There has been a lot of scary talk in the mainstream media and from politicians regarding Social Security, and it’s not been just lately, it’s been going on for decades. Using words like crisis, bankrupt, crisis, “trust fund raids”, crisis, opponents of Social Security have been putting fear and doubt into the hearts and minds of workers and creating a divide between the generations.
Last week we took a poll of readers regarding social security. Take a look at the results;
Social Security has been in the news a lot lately, what are your views on this program?
- I see some concerns for the future and I support fixes now to protect it.
51% of all votes
- It will be bankrupt before I see a dime.
18% of all votes
- Privatization is the only answer.
8% of all votes
- I don’t see any problems.
9% of all votes
- I don’t pay into it and it doesn’t concern me.
0% of all votes
- It’s “a milk cow with 310 million tits”1
2% of all votes
- I want Socialism not Crumbs!1
6% of all votes
- What’s Social Security?1
2% of all votes
- can pay full benefits until 2037 & 4/5 of benefits afterward1
3% of all votes
- Homeless seniors is totally worth making billionaires richer.1
1% of all votes
Total Votes: 109 Started: January 29, 2011
1 Added by Guest
The arguments for and against Social Security are many and complicated, and I want to address some of these points in simple terms. There are some concerns for the future but if we address them now, decades before there will be imminent consequences, we can easily ensure this valuable program is available to all Americans. We need to educate ourselves and the people we know to protect Social Security from the those who want to privatize it or outright end it.
“It will be bankrupt before I see a dime”
I know I felt this way for a long time and these days many people, and especially younger people, believe that the money they are paying into the social security system is just going into some black hole and they will never see a dime of it. One of the common misconceptions about Social Security is the belief that the money deducted from our checks goes into some piggy bank with our name written on it, but that just isn’t true. It goes into the pool of funds that pays current recipients; your parents, your grandparents, your disabled neighbor or the child of your deceased sibling, to name a few.
During the past twenty five years or so there has been a build up of surplus funds, more money coming into the program than what has been paid out. By law these funds are invested in US government bonds. The funds come from employee and employer payroll contributions, taxes paid on some social security income by upper earning beneficiaries and interest earned on the government bonds. The dollar amount invested in those bonds is roughly $2.6 trillion. That’s $2,600,000,000,000! How is it that they keep telling us that Social Security is going bankrupt? That it’s in crisis? These bonds are fully backed by the government. If the government defaults on those bonds we have much bigger problems to address.
The truth is, as a reader added in the poll above (see #9, thank you kind reader!) even if we do nothing to change the system, it is estimated by experts that it will be able to pay full benefits through 2037 and about 78% of benefits in the years following. Even if we do nothing!
Aah, it must be The Boomers!
We hear all the time that it is the impending retirement of millions of Baby Boomers who are putting Social Security at risk. But it is not the first time that we’ve been faced with problems. In 1983 the system came within months of not being able to make on-time payments to beneficiaries. From the SSA.gov website;
“The 1983 amendments, passed in record time by the 98th Congress, represent a bipartisan effort to deal with serious near-term and long-range financing problems facing the Old-Age, Survivors, and Disability Insurance (OASDI) program under prior law. Since 1975, expenditures of the OASDI program had exceeded revenues and it was anticipated that, without legislative action, it would not have been possible to continue paying OASDI cash benefits on time beginning in July 1983.”
The 1983 amendments included the gradual raising of the retirement age from 65 to 67 (for me personally it’s 66-10/12) and increases in the payroll tax. In 1983 payroll taxes were 10.8%, last year they were 12.4% of earnings up to $106,800 (called the wage cap, we’ll get to that in a bit). This year, with the payroll tax cut put in effect by President Obama, the rate is 10.4% of earnings (6.2% paid by employers and 4.2% paid by workers) to the wage cap. When I heard about this tax cut it was a “WTF” moment for me. Why Obama would enact something that would further the talking heads’ position that Social Security in headed for failure… But that is a whole ‘nother post…
Back to my point, during the last 25+ years we have (and I’m considered a Boomer) paid more payroll taxes than the previous generations and many of us will retire later. It is because of the payroll taxes that we have paid that there is a surplus now, and why many of our parents have been able, financially, to live on their own. In 1983 they knew how many of us there were and put in place fixes that would ensure our future. It’s time to look to the future of the next generation.
Alan Simpson, co-chair of President Obama’s deficit commission, made a remark in an email (that has many calling for his resignation or removal) sent to Older Women’s League chief Ashley Carson where he compared Social Security to other American systems and likened it to “a milk cow with 310 million tits.” If he’s referring to the total population I’m not sure, but according the SSA website in December of 2010 there were about 59 million people receiving some type of Social Security benefits. More than 150 million workers paid Social Security payroll taxes. I say to Alan Simpson, you feed the cow to ensure the milk, not just for yourself, but for your parents and your children.
Privatization is the NOT the answer
For a couple of reasons. First, $$$. The Social Security system is one of the most efficiently run insurance programs in the world, with overhead of about 1% of annual benefits. In comparison, in the United States, overhead for annuities (a plan where the benefit is split into equal payments over a period of time, instead of a lump sum payment) provided by private firms averages about 20%; for every $100 paid in, $20 gets siphoned off in fees. And almost no annuities offer cost of living increases.
Second, more $$$. Social Security also covers disabled workers, survivors of deceased workers and a whole host of others.
Third, still more $$$. Investing your retirement funds in the stock market? What would have happened to your retirement nest egg a couple of years ago if Bush had had his way? Where would we be now? I know, some people make money in the market, but the reality is most of us wouldn’t. Most of us wouldn’t know where to start and honestly, if the money was available wouldn’t something always come up? Doctor bills, car repairs, your kid’s education? Or just trying to survive now because you lost your job?
Thoughts for the future
There are many things we can do now to make sure Social Security is around after 2037, for our kids and grandkids. None of these things are drastic measures and if we instituted several fixes it would decrease the impact even further. We’ve survived the changes that were put into place in 1983 and we can do it again. These are a few possible solutions being discussed now and my thoughts on them. I will go into more detail in a further post.
- Increasing the payroll tax. An increase in the tax rate from 12.4% to 14.6%. If both the worker and employer contributions increased 1.1% each, many believe this alone would solve future problems. That’s $1.10 for every $100 you earn. If you make $1000 a week, that’s eleven bucks. That’s the price of a pound of decent coffee.
- Raising the wage cap. The current wage cap is $106,800. If you make more than that the income above it is not subject to Social Security taxes. This creates an unfair burden to lower income workers. If someone earns twice that amount they will receive the same benefit as someone who earns $106,800, but they pay in only 3% of their wages. And the more they make, the lower this percentage gets.
- Raising the retirement age. Many of us will already retire later than our older relatives. There is talk of raising the retirement ago to 70! Again, this creates an unfair burden to some workers. Imagine having to continue in labor intensive jobs until you are 70. It’s one thing to sit a desk all day (which in itself is tiring) but having to lift heavy objects, swing a hammer, turn a wrench or climb in a trench… And if the job market continues the way it has been a lot of people will become destitute before they are even eligible for Social Security.
- Reducing benefits. I stated earlier in this post that even if we do nothing to boost Social Security it will be able to pay 78% of benefits after 2037. The whole point of making changes for the future is to eliminate the need to reduce benefits! What’s the point of talking about fixing something if the goal is to keep it broken?
This is surely an over simplification of things, so I invite your thoughts and questions. In future posts I will try to address those concerns.