Maybe the Social Security Bail Out can be temporary

Greetings gentle reader. Once again, it may be covid related but the demise of Social Security as we know it is being bandied about in the news. The headline on MarketWatch-“Should Social Security be eliminated as a federal entitlement program? Or would that ‘end the program as you know it’? by Alessandro Malito. Or just the opposite– “Social Security recipients to receive major COLA benefit increase” on NBS news.

So which one is it? There’s reports everywhere that the cost of living(COLA) will increase the payments for all recipients because of the rampant inflation we’re all experiencing and in the same breath there’s reports about the trust fund reducing benefits as early as 2035. How can we increase benefits right now while simultaneously be forecasting the trust funds won’t have the cash to keep paying without reductions? The year 2035 isn’t that far away. Record levels of COLA increases isn’t going to help with the longevity of the program. There are lots of fixes out there as actuaries, financial pundits and politicians throw out solutions like bumping up the payroll tax withholding figure, raising the max retirement age or raising the tax limit (147K for 2022). However, they all agree it needs to be fixed as the boomer population retiring soon will put stress on the system and could reduce the trust fund significantly even though the generations paying in could be earning more income. Whatever the fix will be, I never see anything saying the payments won’t be taxed anymore as first intended by the Roosevelt administration back in the 1930’s. Not surprised by that; I know you’re probably not either.

Why is there a strain on the system? A lot of experts say it’s the “baby boom” generation and they’re probably right; almost 76 million people in the US. Let’s go with that premise. The boomers were born from 1945 to 1965 with the “max years” being from 1954 to 1964 where there were the majority of boomers born-around 46 million new kids. This is a very important group that will need to be paid their Social Security benefits as they are just now in 2022 turning 66 years old.

U.S. Births 1930-2007

Year	Births
1930	2.2 million
1933	2.31 million
1935	2.15 million
1940	2.36 million
1941	2.5 million
1942	2.8 million
1943	2.9 million
1944	2.8 million
1945	2.8 million
1946	3.47 million
1947	3.9 million
1948	3.5 million
1949	3.56 million
1950	3.6 million
1951	3.75 million
1952	3.85 million
1953	3.9 million
1954	4 million
1955	4.1 million
1956	4.16 million
1957	4.3 million
1958	4.2 million
1959	4.25 million
1960	4.26 million
1961	4.3 million
1962	4.17 million
1963	4.1 million
1964	4 million
1965	3.76 million
1966	3.6 million
1967	3.5 million
1973	3.14 million
1980	3.6 million
1985	3.76 million
1990	4.16 million
1995	3.9 million
2000	4 million
2004	4.1 million
2007	4.317 million

*Numbers from the Statistical Abstract of the United States

This is simple math but we are projecting the likelihood that most of these folks will elect to take their benefit at the FRA(full retirement age) which in this case between 66 and 67.

Birth Year	Year taking first check	Year turning 85
1955	2032	2050
1956	2033	2051
1957	2034	2052
1958	2035	2053
1959	2036	2054
1960	2037	2055
1961	2038	2056
1962	2039	2057
1963	2040	2058
1964	2041	2059

Life expectancy for most people living in the US right now according to the census tables is 85 years old let’s say and that’s rounding up just to make it interesting. The 1945 boomers are turning 85 by 2030 and the majority dying off. Not trying to put anyone in the grave; this is just an article about Social Security–don’t get excited please. So 2030 is when the Social Security rolls start to theoretically start to drop off. The bulk of these payees are putting a REAL strain on the system between 2032 to 2059. In 2060, the 1965er’s will be 85 and dropping off the rolls.

Theoretically we really just need the bail out to last between 2032 to 2060, right? Then we’re done with the boomers and the population that is eligible would be less ergo putting less of a strain on the system. So a cash infusion or some rule changes to get the trust fund fatter during this time would be optimal but as described above, may be for only a short time– 28 years compared to how the program has been around since 1935. Gen Xers birth rates are much lower through the sixties, seventies and eighties. In the 2000’s the birth rates do increase so there will be more youngsters paying in to cover the smaller Gen Xer crowd. Then again there’s longer life expectancies to think about–fantastic medical science, cure for cancer, bionic transplant body parts, better diets (fat free mayonnaise? Just give me the real stuff!) and exercise are key contributors.

Of course, not all of the boomers in question will make it to 85 as life’s misadventures, health issues etc. can figure in. Also, there should be some leeway with regard to those who take their benefits early or later. Additionally, there are surveys out there that state many people will continue to work into retirement which means they would be still subject to the payroll taxes that fund the program that would help support the benefit payouts.

The broad brush I’m using here is just that but when the problem is truly dissected and the numbers are broken down, it can change the perspective on when a bail out or other remedy is truly needed. I’d like to think this endless diatribe has helped ease whatever anxiety you may have by shedding light on these stats. Until next time, gentle reader, I hope this helps you live your best life in retirement.

August 21, 2022 0

Three ways to increase your Social Security check

So you may have looked at your Social Security statement recently and you may be a little disappointed. You may have paid into the system for a long time and when you check up on it by logging into http://www.ssa.gov/mysocialsecurity you’re just not feeling the love. Do not despair gentle reader! Here are 3 ways to possibly boost your benefit for your golden years:

1) Easiest is work longer! Your numbers are based on a formula that takes into your top 35 earnings years. So like any average low numbers or zeros are going to pull that number down drastically. On the third page it will show you your earnings records based on your income tax returns throughout your lifetime. So if you worked at the ice cream shop down the street as a 20 yr old back in 1979 there’s a possibility that number may be very low and needs to be replaced. If there’s zeros because you stayed home with your children or if you worked at your brother’s landscaping company and got paid “under the table” then those numbers need to be replaced. Remember those “under the table” jobs? What happened to them? If you can replace the low ones, it will help you exponentially.

2) What if the SSA’s numbers are wrong? Can the government make mistakes? NO they’re always right aren’t they? So take a good long look at that 3rd page and really think back to where you were working, where you lived, who you were dating, etc…anything to jog your memory. If you worked at Wang Labs full time in 1986 and there’s $4,000 notated then there’s probably a mistake. The onus on correcting the aforementioned mistake is COMPLETELY on you! You have to go back to your tax returns if you saved them. If you didn’t save them then you have to go back to Wang which is now Getronics out of San Rafael CA to get your W2 to get the SSA to fix the error. If you are a high earner, then there will be a disparity between your Medicare earnings which includes all earned income and your Social Security earnings which are capped year to year- 2020 is $137,700.

3) The numbers you read on the statement are estimates and are pre-tax. If you make over $44K for most sources(if you want to know the exception call me at 866-770-6953 and I’ll try to help) then you have to report 85% of your benefit. This tax legislation dates back to 1993 from the Clinton administration and the income has NEVER been indexed for inflation. Seems crazy. So just try to live/move to a state that is retirement friendly like Florida(warm) or New Hampshire(not so warm). There are 13 states that don’t tax Social Security or have graduated tax brackets that limited state taxation. Usually these states favor your other retirement income like pensions and IRA/401k withdrawals.

4) One bonus point! If you feel as though you haven’t saved enough for retirement, then maybe your next job could be for a company that has a pension plan. Truthfully, there’s more of a chance of a pterodactyl landing in your driveway. These plans are very rare and getting more and more scarce because they are almost always funded with corporate dollars. When they were instituted in this country many years ago no one lived that long. Now people are living well into their 80’s and 90’s on a regular basis which makes the pension payments go on and on. However there are some companies that still offer these plans like Coca Cola, Johnson and Johnson(also pays your health insurance for life), hospitals, colleges, states and government agencies. An internet search could probably help with this.

So get your statement and take some time out to really consider it. They provide these statements to you for a reason. And so gentle reader and/or soon to be retired citizen, that’s it for now.

January 31, 2020 0

When is it the best time to take your Social Security benefits early?

Everything you read is wait, wait, to take your benefit check. It will be bigger the more time you can hold off and maybe you should. However there can be times when taking it early does make sense.

If you hold off until age 70, you can get in some cases a 32% higher check amount, so why not suck it up and grind on to hold off and get paid more? There’s a few reasons and here they are:

1) Your health is not so great. If you wake up in the morning and go to the kitchen to get the plastic weekly pill box out of the cupboard and think to yourself, “OK it’s Tuesday right? I’ll take the blue one with coffee, the white one with lunch and the last 2 with dinner.” Maybe taking it early is a good idea. If you take your benefit at age 62, you will getting 75% of a check than if you waited until you’re full retirement age–let’s say that’s 66 years old. Are mom or dad still alive? Siblings? What you doing here is trying to handicap or project your life expectancy? Cancer survivor, heart attacks, high blood pressure…whichever it is no one here gets out alive.

If you added up the total checks if you take it early compared to taking it at full retirement age –66- if you take it early and die before you’re 75, you picked the right one. If you take it at 66, and died after 75, you picked the right one. Its the total amount that you receive that is the measuring stick here.

2) You’re out of work and just need the income. Completely understandable. You have to live. So if you’ve been downsized out of your job at age 63 and there’s not appearing to be a lot out there, maybe it’s a good idea. There is a 12 month window where you can stop it. Let’s say you got downsized, unemployed and you opted to start receiving benefits. then your friend calls and tells you to come down to his office that’s 3 miles away from your home, you know just about everyone there, the money’s right and they are the hiring manager. You get the job and all is well but then you remember you have your Social Security check still coming in which now you don’t need thanks to your new employment. You have 12 months after the date of the first check to stop your benefits. However you must pay back everything you received and the Social Security Administration will expunge your record like it never happened and you go on paying into the system.

3) Your spouse didn’t work or didn’t contribute to the system. Let’s say your spouse is older than you and their benefit at 66 is $350. If you take your benefit early than they could get their spousal benefits which could be and probably would be higher than claiming on their own record.

Handicapping your own life expectancy can sound like an unpleasant thing to do. Imagining your own demise is practical and necessary when contemplating when to take your benefits. Maybe consult your doctor, look at your family, and really kind of face the facts. Financially you could be better of claiming early.

All for now gentle reader. Until next time so long.

January 30, 2020 0

Another good year keeps the Social Security system on life support

Contrary to popular belief, the Social Security System actually makes money….sometimes. The only things the trust fund assets are allowed to invest in is treasury securities which they refer to as “interest bearing special issue” bonds. So when interest rates go down, the value of these bonds and notes go up therefore raising the value of the Social Security trust fund. It has happened fairly often in the 10 years or so which typically adds more time to the D-Day moment of when the benefits may have to lowered without some kind of legislative intervention. If the “special issue” bonds go up in value, it generally means the system can stay solvent for another year.

The Social Security Administration comes out with their annual report every year around this time and according to the newest report the above mentioned is exactly what’s happened. They give the prognosis for the program for the next 10 years and the next 75 years using a host of different economic numbers and stats like wage growth, population, mortality and immigration to try to get a handle on how many future claimants there will be.

The harbinger of bad things to come is what’s they call the “net-cash outflows” which means after everything that comes in and costs are taken out, the administration had to dip into the trust fund reserves to cover the shortfall. Recently they’ve been warning that this could happen but at the end of 2018, 3 billion of unexpected income made it profitable.

For 2019, the margin was a little slimmer. At the beginning of 2019, the total was $2,895,174, 945,000(almost 2.9 trillion) and it ended the year at $2, 897, 492, 826, 000 — $2.3 billion higher. So the system didn’t have to dip into reserves to cover the 64 million checks it issues to it’s recipients. However as positive as that is, it was the lowest gain since 1982. What about 2020?

Well I ‘m glad you asked. The Administration’s projections for 2020 not so rosy. A lot of people blame Social Security’s woes on the baby boomers but they might be just part of the problem. Here are some other contributors:

1) People are living longer. The system was never meant to pay people for 20 yrs after retirement. More 80 yrs olds out there than ever.

2) Immigration is down. Usually the people who are immigrants are typically younger and will pay into the system longer ergo supporting more of the older recipients.

3) Birth rates are down. People are not having as many babies as they did in the past. Younger workers pay into it and the older workers’ payments stay funded.

4) More high earners collecting more. These beneficiaries are getting a higher payout than the system has ever paid. And they usually live longer.

There’s a Connecticut democrat named John Larson who introduced legislation that would raise the payroll taxes from 6.2 % to 7.4% and added other rules about any beneficiary with income under $49,000 would not have to report their Social Security income. That was back in 2013– there’s been calls to vote on whether to vote on it(yes that’s really how it works in Congress) to no avail. Social Security has been a 3rd rail for politicians but with the upcoming shortfalls acting sooner than later would be advisable.

That’s all for now. More to come in this brave new decade.

January 16, 2020 0

Why should you delay taking your Social Security benefits?

Many people can plan to take their retirement stipend in their 60’s but if you put it off until you are 70, you receive “delayed credits” insofar that your benefit grows at 8% simple interest over the years that you wait to apply for the monthly check. There are many reasons to not take your Social Security benefit early or even at your full retirement age or FRA as the government refers to it and use these upgrades to your advantage. ALL of them are personal and only can be germaine to you and your life.

One of the first reasons could be you just don’t need the income. what if you continue to work into retirement. My client Joan supervises a team of visiting nurses. She’s phenomenal at it and is very recognized as a star in her field by many. She called the other day and said, ” Hey remember that income idea we talked about the other day? I just got a new job so I don’t need the money now.” Joan is 83. Just got a new job. Seems crazy but she keeps right on rolling and apparently is in demand. She took her benefit at age 70 because she had to. Maybe you’re Joan.

Another reason is perhaps you feel as though you haven’t saved enough for retirement –very common fear right now. If you are 67 yrs old and you will receive $2000 per month if you wait until 70 and get the delayed credits, you can increase your annual amount by $5, 760. Not a huge windfall but every little bit helps. They say 64% of the American public has less than $10k saved for retirement; this could be very tough for a lot of people as their lifestyle would change pretty heavily after the paychecks stop.

If you are one of those people who feel as though you may not have saved enough for retirement, do not despair. Obviously you can’t go back and get a do-over however if you were to get a job at a hospital, college, or a company that has a defined benefit plan also called a pension plan, that would help you immensely. Let’s say you work at one of those places for 5 or 6 years; they would have to pay you something in your retirement. Let’s say it’s $1000 per month– 12K per yr. How much of a lump sum would you have to save to generate that much interest? $250,000 at 5% would do it. Is it easy to save up $250,000? Not hardly right? There is a more likely chance of a pterodactyl landing in the parking lot than you finding one of these. So you really need to be diligent. Coca Cola, Liberty Mutual and others still offer a plan like this one. Usually older companies would still have this benefit. It’s a financial home run to get this if you can.

Thirdly if you have longevity in your immediate family- are you parents still alive? Who do you take after physically? Do you smoke, have steak and eggs for breakfast and a pint of whiskey every night? Maybe your pharmacist knows you by first name? These may be signs that longevity is not in the cards for you. If you are healthy and expect to live into your 80’s then waiting would be a good idea. If you take it early at 62 and if you added up all the payments and you died at age 75-77, you probably picked the right option- meaning you would have collected more if you took it at 66.

If you took it at 66 or FRA, and you die at age 83-84, the aggregate payments would be more even if you had waited to age 70. While your monthly payments would be higher initially at 70, the totals would not be as much if you took it early because of your unfortunate demise at 84.

If you take it at 70 and live past 84-85, then the payments start high and your longevity makes the totals higher than all other options regardless as to how long you’ve been collecting. If you go to the gym a lot, riding your bicycle or walking, eating right, etc maybe waiting is the right idea for you. if you find these numbers/concepts confusing then find a financial professional to break this all down. We have very robust software that enables us to handle all the algebra easily in a very understandable way.

That’s enough for now. I will continue to fill this new year with more Social Security fun for all the gentle readers out there.

January 10, 2020 0

What are the 3 most crucial things you should do BEFORE you take your Social Security benefit?

What do they say…a pound of prevention is worth 100 pounds of cure? Sound advice I’d say. This old axiom goes a long way with regard to Social Security. Some simple planning looking forward to what could happen is very important. Remember this is a lifetime benefit so you want to get it right.

Number one– Retiring without considering how that effects your benefits. What happens if you don’t have enough quarters paid into the system? Your check is going to be less. At age 62 they will look at your top 35 years that you’ve paid into the program; they call it your AIME or average indexed monthly earnings. Does the government like to abbreviate things? Yeah just a little bit. If you haven’t paid in for 35–doesn’t have to be consecutive- then you can get a zero for the years in which there were no payments. This brings the average down in a most punitive way costing you potentially many thousands in income. If you don’t pay in 10 years or 40 quarters then you don’t get any retirement benefits at all from Social Security. Ouch! Even if you’ve paid in the whole 35 years what if there’s some years that are lower amounts like when you were 22 and worked at Dairy Queen? Could those numbers be easily replaced even with a part time job in this day and age? Most certainly they could and that would make your benefit higher.

Number 2 — The government is always right aren’t they? How about NOT! Can they make mistakes? Of course they can because the US government is made up of people and people aren’t perfect and they do screw up sometimes. So is it possible they can make a mistake on calculating or reporting your earnings record that’s considered for your Social Security payments? Of course it’s very possible. So go to the website and get your statement. They will proof you vigorously during this process which is good. Then take a look at the 3rd page. This is your earnings record. Sit down, get a drink, some place quiet preferably and really think about what you were doing for a job in 1994 or 1988. Try to go back in your mind and remember what you got paid etc. Are the numbers right? If they aren’t the onus is on you to change them…old w2’s or old 1099’s etc. and old tax returns. These numbers reflect what you paid in and can ABSOLUTELY effect your monthly check so they must be corrected if they are wrong.

Number 3 — Make sure to take advantage of spousal benefits if possible. If you take you benefits early for example at age 62 your reduction in benefits is 75% and if you were born after 1960 the reduction is 70% but if you wait until your full retirement age which is 66 yrs old if you were born before 1960 and 67 after which your benefit check would be higher. If you wait until your are 70 the amount grows at 8% simple interest –these are called delayed credits– which would lead to a higher income in your golden years.

You can however if you plan ahead of time with your spouse by coordinating benefits, the lower earning spouse could take benefits early so there’s a least one check coming into the house while a higher earning spouse lets their benefits build up with delayed credits and then the spouse that filed earlier can switch over. When they switch over to the higher spousal benefit, it’s half of whatever the amount was at the higher earning spouse’s full retirement age as the delayed credits are not eligible for the spousal benefit. When the higher earning spouse takes their benefit and the lower earning spouse switches to the higher check, its a nice pay raise for everyone. A very happy 70th birthday indeed!

If you have never been married then just skip this section as you aren’t eligible for any of it. However if you are divorced, then a version of the same aforementioned benefits can be filed for by you. If you were married for at least 10 years, then you can get spousal benefits. This will not reduce your ex’s check in any way nor will it reduce the checks of their other ex’s or their current spouse. Moreover they will never know you’re doing it either unless you tell them. You both have to be 62 or older and if you’ve been divorce for over 2 years you don’t have to wait for them to file individually. If you were separated and not divorced, that time would count toward your eligibility as its the date on the decree that counts here. But you must remember if you get married again, you will lose these benefits. How does the old saying go “First time for love, second time for money.” Important words to live by.

October 7, 2019 0

How to minimize taxes on your Social Security income

Are you Social Security checks taxed? Absolutely! But wait a minute…how do you fund Social Security? Payroll taxes right? We pay 6.2% of payroll taxes into the system.

Social Security originated in the Roosevelt administration as a reaction to the Great Depression of the 1930’s as 50% of senior citizens were at the poverty level. The New Deal could create all the “shovel ready” projects possible but back in those days seniors were jazzercizing or eating fat free almond milk with their bran flakes so the health of our seniors of the 30’s wasn’t like it is now.

Originally the payroll taxes enacted through the Federal Insurance Contribution Act of 1939 or FICA as we know it today were much lower– around 4% but have been increased over time. The Reagan administration made portions of Social Security payments taxable and the current rates were created during the Clinton reign in 1993.

Below shows how your Social Security check is taxed:

If your income is low enough then you won’t pay any federal income tax on your benefit. But is that really something to shoot for? What if you income is high enough that you are required to pay the aforementioned taxes? Here’s some ideas to get a lower profile by changing your income to potentially not pay as much. Please note that Social Security calls this “provisional income” so tax free municipal bonds are NOT exempt: that income is counted in to your total income. Ever wonder why you have to write in your muni bond income on line 2 on a 1040? You don’t bring it over to the totals to the right do you? The IRS just wants to know as it effects how your Social Security pay is taxed.

One way is to build assets in a Roth IRA named for William Roth (Rep Del) who didn’t even get re-elected despite giving us this great savings vehicle. Roth IRA’s are funded with after tax money and are tax free forever. So Roth IRA income doesn’t count when taxing your Soc Sec check.
Another way to potentially change your income is the strategy of taking distributions out of your traditional IRA BEFORE you apply for Social Security benefits. You can use this income to live on and get the coveted delayed credits on your benefit when you take it the max age of 70. Then your Social Security benefit would be your main source of income.
Live somewhere that doesn’t tax your benefit. There are 13 states that tax your benefit- West Virginia, Colorado, Vermont, Connecticut, Rhode Island, Utah, Kansas, Minnesota, North Dakota, New Mexico, Missouri, Montana and Nebraska. Some states of course have NO income tax namely Alaska, Nevada, Florida, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee do tax dividends and interest to some degree so they can claim borderline admission to this group.
Also a method of changing your income to not pay as much income tax on your benefit is to use an annuity’s exclusion ratio. The exclusion ratio is a way to figure out what portion of the annuity income is excluded from tax. For example– if you are a 65 yr old man, your life expectancy according to the IRS and the census tables is 20 yrs. You invest $100,000 of taxable assets in an annuity. If you divide 20 by 12 you get 240 months. Divide the $100,000 by 240 and you get around $417.67 per month. This amount would not be taxable as it is looked at as a return of principal. However, were you do the aforementioned the actual payment from the insurance company would be $562 per month for the rest of your lifetime. The taxable portion would be $145. The exclusion ratio is determined by dividing the $417.62 by the $562 which equals a 74% exclusion ratio. Furthermore if the 65 yr old died before the 20 yr period is over then a beneficiary would get the payment stream. Eventually after the 20 yr period the “principal payments” would be all paid out and the whole amount would become taxable.
Similar to the above idea you can invest 25% of your retirement assets– maximum $125,000 — in an annuity that will pay you an income at a later date — 85 years old at the latest. The compelling reason for this is the Qualified Longevity Annuity Contract or QLAC’s is the amount invested is not figured into your required minimum distribution as required by IRS to spend down your retirement assets so they can recover all the income tax they let you defer while saving in retirement plans. As a result you have a lower RMD, thus lowering your taxable income and potentially the taxes you pay on your Social Security payments. For example, a 65 yr old has $500K in an IRA and is in a 30% tax bracket. If he invests the max $125,000 in a QLAC which will give him around $37, 673 at age 85 but lowers his taxes as his RMD would be smaller.
If you’re getting income you don’t need then gift it to a charity. These write-offs still exist.
If you’re getting interest income on a bond, stock or CD that you don’t spend then consider a deferred annuity where all the interest stays in the contract. If something comes up and you need some of the cash, you will pay taxes on withdrawals unless you use the 4th idea in this article with regard to the exclusion ratio.
Like the aforementioned if you are realizing interest or even dividend income that you are not using and don’t plan but want to leave this asset to your heirs then consider life insurance. Even if your health is not the greatest, there are ways to do this. It shelters the interest income and leaves a tax free legacy to your family or a cause you feel strongly about. The census tables have changed the rates to your benefit as people are living longer making these types of contracts richer than they were just 10 years ago.

Just a few ideas among friends. Always consult your tax person, CPA, etc to really find out what the actual numbers would look like for you. Realistically the personal finance algebra on these ideas are that tough but it’s always better to get a 2nd or 3rd opinion. Call or email me– I’m happy to help. So long til next time.

September 2, 2019 0

What 3 major congressional gaffs create the shortfalls in Social Security we have now or why Jordache jeans and Jimmy Carter ruined my life

The 1970’s were an interesting decade. Richard Nixon, OPEC, Disco, Jordache jeans, Jimmy Carter and of course the massive legislation that effected everyone’s retirement. The ERISA Act of 1974 which protected defined benefit plans, the invention of IRA’s and the changes to Social Security are great examples about how society at large felt about retirement and what their lifestyle would look like when the paychecks from earned income stop. The Carter administration’s plague of stagflation and high prices on goods and services–especially Jordache jeans– actually helped fix mistakes made by Congress but I don’t want to give away the happy ending.

Particularly overreaching were the increases to the Social Security payments that people were to receive and the cost of living adjustments that Congress passed during this time in question. In June of 1972 Congress overwhelming passed increases and up grades to the program because of a false confidence created by some short term surpluses.

1) Firstly- under the “Social Security Amendment of 1972” approved 20% across the board for 27.8 million people, jacking benefit checks up significantly. In October of 1972 Congress decided to lay out 5 billion to increase benefits for widows and dependents as well as raising the claim checks for lower income people who haven’t paid in for more than 30 years.

2) The second strike was the cost of living idea to combat the ravages of inflation on beneficiaries checks was included in the same bill to be phased in by 1975. A great idea if it had been done correctly! Benefits would be increased based on the Consumer Protection Index if the number was 3% or higher. Also around this time someone got the algebra wrong and it resulted in a major technical gaff in the formula that was used and benefits were bumped up double what they should have been. This formulaic boo-boo is very important to our story.

Suddenly the short term surpluses were fading fast.

In the early years of getting Social Security become the fixture that it is today, it was politically popular for legislation to be suggested in most election years–even years. This past action certainly favored the re-election of some politicians but has potentially had a disasterous effect on the program as we know it now.

Not only did the double indexing inflation whoopsie of 1972 and incumbents raising benefits for votes take the program down, we also had Jimmy Carter double digit inflation and exploding interest rates. Carter was woefully unpopular with the press and the rest of Congress so when high interest rates, huge inflation, high unemployment and slow economic growth, it really set the tone for his administration. Productivity growth dropped to 1% compared to the go-go 1960’s 3.2% number. We all learned a new word: stagflation. You guessed it– Stagflation is the third event that contributed to today’s shortfalls.

3) Stagflation is when there’s high price inflation for goods and services and high interest rates. If there’s high interest rates then the cost of money or borrowing money is expensive then usually prices will drop as there’s not enough capital being borrowed, not enough big ticket items that require borrowing being bought and not enough economic and business activity. If the prices don’t come done as a reaction to the inactivity or less buying of goods and services, things get stagnant and immobile– an economic constipation that effects many industries and millions of people. Because if stagflation, high rates, and high prices are prevalent, businesses get a little uncertain about budgeting, planning, and hiring. This uncertainty leads to corporations and people being stagnant too–not buying things unless they have to or putting off building that big soap production plant in Pittsburg that would have provided 5000 jobs. Those 5000 people would’ve had money in their pockets to buy cars, homes, furniture, college tuitions, or a new pair of Jordache jeans that were so coveted back in those times. Which also means the guy who owns the auto dealership, real estate agents, and local retail stores don’t benefit from consumers having spendable income.

As the title of this article refers, Jordache jeans were touted as very high end, sexy jeans in the late 1970’s. They were designed and invented by a four Israeli brothers who patterned them after some European styles. The suggestive commercials back then and the fact that some of the best looking girls at my school wore them is etched into my psyche and has damaged my self esteem almost irreparably. They were really pretty which made them completely unapproachable already but then add in the price of these designer pants inflated by concurrent economic trends and any chance of a skinny, bespectacled 13 year old boy with a bad haircut wearing a wrinkled shirt from the hamper had no shot at even hello. Not sure I’ve ever recovered fully.

Back to stagflation–Remember the error in the COLA formula which double indexed the inflation increases back in 1972? What do you think happened when inflation numbers were in the teens? Big increases in Social Security payments which further took down the surpluses of the 50’s and 60’s! It was quickly becoming a financial apocalypse for the program as the increases were not sustainable. Jimmy Carter to the rescue! In 1977 Pres Carter and Congress corrected the gaff in the COLA formula and tried to fix the shortfalls by raising the payroll taxes from 2% to 6.15%. Carter said these fixes would make the system sound until 2030. Not so as history tells us but that’s a story for another day.

Will Social Security need more amendments in the future? Probably. Almost absolutely. Let’s hope we learn from the errors of the past. My tormented memories of being rejected(OK I was too intimidated and I never did anything) of upper classman girls wearing designer jeans laughing at me-or so I thought– have been overcome with the wisdom of age. Or so I hope.

August 16, 2019 0