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Social Security: The Long Slow Default

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https://mises.org/library/social-security-long-slow-default

When an investor buys an annuity or another retirement product from an insurance or mutual fund company, the contract is constant and enforceable through the United States court system. When a United States taxpayer is forced to pay for a government backed retirement system such as the Old-Age, Survivors, and Disability Insurance program (OASDI) — also known as Social Security — the “contract” can be, and is, changed on a regular basis by the United States government, and those changes are generally not to the benefit of the taxpayer.

Participation in the Social Security system became compulsory in 1935 and the first monthly retirement checks were issued in 1940. The first monthly check was issued to Ida May Fuller of Ludlow, Vermont. She had paid approximately $25 into the Social Security system and received over $22,000 in benefits from the system due to living to 100 years of age. The other early retirees of the Social Security system on average also did very well. Retirees in 1977 are estimated to have received seven times what they paid into the Social Security system. Retirees entering the program as recipients today will probably receive a negative return on their “investment.”

The “Primary Insurance Amount”

The way that Social Security benefits are calculated is complicated, and can, of course, be modified at any time.

The amount of monthly income a Social Security enrollee receives is called the Primary Insurance Amount. The current Primary Insurance Amount (PIA) benefit formula was created in 1979 and is based on two “bend points.”

For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, his PIA will be the sum of:

(a) 90 percent of the first $826 of his average indexed monthly earnings (AIME), plus,
(B) 32 percent of his average indexed monthly earnings (AIME) over $826 and through $4,980, plus,
© 15 percent of his average indexed monthly earnings (AIME) over $4,980,

where the Average Indexed Monthly Earnings (AIME) is currently the average of the Social Security recipients top thirty-five years of income during his lifetime divided by 12.

Significantly, each year’s monthly income is expressed in 2015 dollars using the Consumer Price Index (CPI).

Benefit Cuts Since the 1970s

By the late 1970s, it became obvious that the Social Security system was going to have significant solvency problems since the ratio of workers to retirees decreased from around 40-to-1 in 1945 to around 3-to-1 in 1980, and most of the money paid into the system had been spent on other government programs.

I wonder what the figures are for the first UK recipients of welfare post WWII.

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Silly question. Our annuity rates have collapsed from 15% around the end of last century to 3% now for a fully index-linked annuity. The boomers[1] are getting one fifth of what the previous generation did.

[1] With, no doubt, a few exceptions among those who had the foresight to retire early. Limited of course to those who could do so before the rule changes, thus excluding the 1960s-born Willetts-boomers altogether.

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Some people have it's BTL.

That's their choice, not sure if you applying some black humour here or using it as a rogue example to justify individuals should not be part of private, fully funded (and, most importantly - not leveraged :)...) schemes depending on their own contributions.

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