Interest rates in 2020 and beyond

[SLB_SA]

Secondly, how many times have we heard the same damn thing ... short-term brouhaha is going to go out of control and lead to a "possible" long-term systemic collapse, so ... ta-da, ta-da, ta-da ... all the really smart people are buying gold. Sheesh. IOW, when the panic comes, you my prescient listeners want to be WAY OUT AHEAD OF IT. 

But it was fun, nonetheless. Just like in 2008, I expect the Fed will not sit on its collective butt and simply watch passively as the system collapses. Eg, Bernanke saved the whole damn universe in 2009 by buying up $2-3 trillion in generally worthless and defaulting MBSes, after Hank Paulson and everyone else's brains exploded, and not one of those SOB bank CEOs ever went to jail.

1. I agree with Warren Buffett on gold: "The magical metal was no match for the American mettle."  
Also:  Buffett highlighted the 40,000% surge in the US's national debt over the last 77 years, and said if you "panicked at the prospects of runaway deficits and a worthless currency" and bought 3.25 ounces of gold with your $114.75 (the amount Buffett invested when he purchased his first shares of stock in 1942) it would be worth about $4,200, or "less than 1% of what would have been realized from a simple unmanaged investment in American business." Link Link

2. I agree that bank CEOs should be getting free, government lodging in our "finest" penal institutions.

3. In a crash, the Fed would step in again.

 

[SLB_SA]

SS has always paid out according to how much you put in.  SSI, however, pays out according to need.

It is a simple mathematical calculation to determine your Average Indexed Monthly Earnings (AIME) and your Primary Insurance Amount (PIA) if you know your year by year earnings.  Then you have to decide when to start taking your social security benefits; about 70% of PIA at age 62 or about 132% of PIA at age 70.  I paid in a lot of money to SSA over the years and I have no problem receiving a substantial social security benefit once I turn 70.

 

[SLB_SA]

I know we can't do anything about the powers that, but it's just amazing to me that the more well off people are pulling down $30,000 apiece from SS, while many in the other group are getting only about $6,000 a year. Somehow the whole damn system got perverted in favor of the rich.

In this video George Carlin says "They (the rich) want your social security."  (Warning: profanity, criticism of "everything").

Social security is highly progressive.  People with lower wages receive a much higher percentage (i.e. 90% of AIME) of their earnings but their benefit checks are smaller.  People with higher wages receive a much smaller percentage (i.e. 15% of the largest portion of their AIME) of their earnings but their benefit checks are larger.  Everybody has the option of increasing their social security benefits by waiting until age 70 to start receiving benefits.  

The real problem is the underpayment of workers.  I can't solve that and I doubt if you can either.  In my opinion, risking injury working for Amazon before Xmas is not worthwhile; a few good years of paychecks would not be worth years of back pain, disability or institutionalization.  In addition, Amazon is hurting a lot of small business and driving down wages; NPR yesterday had a segment about the pay and benefits received by employees of Amazon delivery contractors vs employees of UPS, FedEx and the USPS.  Yesterday I worked out at the Y with a retired guy (my age) whose wife owns an independent bookstore and is an Amazon affiliate; she will be shutting down her bookstore in the near future because walk-in traffic doesn't exist (in sufficient quantity) any more.  The underpayment of employees and independent business owners is, to a large extent, the result of many small decisions made every day by millions of ordinary people like you.  (I frequent bookstores, do not have Amazon prime, tip when I eat out and try to treat everyone with respect, just as you do.)

Anyway, what is the minimum social security benefit? 
"To be eligible for Social Security retirement benefits, a worker born after 1928 must have accumulated at least 40 quarters of work in "covered employment".  A "quarter of coverage" generally means the three-month calendar quarter. In addition, you must earn at least $1,320 in a quarter (in 2019) for it to count. However, the SSA looks at how much you earned in a year and divides that figure by the minimum amount required to earn credit for a quarter. Thus, if you earn at least $5,280 in January and February of 2019 and don't work the rest of the year, you will receive credit for four quarters of work ($5,280/$1,320 = 4)."
Thus 10 years of earning the 2019 equivalent of $5280 per year (and nothing else) would yield an AIME of about $126 and a PIA amount of about $113.  Taking social security at age 62 would yield a monthly benefit of about $79 per month or $948 per year, well below the $6000 per year mentioned above.

The maximum benefit?  $2861/month or $34,332 (starting benefits at age 66) in 2019 and $3776/month or $45,312/year (starting benefits at age 70) in 2019.

$948/year vs $45,312/year

 

[Qxxx]

Social security is highly progressive.  People with lower wages receive a much higher percentage (i.e. 90% of AIME) of their earnings but their benefit checks are smaller.  People with higher wages receive a much smaller percentage (i.e. 15% of the largest portion of their AIME) of their earnings but their benefit checks are larger.  

Thanks for updating the info on SS payouts. It's been going .... up, up, up, up .... for the better well off since I last checked, but the people on the low end are still not getting even a survival amount. This only makes the homelessness problem that so occupies major and unending attention on this forum even worse.

I have a much different perspective than practically everyone else I've talked to about this over the past few years. 

"Progressive" to me is just a rationalization of the better well off. (and I was raised catholic, so I am an expert on rationalization). As I see it, SS was originally set up as a safety net for the poor, but anymore all the better well off see it as a "lot of extra" money in their pockets. And too bad for the poor.

The real problem is "not" underpayment of workers, as that is a fairly recent, albeit major, problem due to the hollowing out of the Middle Class. The real problem is that people on the lower end of SS get far too little, and the people in the higher end get far too much. The safety net idea has been terribly perverted.

 

[SLB_SA]

The real problem is "not" underpayment of workers, as that is a fairly recent, albeit major, problem due to the hollowing out of the Middle Class. The real problem is that people on the lower end of SS get far too little, and the people in the higher end get far too much. The safety net idea has been terribly perverted.

"To calculate this, the government takes the highest-earning 35 years of your working life, caps them at the maximum taxable income for FICA taxes ($132,900 in 2019) and averages them together to create a representative annual income. It divides by 12 to get a monthly income, which is the AIME."  Link
Social security tax only applies to the first $132,900 of earned income in 2019 (and none of the "unearned" income like interest, dividends, etc.).  To the rich, $132,900 per year is pocket change.  While the rich do get far too much, this comes from equity appreciation, dividends, interest income, bonds, real estate, etc and not from social security benefits.  

I believe the safety net should be higher; while I am aware that social security has additional programs for the poor, I am not familiar enough with them to comment.  There are bills in Congress, some of which have passed one house, to improve the safety net benefits of social security but discussion of these bills veers into the realm of "politics" and I do not wish to go there.  

Criticism of the levels of income people receive from social security seems like an attempt to divide the poor and "lower middle class" while the "upper middle class" and rich get off scot-free.  I don't think this is your goal but I don't know.  Could you explain your point of view?

 

[Qxxx]

It's not a matter of division, which is something else entirely, but a matter of providing a decent safety net for the poor. All the weight is on one side.

But since you did bring up the matter of division, it should be apparent (to paraphrase Keyser Soze) that the biggest trick the rich ever pulled was to make everyone else believe the real problem was racism, nationalism, and xenophobia, when it was really classism all along. The rich really are different. You can certainly see this.

 

[SLB_SA]

It's not a matter of division, which is something else entirely, but a matter of providing a decent safety net for the poor.

I agree that a better safety net that keeps the elderly and disabled out of poverty is needed.  What about the poor in general?

This issue is complicated. Should we give a drug addict all the money s/he needs to buy illegal drugs?  Should we provide for all the needs of a healthy but lazy person who refuses to work?  Should we let kids starve because their parent(s) is (are) lazy or criminal?  Should we penalize people who have paid into the system their entire (working) lives to benefit the lazy or criminal?  Where is the line drawn?

 

[bullfrog]

I would rather waste or have millions of tax dollars mismanaged here in the USA than have more than one and a half billion "misplaced" in Ukraine. I would think interest rates would be way down if the economy was up one and a half billion.

 

[Qxxx]

I agree that a better safety net that keeps the elderly and disabled out of poverty is needed.  What about the poor in general?

This issue is complicated. Should we give a drug addict all the money s/he needs to buy illegal drugs?  Should we provide for all the needs of a healthy but lazy person who refuses to work?  Should we let kids starve because their parent(s) is (are) lazy or criminal?  Should we penalize people who have paid into the system their entire (working) lives to benefit the lazy or criminal?  Where is the line drawn?

Well, we were talking about SS, so that was the point about the safety net. Infinitely disproportionate distribution. The people who really need it aren't getting it. I have one sister getting the $6,000 range and the other sister along with her husband getting $90,000, if your numbers are accurate. Duh and Double Duh.

In regards yer 2nd point, that is an equally disgusting and totally mismanaged situation. This was brought out in recent threads in regards the poor and the homeless. First off, CA hands out $90 Billion every year to those people. Secondly, overall there is $1 Trillion in direct handouts to the poor every single year, NOT counting SS and Medicare, with about 40% or so being Medicaid. And since 1965, the grand total of handouts is about $25 Trillion. And there are more poor today than ever. All these handouts have done is create a permanent underclass who don't seem to be able to get out of their quagmire.

https://en.wikipedia.org/wiki/Social_programs_in_the_United_States#Means-tested

 

[Qxxx]

I would rather waste or have millions of tax dollars mismanaged here in the USA than have more than one and a half billion "misplaced" in Ukraine.  I would think interest rates would be way down if the economy was up one and a half billion.

Hello frog. There are several vastly worse cases of giveaways, ie foreign aid, than the one you mentioned, but it would not be polite to analyze those countries here.

https://en.wikipedia.org/wiki/United_States_foreign_aid#Overview

 

[SLB_SA]

Well, we were talking about SS, so that was the point about the safety net. Infinitely disproportionate distribution. The people who really need it aren't getting it. I have one sister getting the $6,000 range and the other sister along with her husband getting $90,000, if your numbers are accurate. Duh and Double Duh.

As I was shutting down my computer before going to bed, I wondered how much I (& my employers) had paid in social security taxes. I halted the computer shutdown, entered the data into my AIME/PIA spreadsheet and computed these taxes.  ("The Social Security tax rate is 6.2%, and the Medicare tax rate is 1.45%, as of 2019. The employer pays a tax equal to the amounts withheld from employee earnings.")
My employers and I paid almost $400,000 in (inflation adjusted) social security tax.
My employers and I paid over $90,000 in (inflation adjusted) medicare tax.
My dad died at 62, never receiving a penny in social security benefits.
I don't feel bad about receiving medicare and (eventually) social security benefits.  

Based on your "the other sister along with her husband getting $90,000" comment, your "rich" sister and her husband each contributed at least $575,000 in inflation adjusted dollars to social security.  They would have to live almost to age 83 before receiving any benefit from social security beyond what they paid in.

In his live video today, Bob talked about the importance of helping others.  I already do this, giving funds to a few people in need. (I have mostly quit doing so for now because of cash flow limitations, support for my kids and sudden expenses but might resume in 4-5 years; who knows?)  I am not a financial or tax advisor but I know a fair amount about social security and taxes, do taxes (for free and as a favor) for a couple people I know and informally advise people on social security (with the caveat that they need to do their own research and everything I tell them could be wrong).  I wonder if I could use my knowledge in some way to help the community here over the next four years.    

Just random thoughts before I go to bed.  Good night.

 

[Qxxx]

I think your numbers are way off by a factor of 2 and maybe more. I'm not sure you took into account my sister and BIL were making much much less 30 or 40 years ago, and can't simply use inflation adjusted dollars. Making 10K back then is not like making 100K today. I'll think about it tomorrow.

But all you're doing is making a case that the well off "deserve" their $90,000, and the less well off "deserve" their $6000. It's still totally perverted. The only thing that really makes sense would be means testing.

 

[SLB_SA]

I think your numbers are way off by a factor of 2 and maybe more. I'm not sure you took into account my sister and BIL were making much much less 30 or 40 years ago, and can't simply use inflation adjusted dollars. Making 10K back then is not like making 100K today. I'll think about it tomorrow.

But all you're doing is making a case that the well off "deserve" their $90,000, and the less well off "deserve" their $6000. It's still totally perverted. The only thing that really makes sense would be means testing.

The original Social Security Act of 1935 was not a "safety net" but rather was old age insurance.  For example (Link), "Because the Social Security tax was regressive, and Social Security benefits were based on how much each individual had paid into the system, the program would not contribute to income redistribution in the way that some reformers, including Perkins, had hoped."  To me, you continue to mischaracterize the original purpose of social security, perhaps for noble and laudable reasons.  Over time, the act was amended. 

From the Link above:  "Amendments of 1939: The original Act provided only retirement benefits, and only to the worker. The 1939 Amendments made a fundamental change in the Social Security program. The Amendments added two new categories of benefits: payments to the spouse and minor children of a retired worker (called dependents benefits) and survivors benefits paid to the family in the event of the premature death of the worker. The 1939 Amendments also increased benefit amounts and accelerated the start of monthly benefit payments from 1940 to 1942."

My figures for your sister and her husband are certainly estimates but they are not off by a factor of two.  In order to receive $45,000 per year in social security benefits, a person would need to begin receiving benefits at age 70 and have an PIA of about $2840 and an AIME of about $9750.  To get this AIME, a person would need to earn, in inflation adjusted dollars according to the SSA formula, $117,000 per year for 35 years.  Since I do not know the earnings history of your sister or her husband, I cannot provided the total amount of FICA taxes paid by either of them; however, in indexed (2019) dollars, this would cost both your sister and her employer $7254 per year or $253,890 over 35 years.  Thus, the combined FICA tax paid by your sister and her employer(s) would be at least $507,780.  If she worked for 40 years at $117,000 per year, this would be $580,320 and her social security would not increase by a penny.  The combined FICA taxes paid by your sister, her husband and their employers is at least $1,015,560.

 

[Qxxx]

On further investigation, I'm sure your numbers are really way off, but it's too much trouble to do the math. Ceilings have gone up, rates have gone up, and inflation adjustments.

https://www.ssa.gov/oact/progdata/taxRates.html
https://www.ssa.gov/oact/COLA/cbb.html#Series

This page indicates max payment in to SS today is $16K, so one someone would have had to have paid that for about 36 years to get your $575K value, in today's dollars. And this assumes they made top dollar for all those years. which is darn unrealistic, especially for my sister and BIL. Eg, $13K in the 70s is not equivalent to $130K today, more like $30K today in terms of buying power, etc.

https://www.journalofaccountancy.com/news/2018/nov/social-security-wage-base-2019-201820059.html

Maybe you have a link to someone who shows the math. ????

Bottom line once again is, $6000 doesn't provide any where's near a survival level safety net. In today's world, $500 a month will about provide day to day expenses and come nowhere near paying for rents, utilities, and whatnot. Even at double that, one could hardly pay rent anymore in most places. The scale at the bottom is hardly a safety net at all. And the scale at the top gave my sister and BIL leeway to buy 2 houses during the past 5 years and live well, even if they had nothing else to go on. This whole current setup is just plain immoral.

 

[Qxxx]

The original Social Security Act of 1935 was not a "safety net" 

As you can see I just made a post at the same time. I'd be much more convinced if you had some links to websites where some accountants, whatever, showed the complete math. You're still making all the rationalizations of the well to do. I just don't think the original idea of SS was to provide a huge retirement payout to the well to do. It was started back when people were starving as a result of the Great Depression. But the idea has been greatly revised over the decades.

So I think I'm out of here until I can see a bunch of 2nd opinion calculations.

 

[SLB_SA]

As you can see I just made a post at the same time. I'd be much more convinced if you had some links to websites where some accountants, whatever, showed the complete math. You're still making all the rationalizations of the well to do. I just don't think the original idea of SS was to provide a huge retirement payout to the well to do. It was started back when people were starving as a result of the Great Depression. But the idea has been greatly revised over the decades.

So I think I'm out of here until I can see a bunch of 2nd opinion calculations.

Send me the complete earnings histories of your sister and your BIL (in violation of their confidentiality) and I will compute their actual FICA tax payments, these FICA payments in 2019 dollars (using SSA inflation adjustments)  and show you the arithmetic (not really "math" at all).  Or you could do the calculations yourself; any spreadsheet program can handle this simple task.

Example
YEAR   EARNINGS  12.4% FICA paid SSA index factor  Indexed Earnings   Indexed FICA taxes paid
1969   $20,000          $2480                    7.8865648   $157,731                  $19,559

ADDED: Of course, I don't know the ceiling on earnings for 1969 and suspect that not all of the $20,000 would have been subject to the 12.4% part of the FICA tax.

 

[SLB_SA]

Eg, $13K in the 70s is not equivalent to $130K today, more like $30K today in terms of buying power, etc.

The SSA is supposed to adjust for inflation (i.e. loss of buying power).  For a person born in 1954 (a guess for your sister), the SSA index factor for 1970 is 7.5136949 and the index factor for 1979 is 4.0491034.  Thus, using the SSA inflation adjustments,
$17,000 in 1970 was worth $127,733 in 2015 and $17,000 in 1979 was worth $68,835 in 2015.

I think one problem is that your sister and BIL do not really receive $90,000 per year in social security benefits.

 

[bullfrog]

I have found that even dealing directly with the Social Security agents at their office doesn't guarantee you will receive a correct calculation or information sometimes. Changes seem to occur and even if it comes out close to my math I'm happy but then again I'm still using a pencil and paper and casting out 9s. Good thing I have plenty of time! Many occupations such as railroad workers and teachers do not participate in social security so lots of weird calculations in the mix as well as spousal considerations. It pays to research especially if you are a widow or divorced. Sorry to stray so far off subject but there are just too many variables to consider 2nd party calculations for most of us!

 

[Qxxx]

I think one problem is that your sister and BIL do not really receive $90,000 per year in social security benefits.

Yeah, I had previously estimated they were pulling down about $60,000 .... until "you" came along.

But this is just going in the same old circles. The system is clearly stacked in favor of the rich and well to do, and that clearly cannot be denied, no matter what anyone says. 

But this is pointless without some reliable 2nd opinion calculations on the matter. Certainly many people have already done this on the net.

 

[Qxxx]

I have found that even dealing directly with the Social Security agents at their office doesn't guarantee you will receive a correct calculation or information sometimes.

Exactly so. I feel that I was fairly lucky in that I received a very nice lady agent, by totally random luck of the draw, when I went in to setup my SS payments. She didn't split straws and try to short change me. I could have received something akin to an IRS agent, but she was pleasant and helpful.