are considered the most conservative assets. The fund's investment in Treasury is very similar to a bond fund or a regular pension fund's investment in treasury. The funds receive interest payments and are paid face value by the Treasury Department when the security falls due.
But there is a difference: Bond funds, pension funds and other investors buy "marketable" government securities that can be traded in the bond market. The SS Trust Fund buys non-transferable treasuries, which has an advantage: Since they cannot be traded, the value does not change on a daily basis. The trust fund recognizes them at face value, and face value is what the trust fund is paid out as the securities mature.
The Fed's interest rate suppression shattered interest income.
In September, the weighted average interest rate on the Trust Fund securities fell to 2.73%, the lowest in my lifetime. The average annual interest rate for each year has fallen relentlessly since 2009, falling from 4.8% in 2009 to 2.8% in fiscal year 2019:
This means that despite increasing balance in the SS Trust Fund, interest income has plummeted. Trust Fund balances increased 24% from 2009 through 2019. But interest income fell 28% over the same period, from about $ 108 billion in 2009 to $ 78 billion in 2019. The chart below shows average weighted annual interest income (falling red line, left scale) ) against Trust Fund balances (right column):
This decline in interest income accelerates the deterioration of the Trust Fund. At today's trust fund levels, each decrease of 1 percentage point of the average annual interest rate reduces the fund's interest income by $ 28 billion a year.
And interest income will fall further as securities acquired years ago to higher interest rates are replaced by securities that have much lower interest rates.
Punitively low Living of Living (COLA) adjustments.
Benefits in 2020 will increase by just 1.6% for the year, starting in January 2020, the Social Security Administration announced Thursday.
Social Security benefits are adjusted for inflation based on the Bureau of Labor Statistics's inflation measures for "urban workers and salaried employees" (CPI-W). The basic problem is that the CPI does not measure changes in the cost of living. It measures price changes for the same same thing or service of the same quality over time. And when the quality of goods (such as electronics or car) or service (such as housing) improves, BLS removes the cost of those improvements from the index.
In other words, the CPI only measures the loss of purchasing power for dollars, and does not purposefully measure the cost of quality improvements.
This gives a situation where the CPI for new vehicles has remained flat for the last 20 years, although actual retail prices have risen, as the cars have gotten a lot better, for example going from two airbags to 10 airbags, and from one 4-speed automatic transmission for an 8-speed automatic transmission, etc. Here is my detailed discussion of these "hedonic quality adjustments" for new vehicles and how they relate to the KPI.
But it is impossible today to buy these products or services without the quality improvements, and pensioners therefore have to pay more even if they do not want these quality improvements.
The 1.6% increase in benefits does not include lifting price increases due to quality improvements. It only compensates for the loss of purchasing power for the dollar (price changes of the same thing in the same quality). The COLA adjustments are a massive issue.
Another massive problem with the COLA adjustments is that the basket of goods and services used by an elderly person is different from the goods and services used by the average city worker. For example, the average elderly person has much greater health needs than the average worker. And healthcare spending has surpassed the consumer price index.
The inadequate COLAs appear every year, year after year, and for pensioners who depend on social security, who are already difficult to live in the beginning, face a gradual and detrimental reduction in the standard of living they are able to pay for.
This is why my boyfriend's dad was right, but for the wrong reason, and yes, dear millennials, there is something for you: Don't rely on social security, not because it won't be there for you (it will be), but because the COLAs are purposefully inadequate when you have gained benefits, and the benefits will become more and more insufficient as you age.  This scheme worked wonders for a while, but has now run into trouble and much is at stake. Read … How the SoftBank Scheme Rips Open Boot Bubble
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