Wednesday, January 3, 2018

Retirement and the issue of social security

This is Joseph

Every once in a while I hear about how social security is a monster that will destroy the federal budget if it is not reigned in.  Seriously, just google about the social security trust fund and you will be amazed.  So I was curious as to what the average benefit looks like.

According to Social Security, itself, the average benefit in November 2017 for retired workers was $1,375.29.  It was less for people living on disability.  That averages out to about sixteen thousand dollars per year.  The poverty line, for one person, is twelve thousand dollars per year as of January 2017.

What this actually means is that there isn't actually a lot of room for cuts here. Remember, that is the average and many participants will end up with even less.  Even in low cost environments, this suggests that social security is mostly a hedge against actual starvation and homeless, more than a real plan to retire.

So keep this in mind when there is a discussion of the need to cut entitlement programs to handle the new deficit crisis.  There isn't really a lot here to cut without having very profound economic impacts on vulnerable senior citizens.  And it is not really a driver of increased costs:
According to the Congressional Budget Office, Social Security’s share of gross domestic product will rise by about 1.5 percentage points over the next three decades, to 6.4%. The share going to Medicare, Medicaid and the Childrens Health Insurance Program (if Congress ever gets around to reauthorizing CHIP) will rise by 3.3 percentage points, to 8.8%.
Now there is a looming problem with medical costs, but these apply to all forms of medical insurance and not just public programs

It's inexpensive and bare bones now.  Reform, other than maybe increasing pay-outs to recipients who end up below the poverty line is likely to do real harm for surprisingly small savings (and keep in mind that we recently enacted a huge tax cut that suggests that deficits are not an immediate concern).  Finally, undermining this program undermines the justification for the quite regressive payroll tax, which is a key piece of revenue now that we keep cutting income taxes.

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