[rt]

I know, I know, as a subscriber to Liberty Classroom I should know this. I’ve looked it up in the internet but couldn’t find exactly what I need. People claim that the unfunded liabilities of Social Security and Medicare exceed 100 trillion dollars. Where does this number come from and how is it calculated? Is it the amount of dollars in benefits that currently living Americana will get once they retire but is not available in the trust fund now? Or in the future? I’m sure Dr Herbener can help me out!

[derosa8]

Lol don’t feel like you should know everything as a subscriber! I’m a complete amateur with all this liberty, but joined for learning purposes.

To my understanding, in the most layman terms I can think of, “An unfunded liability is debt, i.e. something owed, but there has been nothing set aside or invested for the future payment of the debt.”

But hopefully Jeff can weigh in since I have no idea how all the unfunded liabilities are calculated.

[jmherbener]

An unfunded liability is when someone is obligated to make future payments but does not own assets that generate sufficient future revenues to meet his obligations. A pension fund, for example, pools contributions to the fund and makes investments with the money that generate returns in the future to pay the fund’s obligations. If a pension fund has an unfunded liability, it is measured by the present value of the shortfall in paying the future stream of obligations. That is, the present amount of money that the pension fund would need to invest to generate enough revenue in the future to make up the shortfall.

Take a look at Gary North’s explanation of the calculation:

http://www.garynorth.com/public/804print.cfm

North claims that the current unfunded liabilities of the federal government (i.e., the present amount of money the federal government would need to invest to generate a future stream of revenue sufficient to pay its obligations like social security, medicare, etc.) is $222 trillion.

http://mises.org/daily/6192/Means-Testing-Your-Social-Security-Payments

[rt]

Wow that’s really spooky! 2 final questions:
1. What are the IOUs in the Social Security Trust Funds? Government bonds?
2. The U.S. Government would have to invest $222 trillions to pay for future obligations. Are these the obligations to all Americans alive that are already retired or will retire? Or is this the amount that the government would have to pay for retirees in the next 30, 40 or 50 years? I do not exactly understand what obligations are meant here. I hope you understand my question.

[derosa8]

I believe the total unfunded liabilities refers to ALL of the future payments old.

A typical response from someone about the 200+ trillion number would be to say that since the bills do not all come due at the same time (i.e. people retire go on medicare/SS at various ages), then it’s not really a problem since we just make the payments that need to be made as we go. Not sure exactly how I would respond to that.

[jim]

Sons of Liberty,

The answer to your first question according to Gary North (in the link Jeff Herbener provided above)

1. What are the IOUs in the Social Security Trust Funds? Government bonds?

“There is no trust fund. The trust fund is a pile of IOUs from the Treasury….”

Do you doubt it?

I don’t.

I “retired” about two years ago. I own an interest in a business and I am still on the payroll for more than my and my wife social (in)security payments, so you could say I took Gary North’s advice from the 1st link in Jeff Herbener’s post above.

[jmherbener]

2. The SSA calculates the unfunded liability for all persons alive today. The projection, then, runs for the next seventy five years. For example, the unfunded liability starting in 2012 calculates the figure for the period from 2012 through 2086. The SSA says that figure turns out to be $8.6 trillion.

The SSA also calculates the unfunded liability for an indefinite future. The SSA calculates that figure in 2012 is $20.5 trillion.

http://www.ssa.gov/oact/TR/2012/tr2012.pdf

[Author]

Posts