Relying on Social Security

February 27, 2009

Each year most of us receive a Statement from Social Security which provides an estimate of our Social Security Benefits and an update of our Earnings Record upon which the estimated Benefits have been calculated.  We are asked to check the Earnings Record for accuracy and to understand the benefits that may be available to us at various ages and under varying circumstances.

It is important to note that the normal retirement benefit estimate assumes you will continue to work until your normal retirement age and make about the same amount of income as you did in the last year of earnings as recorded to date by Social Security.  If your earnings are reduced due to retiring early, being laid off or taking a lower-paying position (all very real possibilities in these times), your actual retirement benefit may be less.  The best way to get an accurate and up-to-date  estimate or your benefit is to use Social Security’s on-line estimator at www.socialsecurity.gov.

We are also informed on our Social Security Statements that …

“Social Security is a compact between generations.  For decades, America has kept the promise of security for its workers and their families, now however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.

In 2017 we will begin paying more in benefits than we collect in taxes.  Without changes, by 2041 The Social Security Trust Fund will be exhausted and there will be enough money to pay only about 78 cents for each dollar of scheduled benefits.  We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.”

Sound familiar?  It should. We have known this and have been hearing about it for decades.  However, our elected representatives have preferred to busy themselves with whatever short term Porky Pig projects they believe will be most efficacious in getting themselves re-elected instead of dealing with the fundamental issues facing the nation.  (But that’s a subject for another time.)

The Social Security Trust Fund mentioned above is a joke (and not at all funny).  It contains no substantive assets.  All the funds that go into it are sucked up by the Federal Government (to pay for our representatives’ Porky Pig projects) which issues the “Trust Fund” a series of  IOUs.  Where will the Government get the money to repay the fund?  Since we are undergoing a massive increase in government debt, it will have to raise taxes.

Leaving aside the silliness of the “Trust Fund,” what are the options for dealing with the problem?

  1. Raise the retirement age
  2. Reduce cost-of-living adjustments
  3. Change the benefit formula
  4. Invest in something other than government IOUs
  5. Privatize it
  6. Increase the payroll tax
  7. Increase the limits on taxable earnings
  8. Finance it with general revenues
  9. Means testing
  10. Some combination of the above

Items 1-3 are certainly doable and may contribute to a solution.

Items 4 and 5 sound too much like something George Bush would espouse and therefore will be automatically rejected by the political elite.

Items 6 and 7 risk a generational revolt: the Social Security tax is already the largest tax that the average American family pays.  Younger workers see it as a bad deal, one in which they will end up paying more in taxes than they receive in benefits.  They and their children (our grandchildren) are already being saddled with a gigantic debt to pay for all the Porky Pig projects our representatives pretend will stimulate us out of recession.  Obama wants to “ask (ask?  really?) those making over $250,000 to pay in the range of 2-4 percent more in total”  (quote from http://www.barakobama.com).  This will be on top of  increased income taxes.  Let’s add class warfare to the generational conflict.

Item 8 is impossible given the level of government debt.

Item 9 – Social Security has always been based on an “earned right” to a benefit – you earn a benefit by paying into the system over a required period of time.  Under Means Testing, the political elite will determine whether someone has enough assets or income of their own and should therefore have his or her Social Security benefit reduced or eliminated.

Grab hold of the rug and give it a big pull…

And if you agree that Social Security is a problem, please know that Medicare’s long-term deficit is five times as large and that is before we get full-blown government health care for all.

R. Kevin Price

www.successfulretirementguide.com

© 2008-2009 R.K. Price

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