William Larsen

Social Security Sucks!!!

Today the SSA states Social Security’s Old Age Survivor’s Benefit Program will run a $10 Billion negative cash flow instead of the $80 billion surplus. However, this is a spin on a bad situation. The only reason why they report it as a negative $10 billion is that $80 billion in interest is being used to pay benefits this year. The actual difference between payroll tax and benefits paid is $90 billion in the red.

Under ideal circumstances (which SS has never had);

• 100% of benefits would be paid using the trust fund
• 100% of all payroll taxes would be invested to pay future benefits
• 100% of current beneficiary cohorts’ interest on their payroll taxes would be used to pay current beneficiaries
• 100% of current non beneficiary cohorts’ interest on their payroll taxes would not be used to pay current beneficiaries, but accumulated compounding yearly until the cohorts retired.

So how bad off is Social Security? Before the recession, total liabilities of SS-OASI were over $23 Trillion. SS-OASI had just over $2.5 Trillion in securities. (Special US Treasuries, payable on demand). This means the unfunded portion is over $20 trillion. This is based on earning 5% a year on the trust fund. Given that inflation is lower, we still need 3% return on the trust fund.

In 2009 SS-OASI should have collected $690 Billion from the treasury in interest plus another $500 billion from payroll taxes. In simple terms under the SSA math, SS-OASI should have had a surplus of close to $700 Billion. So the net actuarial deficit for SS-OASI for 2009 is $710 Billion give or take a few billion.

Our kids are so hosed!

posted by William Larsen @ 1:04 AM