Indexed Earnings

Categories: Econ

When the Social Security Administration (SSA) hands out Social Security benefits, they don’t work in nominal wages...they work in real wages. Indexed earnings is the calculation the SSA does to adjust the wages you made for inflation, which is used to determine the amount of benefits you’ll collect.

Which is good, since inflation erodes wages. For instance, if your last job was in the 1980s and the SSA didn’t adjust for inflation, your Social Security payout would be pretty measly based off of 1980s nominal wages.

Besides being used for calculating retirement payouts, indexed earnings are also used for calculating payouts for those on Social Security Disability...for those who can’t work and are eligible.

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Finance: What is Social Security?11 Views

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Finance Allah Shmoop What is Social Security Our people will

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FDR Franklin Delano Roosevelt established Social Security in nineteen thirty

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five as a reaction to seeing one too many old

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people destitute dying and begging for Bitcoin on the streets

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After you know the great stock market crash in depression

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that followed were basically Social Security is welfare insurance So

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that even the most modestly talented or worst savers for

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retirement or worst financial victims of some scheme brought on

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by you know them City slickers would have at least

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enough money to eat and have a place to live

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Other than you know under the freeway that's what Social

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Security means meaning their social life is secured It was

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supposed to be or at least well it started out

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as a safety net this whole social security thing But

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then it became the retirement vehicle that people ended up

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relying on you know like a groupon for a free

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hotel night where if you paid for five you've got

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that sixth one free Almost makes staying an extra day

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at Disneyland with kids Sound like a good idea Well

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the act that established Social Security was also called always

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D or o A S T I which stands for

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old age survivors and disability insurance and notionally It was

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funded by payroll taxes That is an additional tax It

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was levied on everyone who saved up Hey check to

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pay for their retirement right The government would take a

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little slice out of your paycheck put it away and

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then kind of give it back to you after investing

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in decades later right And that would also pay for

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the retirement of others not just you even deadbeats who

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chose to not work and just live in Mom's basement

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their whole life Yep In theory they would get Social

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Security to Pika is the most commonly known thief of

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cash from your paycheck and it stands for federal insurance

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contributions Tax should be fi cat Well Social Security generally

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worked for a long time anyway as this nation saw

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the poverty rate go from somewhere in the forty ish

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percent at its worst down to somewhere below ten ish

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percent today depending on how you define poverty Well under

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any definition however we don't have millions of people standing

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on street corners of this country begging for food Many

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of them aren't covered by Social Security but under the

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same brother's keeper vibe We have soup kitchens now in

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other places that those who failed to find financial security

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along the way in society well you know can go

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to eat It is nothing like the nineteen thirties in

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America no matter what horror stories you hear So the

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notion of being able to hang on to your social

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status or even your material levels of wealth in your

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old age was kind of a new thing back then

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and in this FDR driven era knew was good Remember

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New Deal new era New York New ton The fig

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Yes they came out around this time as well Well

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the structure of Social Security is pretty simple in concept

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The individual pays in some amount each month called a

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few hundred bucks in today's dollars and the government invest

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that money for decades Eventually that money comps pounds away

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to become a big number and the individual gets monthly

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payments back to themselves after they reach a certain age

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Well the payments then continue until the socially securitized is

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here So the concept was simple and the key problem

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it tried to solve was the undecided and wanton disregard

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that so many Americans of the era had for their

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future Many had come from a World War one mindset

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where there may or may not have been a future

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or they were feeling the effects of America emerging as

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a super power and wealth And you know other good

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things that came from those confluences of good fortune Well

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basically Social Security was kind of positively forced savings It

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was done so that even the worst offenders of non

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saving Americans would have at least enough waiting for them

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in their retirement So they could you know eat and

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not live like this Well the key drivers financially however

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didn't fulfill the original vision of the acts Promulgate er's

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That is the government assumed a pretty high rate of

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investment return And instead what happened is that a lot

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of government entities hired government workers to invest that money

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And well bottom line is they did a lot worse

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than the very highly paid people on Wall Street Like

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if you were a highly talented money manager who could

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make today's dollars tens of millions of dollars a year

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why would you become a government portfolio Manager and make

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one hundred fifty grand Right talent wins That was one

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reason that we have problems with soul security The investment

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returns have been poor Thie Other reason Well the government

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also assumed that people would continue to smoke which meant

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that most would die at a young age like late

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sixties early seventies and well in fact America kicked the

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but for the most part and from an average life

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span in nineteen fifty of about sixty seven or so

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for an American male Well Americans today live in average

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of eighty ish years depending on a whole bunch of

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things but a whole lot longer than they did in

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nineteen fifty when smoking was you know good for you

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So if Social Security payments were supposed to compound at

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ten percent as investments and they only compounded at well

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six or seven percent well that was a big problem

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After three or four decades of paying money into the

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system instead of having say five hundred grand to retire

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on well retirees only had three hundred grand And instead

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of living just three years after the Social Security distributions

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kicked in I'ii from eight sixty five on you know

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when they would then start dying on Mass at sixty

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eight issues so well Those three years of payout ended

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up being some twenty or thirty years of payout today

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and growing two thousand eighteen mark the first year that

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the combination of cash collected from young people paying into

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the system plus the growth of the invested money in

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the system was less than money taken out of the

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system by old people Translation We're starting tohave to fund

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Social Security with current tax dollars from other sources or

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set another way We're taking bridge and toll money for

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people paying five bucks to drive over the bridge that

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was supposed to go to repair the roads That money

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is now coming out of that fund and going tio

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this guy Or set another way If something doesn't change

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soon like well you know people die sooner or young

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people who are still working pay in a lot more

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dough to the social security system The U S will

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go bankrupt paying out these entitlements to retirees at some

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point in the next decade or two Or three or

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four Something like that Well the good news a bunch

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of states like Illinois in California and a few others

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Well they'll go bankrupt first and they'll test the court

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system to see how these kind of bailouts work So

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by the time the chickens come home to roost for

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Social Security while the financial future of this country will 00:06:37.142 --> [endTime] be clear yeah clear as mud

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