Social Security

Social Security is yet another failed program of the Federal government. It was supposed to prevent retired people from starving in the streets, but it is so poorly designed and run that it helps few and may bankrupt our country.

It works like this: Your employer is required to take away 15% of each of your paychecks and give it to the government. After forty years of this when you retire, the government is supposed to pay you an amount each month that you can live on in retirement until you die. The problems are these:

1. The government doesn’t save or invest the money you pay in over your lifetime. It’s not putting it in a “fund” somewhere to save it for you. Instead, it spends it on whatever wasteful government projects it wants to. It pays retirees from the paychecks of current workers (so what they take from your paycheck now is given to a retiree now). And the government is free to stop paying out at any time – it doesn’t have to keep its promises to support you when you retire, even if you pay in over your whole life.

2. The arrangement described in #1 means that the bureaucrats who run the program rely on calculations to make sure that enough workers will be paying in to support the workers who are retired. Unfortunately, the original calculations made in the 1930s, when the program started, are no longer valid:

a. Retirees live a lot longer (in the 1930s, people only lived until about age 65 and now they live to 85 or longer), so the government must pay them a lot more money over their retirement years.

b. They didn’t predict the Baby Boom generation (a lot of people had babies after WWII). This generation, born between 1945 and 1965, are now entering their 60s and are starting to retire. Because there are so many of them, it will take a lot more young workers to support them – workers that we won’t have, because later generations are smaller. (In the 1930s, there were 16.5 workers for each retiree. Now there are 3.3, and by 2040 the ratio will be only 2 workers supporting each retiree.)

In order to support the large group of Baby Boomer retirees, young workers will have to pay more and more of their paychecks to the government, as much as 70% of their paychecks, by some estimates. But who would even bother to get a job, if you can only keep 3 dollars of every 10 you earn?

So benefits will need to be cut. Payments will be smaller and workers will need to work until they are older. In fact, most young people don’t believe that Social Security will be able to pay them anything when they retire.

3. Because the government is spending our money, and not investing it for us, we will get a lot less when we are retired than if we had invested that money ourselves. A 25-year old with a starting salary of $25,000 could invest the 15% (even in something safe, like bonds or a bank savings account, at 5%). Assuming salary raises of 5% a year, by the time she retired, she would have enough savings for a monthly income of $4,510. Under Social Security, the maximum payment is $1,433. That’s over three times as much for her to live on.

4. Social Security payments stop when we die, so our children and grandchildren will get nothing from our lifetime of payments. However, in the example above, there would be an estate of over a million dollars left over for her heirs.

This nest egg would help poor people and minorities even more. Poor and minority people start working earlier (because fewer go to college) and don’t live as long after retirement as middle class and wealthy people do. So they pay in longer and get less in benefits (the government discriminates far more than people do). If their heirs got a million-dollar nest egg, it would help break the cycle of poverty that exists in America, perpetuated by the very government programs that supposedly help the poor.

Libertarians would dismantle the entire Social Security program. Instead, promises would be kept to older people who have been paying in their whole lives, but younger workers would be free to invest their own money. The government would buy private annuities (an investment that pays out a monthly amount during the lifetime of the investor) for the older people, and would no longer be responsible for monthly payments to retirees.

Some people think that (other) people are too stupid or lazy to invest their own money, and would end up starving in the streets if we didn’t have Social Security. And it is true, there would be a few people who would refuse to plan for the future. They would need to work longer past retirement age, and would need to rely on family and charity.

But is it better to bankrupt the whole country with promises that can’t be kept? If people knew up front that they must provide for themselves, instead of being fooled into relying on the empty promises of government, they would know that they must save for the future. And if nearly everyone invested for retirement, our whole country would be much richer. That would mean that we could afford to give more to charities that would help the poor, including the elderly poor.