Home > Economic policy > Social security won’t be around long enough for me to collect it (crosspost from Crooked Timber)

Social security won’t be around long enough for me to collect it (crosspost from Crooked Timber)

March 24th, 2014

Salon has a couple of interesting articles about US millennials. Tim Donovan focuses on the plight of young people without college education who are suffering the combined effects of long-term growth in inequality and the scarring that comes from entering the worst labor market in at least a generation[^1]. Elias Isquith has a piece debunking Rand Paul’s prospects of pulling the millennial vote (I’ve seen a few of these lately, which may or may not mean anything), which includes the following observation

Despite the fact that a whopping 51 percent of millennials believe they’ll receive no Social Security benefits by the time they’re eligible, and despite the fact that 53 percent of millennials think government should focus spending on helping the young rather than the old, a remarkable 61 percent of young voters oppose cutting Social Security benefits in any way, full stop.

The idea that “Social security won’t be around long enough for me to collect it” is a hardy perennial, and thinking about it led me to the following observation:

It’s now possible for someone to have spent their entire working life believing that Social Security would not last long enough for them to receive it, and now to have retired and started collecting benefits. This belief has been prevalent at least since the early years of the Reagan Administration when it was pushed hard by David Stockman, and I’m going to date it to the first big “reform” of the system in 1977. Someone born in 1952, who entered the workforce in 1977 at the age of 25, would now be turning 62 and eligible to collect Social Security.

I’m betting that, in 20 years time, when the 1952 cohort reaches their average life expectancy, having enjoyed their full entitlement to benefits (assuming no ‘grand bargain’ intervenes) that the belief will be just as prevalent

[^1]: As I’ve argued many times, the shared experience of entering the labor market in a recession is one of the few instances where membership of a particular generation is more than a marketing label.

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  1. Hermit
    March 24th, 2014 at 08:59 | #1

    Junior persons who will make it past 2050 will look back to the turn of the century (20th/21st) and wonder how we stuffed up so badly. One phenomenon is the disproportionate real estate wealth (net of debt) of the baby boomers. I read somewhere over a million near term recipients of the aged pension will have a million dollars or more in real estate. No doubt Hockey’s successors will force them to downsize and live off cash reserves.

    It must be disheartening for recent graduates who are now part time burger flippers to aspire to home ownership. Meanwhile retirees have large underused houses as they take on cruises and extended campervan trips. My guess is that this phenomenon will be gone by 2025 or so. What will replace it is not clear as public capital (eg for fast trains) will probably be just as short as private.

  2. nickj
    March 24th, 2014 at 09:15 | #2

    speaking from the UK, there have been so many changes to the system that it doesn’t really have any credibility. one of the first changes in my working (well…) life was the introduction of earnings related national insurance contributions. the quid pro quo was earnings related benefits. the benefits thing is a distant memory, the ni contributions amount to a 10% income tax.

    similar instances of govt bad faith abound, I’m 8 years away from my Lamborghini and am highly sceptical of any pronouncements re pensions, certainly won’t be paying into the latest automatic pension tax they’ve come up with here, looks like a total scam.

  3. Debbieanne
    March 24th, 2014 at 10:42 | #3

    @Hermit
    How many people with that level of wealth in their home would stay in it? makes no sense to me. why take something you don’t need. It most certainly isn’t, as you often read, only some members of younger generations who have the fyigm (f#ck you I’ve got mine) attitude.

  4. Hermit
    March 24th, 2014 at 11:52 | #4

    @Debbieanne
    A celibate and nerdy bachelor friend recently upsized to a 5 br 3 bath mansion. I said ‘are you taking in refugees?’. At some level it must provide reassurance that you’ve ‘made it’. Meanwhile those in their mid 20s struggle to find something akin to a cardboard box to live in.

  5. Michael
    March 24th, 2014 at 12:07 | #5

    @Hermit
    A million dollars or more in real estate says more about the inflated nature of the property market than the real wealth of retirees. I’m continually astounded that people are able and willing to enter the current property market but clearly they are. A correction in the real estate market might bring some balance back in terms of inter-generational wealth, but it will be tragic for the last ones in before the correction – if it ever happens.

  6. Moz in Oz
    March 24th, 2014 at 12:52 | #6

    How many people with that level of wealth in their home would stay in it? makes no sense to me.

    Like Michael syss, it’s all about inflated prices.

    A million buys you a house (not a nice house, just a house) in inner-city Melbourne or Sydney. A friend has a 3 bedroom, one bath house on the Marrickville side of Newtown, bottom of the hill, nothing special, and it crossed the million mark about 2005. If you want to be near PT and hospitals etc, that much buys you an apartment. For comparison, my grandparents’ estate sold a top-floor apartment overlooking the cricket ground in Wellington for about a third of that a couple of years ago. Hobbling distance to PT, great views etc etc. Similar setup in Sydney would be a couple of million.

    In Sydney you’d be better off getting a reverse mortgage, or just a mortgage, and spending whatever you felt was fun. That way you keep hold of an appreciating asset and I suspect that there’s a net financial benefit, as well as the obvious “I’ve lived here for 10 years” benefits.

    There would be a societal benefit in encouraging a lot of older people to move to smaller apartments, but the tax system is set up to penalise people who do that. The stupid transaction taxes and “your home doesn’t count” wealth tests see to that.

  7. Ikonoclast
    March 24th, 2014 at 13:26 | #7

    @Hermit

    That seems a strange choice to me. If I were rendered an (old) bachelor again, I would go for minimalist living. Two bedrooms (one for sleeping and one to turn into a study) would do me. Along with that it would be the smallest house possible on the smallest plot possible backing on to state forest with walking tracks. I would keep most rooms empty or near empty except for the very basics for everyday life. My reasons? Cleaning and maintenance would be much less.

    Owning stuff just complicates one’s life. I have come to hate having a lot of stuff quite frankly. It turns into junk so quickly in this modern age. It’s somewhat unavoidable owning a bit of stuff when one has a family. But living solo would enable true minimalism mainly to make one’s life as simple and trouble-free as possible. For the same reason, I would have an electric car. Much simpler to own and run than a filthy, complicated, high-maintenance IC engine car.

  8. Ikonoclast
    March 24th, 2014 at 13:42 | #8

    On the posted topic. It is quite possible that a person of 20 now will never collect Social Security if he or she reaches age 65. JQ sails very close to making too very basic logical mistakes, viz;

    (1) Prediction X was falsified in the past, therefore prediction X will always be falsified; and

    (2) Current trends and existent social institutions can be extrapolated indefinitely into the future and will always continue and exist in the current form.

    Empiricism and history teach us that making such open-ended, caveat-free assumptions and extrapolations is unjustified. It may be that a 20 year old today might live to 65 and collect old age pension. It may also be that there is nothing we could call a state provided old age pension in 45 years time. Given Limit to Growth trends, climate change and environmental damage it seems to me at best a 50-50 bet which way things will go on that front.

  9. Moz in Oz
    March 24th, 2014 at 13:52 | #9

    @Ikonoclast

    The optimistic view is that a 20 year old today will die in an accident, on current rates at about age 400, but assuming some improvement (ie, fewer human-operated motor vehicles) much later. So “retire at 65″ would be out of the question but not because social security collapses.

    There is grounds to suspect that the current generation will behave differently, because they’ve grown up in a different environment. Right now that’s visible in car ownership (less of it), but it’s quite possible that “the kids” will decide that owning a two bedroom apartment 45 minutes by train from the CBD beats fighting the insecurity of renting for the rest of their lives. For many reasons, not least that air conditioning a mcmansion when we consistently see more than 45°C daytime highs in summer will be quite expensive.

    I’d also like to mention (again) that current laws around renting assume (and almost require) that it be a temporary, transient thing, rather than something that people are expected to do for life. I wonder how much it’s designed to push people into home ownership?

  10. March 24th, 2014 at 14:10 | #10

    Yes, I also have undue pessimism. Not about social security, because I think as a voting block the elderly will be too big to get shafted, but about my superannuation. Somehow, I expect someone to figure out a way of taking it away from me before I get to it.

  11. Jordan
    March 24th, 2014 at 21:06 | #11

    Such zombie belief is comming from somwhere. It is comming from perennial and ever stronger fight for more power by elites.
    But underneath the surface there is a progressive bunt growing after collapsing in 80′s. Extrapoleting from that we have couple of decades before conservative move toward idiocracy overshoots and collapses. No more then couple of decades.
    Last such move also took decades from McCarthy and Goldwater till Reagan and Thatcher.

    Sure, since conservative winnings speed up ammount and number of suffering population, it might happen faster then 2030, earlier then Fourth Turning prognostication.

    But there is nothing about resource limits and technological advance that is working towards it, it is all about social changes.

  12. J-D
    March 25th, 2014 at 15:26 | #12

    Social security benefits, like all other kinds of government expenditure, are paid for out of government revenue. The possibility exists of a cessation of payments if a government can’t raise the revenue or if the political will to pay the benefits out of revenue is absent. But the benefits won’t cease solely because of problems with a government accounting device, which is what the Social Security trust fund in the US is. Australia, like many other countries, pays benefits of the same general kind without any such accounting device. The accounting problem can be solved if the will is there to solve it.

  13. Nathanael
    March 25th, 2014 at 22:35 | #13

    There’s something missing here.

    Many young people today believe that Social Security won’t be around because *they believe that the politicians will shut it down*. Not because they believe there’s any *economic* problem with it.

    This is shown clearly by young people’s extreme hostility to proposals for cuts in Social Security.

    The message from millennials is “You bastards are trying to take away my Social Security. I bet you’re going to succeed, you bastards, but dammit, I will oppose you every step of the way.”

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