Righting Wrongs

Richard Quinn

SOCIAL SECURITY remains a great mystery to many Americans and is widely misunderstood. For instance, when Social Security’s trustees release their annual report, we get vastly different interpretations. One group will read the report and conclude there’s a “surplus” and plenty of money to improve benefits. Meanwhile, another concludes that the program is in fiscal trouble and fixing it is vital.

Headlines frequently state the program is going bankrupt. It isn’t. Today’s level of benefits may not be sustainable, given current funding sources, but Social Security payroll taxes are sufficient to maintain the bulk of benefits currently paid. A recent survey indicates that 76% of younger American are concerned that Social Security will not be there for them. It will be.

On top of that, many older Americans don’t believe Social Security keeps up with inflation. They don’t understand the formula for each year’s COLA, or cost-of-living adjustment.

In response to one of my articles, a reader declared: “Senior Citizens that are Citizens of the United States of America should have, AT THE VERY MINIMUM, a 3.6% COLA raise for 2019, and at least that much for years to come!!!”

Another commented: “So, yes, Mr. Quinn… Social Security does not keep up with the rising costs.”

Frequently, I receive comments like this one: “Why do you keep writing about the ‘trust fund’ as if it matters even a whit as to the financial health of Social Security? In doing so, you are perpetuating a gigantic lie about Social Security.”

Yes, the trust fund is an accounting device. Yes, its assets are special Treasury bonds. But yes, it is real. Look at Treasury Direct and you will see debt held by the public and intragovernmental debt. The last category holds $5.8 trillion. It’s where the government accounts for several trust funds, including the trust funds for Social Security and Medicare Part A.

The trust is nothing but IOUs, some people say—just pieces of paper. That’s like saying the savings bonds in your safe deposit box or the bonds you hold in a mutual fund are just pieces of paper.

While many people seem to think Social Security is a bad deal financially, others realize what they have received. The following comment expresses that feeling: “I am 63 and started my SS benefits at 62. I made just $300,000 [in total] during my work years. So, I am one of the working poor you are talking about. I will have everything that was paid in [payroll] taxes by myself and my employers back in just 67 months and I even adjusted the amounts to 2018 dollars. The SS system is one of the best programs that our government has ever come up with.”

I looked up my own Social Security record and found something similar. In just seven years, my wife and I received more in Social Security retirement benefits and spousal benefits than all the Social Security payroll taxes my employers and I paid since 1959.

Finally, there are those taxpayers who claim they would be better off investing Social Security payroll taxes. Many variables are part of any such calculation. But suppose you earned $50,000 a year for 35 years and saved 12.4% of your pretax income, or $517 a month, in lieu of the combined 12.4% employee and employer payroll taxes used to fund Social Security. If you earned 4% a year—a healthy return, because we’re assuming 0% inflation—you’d have $474,000 after 35 years. Using a 4% withdrawal rate, that would give you $19,000 a year in retirement income—some $1,500 a year better than the average Social Security benefit.

Does that mean a privatized system would be a better deal than today’s Social Security? Maybe not. Consider seven issues with a privatized system:

  • Can average Americans save without interruption throughout their career—and without raiding the funds they set aside?
  • Can most individuals handle the complexities of investing or the gyrations of the financial markets?
  • What about disability payments—something available from the current Social Security system?
  • What about the Social Security survivor benefits often paid to families if a worker suffers an early death? If we privatized Social Security, will workers be prudent and buy adequate life insurance?
  • How will marriage, divorce and remarriage be handled in a privatized system? All that’s accounted for in today’s Social Security spousal benefits.
  • Once retired, how will folks keep up with inflation in a privatized system?
  • What about survivor benefits for widows and widowers?

Love it or hate it, Social Security is a vital investment for nearly every American, and we need to keep the program on a sound financial footing.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Basket CaseBad to Worse and Missing the Point. Follow Dick on Twitter @QuinnsComments.

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