America’s Vanishing Social Security Trust Fund

This is a serious topic that neither Joe Biden not Donald Trump is interested in talking about. No wonder. It’s complicated and most people expect their elected representatives to solve the problem.

The United States Social Security Administration is an independent agency of the U.S. federal government that administers Social Security, a social insurance program consisting of retirement, disability, and survivor benefits. But you wouldn’t know it. Politicians try to use it to their advantage.

The Social Security trust fund will run out of its funds in a dozen years or so if nothing is done. Some experts say the government should tap general revenue to pay beneficiaries.

A monthly check from Social Security is the only thing keeping millions of older Americans out of poverty. Half of married senior citizens and 70% of unmarried seniors get at least half of their income from it, according to the Social Security Administration. It is the indispensable retirement solution. But the trust fund that pays old age and survivor benefits is going to run out of money sometime in the 2030s.

Those hard facts have raised a question:
Should Social Security stop depending just on payroll taxes and the trust fund to pay benefits and start supplementing those sources with general tax revenue? The debate came to a boil in August, when President Trump floated the idea of a permanent cut in payroll taxes, which would presumably necessitate a big infusion of general tax revenue to keep benefits whole.

A lot of advocates for Social Security worry that tapping general revenue will make people perceive the program as welfare rather than a mutual insurance compact among workers.

On the other hand, drawing on general funds would make it easier to pay scheduled benefits to the Baby Boom generation without big hikes in payroll taxes.

Faced with this scenario, the usual response is to choose from an unpalatable menu for fixing Social Security’s finances, such as raising the retirement age, choosing a stingier cost-of-living adjustment, or increasing the payroll tax rate. Democratic Representative John Larson of Connecticut, chairman of the Social Security subcommittee of the House Ways and Means Committee, is sponsoring the Social Security 2100 Act, which raises benefits slightly while gradually lifting the payroll tax rate for workers and employers from 6.2% to 7.4% and subjecting wages over $400,000 a year to payroll taxation.

But none of the choices on the menu undo the core problem, which is that American society has aged. The number of beneficiaries per 100 covered workers has risen from 25 in 1965 to 29 in 2000 to 36 this year, and it’s expected to reach 45 by 2040.

Here’s what a Biden presidential win may mean for your Social Security benefits as reported on CNBC. Biden would increase the special minimum benefit, which was created to provide low-earners with adequate benefits. Biden calls for setting that figure at 125% of the federal poverty line. That would bring it to $1,301 from $886 a month as of 2019, according to an analysis by the Penn Wharton Budget Model at the University of Pennsylvania.

Donald Trump would like to cut payroll taxes to put more money in every family’s hands now to boost the economy but offers no plan on keeping the program afloat.

GOP Debate #3 – No Clear Winner

A GOP effort to avoid offering solutions to issues.

The debates are becoming somewhat boring. We have all heard the positions of the candidates. For the most part we know who wants to create a flat tax and who wants to protect Social Security. That made the moderator’s job more difficult.

The candidates were asked some questions that were obviously meant to start arguments among them. For the most part that strategy failed. Jeb Bush’s attacks on Marco Rubio were induced by the moderator. The attacks were fended off fairly well by Rubio.

The one significant continuing problem for me was the lack of answers to reasonable questions. The candidates all spoke about the lagging income of the middle class but not one offered even an outline of a solution. There were some who acknowledged the growing college student debt but not one had any solution.

Remarks about the Federal Reserve by Ted Cruze and Rand Paul might have rung a bell with the No-Nothings but seemed obtuse and irrelevant. Inserting politics into the management of our monetary system would likely result in endless Benghazi like hearings conducted by people who have an agenda beyond the management of the nation’s banking system. Somewhat bizarrely, Cruz also appeared to call for a return to the gold standard.

Ted Cruze was a master at avoiding answering the questions put to him. He attacked the moderators and pointedly guessed that none would be voting in the Republican primaries. When asked his view on the fact that women on average earn 77% of the pay of men for the same job he went on a spiel about helping the middle class.

I could not identify a winner of this event. Neither Donald Trump nor Ben Carson offered any impressive position or statement that would keep them in the lead in the polling. Jeb Bush, considered the early favorite of the establishment made no statement that pushed him ahead. Carly Fiorina’s idea of a three page tax code was a good sound bite, remember Herman Caine’s 2012 9-9-9 plan, but is obviously an unlikely outcome. The Herman Caine plan was 9 percent “individual flat tax,” a 9 percent “business flat tax,” and a 9 percent sales tax.

I do not anticipate anyone dropping out of the race as a consequence of this debate.

Saving Money in Retirement

Once retired you now try to find ways to lower your daily living expenses. After all the typical $1,200 Social Security check won’t meet the needs and wants we all have.

Social Security is a safety net. It was never meant to be your only source of income in retirement. The problem is that many people saved too little during their working years to have a significant retirement savings.

That brings us to finding ways to reduce our cost of living. Even if you own your home and have no mortgage payment, living on Social Security alone will not provide a comfortable living arrangement.

I have considered the options. I know of only two. Neither is appealing but both are doable.

Obtain a Reverse Mortgage. As long as you maintain your home, pay the property taxes, and fire insurance you can receive a monthly income as the outstanding mortgage grows. The house must be sold once you and your spouse have died. The difference between the mortgage and the house’s value will go to your heirs. The mortgage company has no claim against your heirs if the house sells for less than the outstanding mortgage. Reverse mortgages are expensive but will enable you to live in your home for the rest of your life.
Sell your house and move to a smaller city or town where home prices are low and live off the income you obtain from that big house in the city. The down side is that small towns may be far away from the places you know and love.

The 8 Least Expensive Places To Live in the U.S. according to Wall Street Cheat Sheet suggests some possibilities. They are all small towns that are not located on interstate highways. My guess is Red-Necks prevail.

The AARP list Retire to a Good Life for Less suggests “10 low-cost cities where you can live in comfort no matter how big (or small) your savings account” is an unrealistic view of the real world. Your savings do matter no matter where you live.

Brownsville, Texas

I went one step further. I researched using Google for the BLS cost of living data for 34 “selected urban areas.” The list includes small town I have never heard of and are very remote. Then downloading the results and
sorting for the Composite Index. Listing the lowest cost as number 1. The results are as follows.

The town with the lowest composite cost of living is Harlingen, Texas. Population 65,679. Nearest city over 100,000 is Brownsville, Texas. Brownsville has the third lowest in cost of living. Its estimated median household income in 2011: $31,850 (it was $24,468 in 2000). The population has grown by 29% since 2000. The growth was not brought on by seniors. Median age is less than 30. The city is on the border with Mexico. Harlingen is 26.2 miles north. UTB is the University of Texas Brownsville and should indicate there is more to the city than low income population. Low winter temperatures are rarely if ever below 40º F.

Indianapolis, Indiana is number 7 lowest in cost of living. With population of over 800,000 people it can offer a variety of opportunities and things to do.

Covington, Kentucky is across the Ohio River from Cincinnati and is number 9.

None of these locations match my Mediterranean climate in Los Angeles. A high cost location (31 highest out of 34). I grew up here. My family and friends are here. Those things are more important to me.

Social Security Now Called ‘Federal Benefit Payment’

Have you noticed, your Social Security check is now referred to as a “Federal Benefit Payment”? It’s not accurate!

Not only did we all contribute to Social Security but our employers did too. It totaled 15% of our income before taxes.

If you averaged $30K per year over your working life, that’s close to $180,000 invested in Social Security.

If you calculate the future value of your monthly investment in social security ($375/month, including both your and your employer’s contributions) at a meager 1% interest rate compounded monthly, after 40 years of working you’d have more than $1.3+ million dollars saved. This is your personal investment.

Upon retirement, if you took out only 3% per year, you’d receive $39,318 per year, or $3,277 per month.

That’s almost three times more than today’s average Social Security benefit of $1,230 per month, according to the Social Security Administration (Google it – it’s a fact). And your retirement fund would last more than 33 years (until you’re 98 if you retire at age 65)!

I can only imagine how much better most average-income people could live in retirement if our government had just invested our money in low-risk interest-earning accounts. Instead, the folks in Washington pulled off a bigger Ponzi scheme than Bernie Madoff ever did.

They took our money and used it elsewhere. They “forgot” that it was OUR money they were taking.

They didn’t have a referendum to ask us if we wanted to lend the money to them.

And they didn’t pay interest on the debt they assumed. And recently, they’ve told us that the money won’t support us for very much longer.

But is it our fault they misused our investments? And now, to add insult to injury, they’re calling it a “benefit,” as if we never worked to earn every penny of it.

Just because they “borrowed” the money, doesn’t mean that our investments were a charity!

Let’s take a stand.

We have earned our right to Social Security and Medicare. Demand that our legislators bring some sense into our government – Find a way to keep Social Security and Medicare going, for the sake of that 92% of our population who need it.

Then call it what it is: Our Earned Retirement Income. 99% of people won’t forward this.

Will you?

10 Things You Should Know About Social Security

From AARP Money Newsletter

Social Security provides benefits to 55.4 million Americans. Among beneficiaries age 65 and older, 22 percent of married couples and 43 percent of unmarried people rely on Social Security for 90 percent or more of their income. And 54 percent of married couples and 73 percent of unmarried persons in this age group receive 50 percent or more of their income from Social Security.

Sign up for the AARP Money Newsletter.

Is Social Security just for retired workers? No. As of December 2011, 15 percent of beneficiaries were disabled workers; 9 percent were dependents of workers and 11 percent were survivors (such as widows and widowers and children).

At what age can I start collecting Social Security benefits? Workers can begin receiving benefits at age 62, but your benefit will be greater if you wait until your full retirement age (currently 66) or later. Widows, widowers, surviving children, the disabled and children of the disabled can start collecting earlier. Full retirement ages are based on the year of your birth.

How do I sign up for Social Security benefits? Apply for Social Security benefits online, at your local office or by phone at 800-772-1213. To collect your full retirement benefits, apply to the Social Security Administration (SSA) three months before you wish to receive your first payment.

How long do I need to work to become eligible for benefits? If you were born in 1929 or later, you need to work at least 10 years to become eligible for Social Security. The SSA determines eligibility with a system of credits. Basically, you earn up to four credits for every year worked, and you need a total of 40 credits to qualify for Social Security.

Must I stop working to collect Social Security benefits? No, you can receive benefits while working. But, if you are younger than the full retirement age (currently 66) and earn more than a certain amount, your monthly benefits will be temporarily reduced. Once you reach full retirement age, however, your benefits will be increased to make up for what was lost.

If you’re turning 66 in 2012, the amount you can earn without a reduction in benefits is $38,880. If you’re younger than 66 for all of 2012, the amount you can earn without a reduction in benefits is $14,640. After you reach your full retirement age, you keep all of your benefits no matter how much you earn.

What’s the maximum monthly Social Security benefit? For a worker retiring in 2012 at the full retirement age of 66, the highest monthly amount is $2,513. In December 2011, the average monthly Social Security benefit for a retired worker was about $1,229.

Join the Social Security community group.

Can I receive Social Security benefits based on the earnings of a former spouse? Yes, as long as you were married for 10 years and you aren’t remarried. If so, you’re eligible to claim Social Security benefits under your ex-spouse’s earnings if they turn out to be higher than your own.

How can I boost the amount of my Social Security check? Bottom line: The longer you wait to start collecting after you become eligible at 62, the higher the amount you will receive. For each year you delay, your Social Security benefits will increase between 7 percent and 8 percent annually up to age 70, depending on your year of birth. (See for yourself: Try the AARP Social Security Benefits Calculator.)

How should I receive my Social Security payments? Your best bet is to sign up for direct deposit into your bank account. Paper checks can get lost in the mail. The Department of Treasury plans to do away with paper checks altogether by 2013 in favor of direct deposit and debit cards.

When someone dies, how does the Social Security Administration know? The SSA receives reports of beneficiary deaths from family members, funeral homes and other government agencies. You should inform the SSA as soon as possible when a person dies.