The Long Drain

The long drain begins:

When Kathleen Casey-Kirschling signs up for
Social Security benefits Monday, it will represent one small step for
her, one giant leap for her baby boom generation "” and a symbolic jump
toward the retirement system's looming bankruptcy.

Casey-Kirschling "” generally recognized as the
nation's first boomer (born in Philadelphia on Jan. 1, 1946, at
12:00:01 a.m.) "” won't bankrupt the Social Security system by taking
early retirement at 62. But after her, the deluge: 80 million Americans
born from 1946 to 1964 who could qualify for Social Security and
Medicare during the next 22 years.

The first wave of 3.2 million baby boomers turns
62 next year "” 365 an hour. About 49% of the men and 53% of the women
are projected to choose early retirement and begin drawing monthly
Social Security checks representing 75% of the benefit they'd be
entitled to receive if they waited four more years to retire.

If Social Security were a well-managed private insurance program, this would be a non-event.  The returns on investments over the last 40 years have been tremendous, such that a private fund could easily start paying out benefits based on boomers' premiums.

Unfortunately, as a government program, the funds in the program are subject to the whims of politicians.  And it turns out that boomers have elected politicians who have spent all the money that has been contributed to Social Security (despite USA Today in their graphics trying to continue the myth that a meaningful "trust fund" actually exists as anything but a bunch of government IOU's to itself.)  So, because Congress has spent all the past contributions, an action that would have had any private manager jailed decades ago, Social Security must now run itself as a Ponzi scheme, where current contributions pay off retiree benefits.  This game runs out somewhere in the 2020's.  And this all despite the fact that Social Security pays out a negative rate of return.


  1. ColoComment:


  2. somebody:

    Why do you hate seniors?

  3. Dan:

    Warren runs a chain of National Forest and State Park concessions. I'm sure a few years of that will have given him ample reason to hate seniors.

  4. Paul:

    I think that the key event is not 2020, which is when the money going out exceeds the money coming in, but more like right now when the difference between money coming in and going out peaks. Every year from now on the government has to find more money than it did the previous year (because there is less surplus for them to continue to spend). Since it is spending all the money coming in anyway, the fact that some nominal axis is crossed in the 2020s is irrelevant (although more dramatic and easier to comprehend).

  5. steep:

    The best line in the article is at the end:

    Drinking tea on their porch, Casey-Kirschling and her husband say
    they're willing to do their part on behalf of their two daughters,
    who are socking money away for retirement because they don't
    expect much government help.

    "I can't imagine what's going to happen with our children and our
    grandchildren," Casey-Kirschling says. "They're not going to be
    able to retire."

    I can't see into the future either, but I know what's happening now.
    15.4% for the boomies so she is stopped " ... from having to tap other investments ... " and so she can keep the boat.

    I guess the lefties are right, the rich get richer.

  6. Travis:

    Did you see the picture of this lady on her freaking boat?!

    A BOAT!

    I work my butt off 80 hours a week and I can barely pay my rent in this economy. Does she really need Social Security?! NO!!!

    She has a freaking BOAT and she's going to collect!

    This whole baby boomer thing is going to be a disaster. What kind of people steal their own kids retirements away from them? Baby boomers, that's who. Well, we'll see who has the last laugh when all of us Gen-Yer's get into office and cut all of these Senior handout programs to nothing.

    I'm going to refuse to pay the taxes on the greedy baby boomer bums that want to spend my money on BOATS!!!

  7. markg:

    In our present fiat money system SS cannot go bankrupt. Social Security is more about allocation of resources then money. The true fix is to create an economy that produces the goods and services required by the retired population while producing the goods and services to advance the living standard of the working population. Putting people to work in useful jobs and maximizing productivity are the key to saving SS and medicare.
    The first step is getting people on the same page in understanding a fiat money system with floating exchange rates. I would suggest reading Wray's work at or Warren Mosler has a good paper titled Soft Currency Economics. Or we could continue believing in a no longer applicable gold standard and argue about the existance of trust funds, govt debt, and "congress spent the money" issues.

  8. Jaycee:

    In Australia we have a different system. By law, 9% of your salary (capped above a certain limit) is paid into a 'superannuation account'. This is your personal account, with your name on it. It doesn't subsidise anyone else. The government doesn't come anywhere near it.

    You can choose to invest it in almost anything you like. There are certain limitations : superannuation funds may not borrow money, and the investments must meet the 'sole purpose' test to verify that they are solely investments for your retirement. You can't 'invest' it in a holiday house or a new car : those aren't considered liquid investments solely intended to provide retirement savings. Yes, I know a holiday house could be, but the rules are there to ensure that people don't play games with the system and end up with no retirement money. You know some people would.

    You can invest it in shares or cash or bonds or property or a bunch of other audited superannuation fund accounts.

    I personally set up my own superannuation trust fund, as many people do, rather than use a commercial one. It gets audited each year to ensure it meets the 'sole purpose' test, and as long as I don't break the rules I can invest it in any share market or money market or listed property or bond market or currency market or gold or silver or other investment I choose.

    You get the money when you retire. There are certain concessions if you then choose to buy an annuity with it.

    The result is that although Australia has about 0.3% of the worlds population, we have the world's 4th largest investment funds market, largely driven by these superannuation accounts (link,21985,22466856-5012854,00.html )

  9. Reforemed Republican:


    Or, the government could just butt out. Then, you could choose how much or how little to invest. You also would not have to deal with auditors (payed for with taxes?) and limitation on where you can put the money. It is entirely possible for you to save for retirement with the government forcing you to do so.

  10. Mark:

    "the government could just butt out"

    The problem is that the government in the United States has already butted in.

    Trying to create a privitized system has major transitional issues that need to be addressed. Most of these transisitional problems are quite epxensive.

    For example, how do you pay the citizens that already are collecting social security retirement benefits? They were not offered a chance to invest in private accounts and many rely on this income for their retirement.

    ANother example, how do you deal with the individuals, like myself, that are in the age range between 40-60? We have already paid in thousands of dollars into the social security system. At this stage in our lives will all of that investment be taken away?

    I support the replacement of the social security system with a privitized system. However, I recognize the issues that make comments like yours absurd. Further, because of the expensive transistional costs any privitized system will require increased taxes.

  11. Craig:

    Please lie down for a minute and get over your antipathy toward "boomers". There's no data that I know of that shows that my generation has voted for tax-and-spend politicians in any greater numbers than did our parents, the "greatest" generation. I also haven't stumbled across any figures indicating that the younger generations are inclined to change things much either -- if they bother to vote at all.

  12. Technomad:

    Both the so-called "Greatest Generation" and the boomers (of whom I am one of the youngest, having been born in 1961) are at fault. I could also fault the news media, the majority of which is staffed from top to bottom by people whose holy trinity is FDR, JFK and Bill Clinton; they may not make up the news, but they can sure slant it in whatever direction they favor, and spike stories they don't like.

  13. Scott Wiggins:

    Anyone counting on the government to take care of them is in for a rude awakening. My mother is collecting $585/month on social security. Good luck if your retirement plan is Social Security. Somewhere around 40% GDP is going to state, federal and local governments and it is not enough. They can't balance their own budgets and they are making more promises to present and future generations with your money. 22% of state budgets are paying just medicaid. Can you even fathom the expense of that one program? And they have hundreds of entitlement programs that are growing like a cancer... Not to mention millions of employees who have generous retirement plans. Did anyone bother to tell the government that we are in an information age and they could streamline processes to reduce the numbers of employees? I guess not because state budgets are growing around 6%/year. I'm sorry to be so bleak but it is ugly out there. Government is dysfunctional. They don't need more money because they can't spend what they have in a responsible manner. Sorry about the rant. Good luck!

  14. markm:

    I could also fault the news media, the majority of which is staffed from top to bottom by people whose holy trinity is FDR, JFK and Bill Clinton;

    Or rather, their invented images of that trinity rather than the men themselves. Compare what JFK said and FDR did to what the liberal media thinks about military intervention in foreign countries...