Social Security Too Generous

The reason Social Security is “going broke” is because its pay-outs are so generous. That may be a shock to the third of us planning to subsist—no, to live the Good Life—on Social Security for the last twenty years of our life. A cursory look at the numbers indicates you expect way more out of Social Security than you put in. Remember: not only was Social Security meant to be a safety net, not a pension, but it was supposed to be funded by your contributions.

If you’re a Baby Boomer with a decent job, you made at least a million dollars of taxed earnings during the last fifty years. That’s only an average of $20,000 a year; a poor income by today’s standards. (Every year the Social Security Administration sends you a statement. Add the numbers on page three to see what your exact taxable earnings were.) Of that $1,000,000, you contributed about $62,500 to Social Security, which your employer matched. That $125,000 was supposed to be deposited in your account, from which was to come your retirement benefits.

That didn’t happen. For decades Congress has been “borrowing” from the Social Security Trust Fund. As a result, for the life of the program benefits paid have come from contributions of current earners. Your classic Ponzi scheme, except this one was not only legal but mandatory.

So, if you started drawing “full” benefits at 66 (originally 65, and now 67), you got about $2000 a month. Do the math. In less than four years, you’ve drawn out the entire $125,000. If you expect to keep drawing benefits, the money must come from somewhere. Until now, the Social Security taxes paid by younger workers have exceeded the benefits paid. (Remember the Ponzi scheme?)

That scheme worked fine when the earners outnumbered the retired by several multiples. Baby Boomers paid for the Great and Silent Generations. Now the Boomers are retiring. Lots of them. And the following generations are too small to pay for Boomer benefits. Hence the talk about Social Security going broke.

But “too generous” you ask? $2000 a month isn’t enough to live on. No, and it wasn’t supposed to be. We were supposed to save for retirement ourselves. That’s what the various Individual Retirement Accounts were for. That’s what 401(k)s and 403(b)s were about. If you wisely invested just ten percent a year, it grew to several millions. Social Security plus the income from your savings might make a decent retirement income. But many Boomers didn’t save … at all. And so it’s become our children and grandchildren’s problem.

Oh, Social Security is broken. It was broken when Congress broke faith with the retired of America by stealing their Social Security payments to cover then-current spending. But Congress’ malfeasance doesn’t excuse your nonfeasance.

What are you going to do? If you haven’t saved, you’re stuck. You’ll probably join those demanding the Congress fund Social Security from current tax revenues, doubling the burden on your children. And Congress, seeing that older folks vote regularly, will probably do it.

How do we repair Social Security? Too late to fix it for you or your children. Maybe we can mend it for your grandchildren.

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