Nothing much changes when it comes to Social Security, but facts are facts


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.


Source: Righting Wrongs – HumbleDollar

One comment

  1. You can go back and look at all of my comments on prior posts regarding Social Security. I won’t repeat them here. Social security and Medicare are income and wealth transfer programs – taking monies from higher paid individuals and giving benefits to lower paid individuals, as well as promising benefits far in excess of taxes collected, so taking monies from people too young to vote or those yet unborn, to create indebtedness via lucrative benefits to buy votes today among us grey haired (or sparsly haired) people.

    It is a ponzi-like system … where, if the young lose faith and find ways to avoid paying employment taxes, more and more of the benefits will have to come from general revenues or issuance of more debt. Just like Trump wanted Mexico to pay for the wall, perhaps the French will pay for our entitlements.

    However, in this post, you state something that I have to challenge: “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.”

    No, there is a massive difference between bonds in a mutual fund and savings bonds and the trust IOUs. The first are paper issued by a profit making enterprise. The first are voluntary investment decisions people make – where they believe they will succeed in achieving an investment return, as well as (if held to maturity), a return of principal. So, there is risk, but, there is productive capacity generating wealth to fund the interest and return of capital. With regard to the savings bonds and the trust IOUs, those are involuntary. Those are backed by the full faith and credit of the federal government, meaning that the feds are supposed to tax us as necessary. We now have $30+T in national debt, and our annual deficits of $1+T per year for the next 10 years, probably more will increase that to $40T or $45T or more – by 2034, just at the time when the Social Security trust fund is exhausted (including those IOU’s). So, over the next 10 – 12 years, when those bonds are called, we can expect all that will be added to increase the national debt, perhaps adding another $2.8+T (the current amount of the reserves). Medicare HI trust fund will be exhausted in a few years, perhaps adding another $150+B in debt (yes, Virginia, the Medicare Trust Fund only applies to Hospital Insurance and yes, it is down to about $150B).

    So, when these debts are called, when it is time to pay, it will likely coincide with the need to raise taxes to continue to pay past promises to current retirees – about a 25% – 33% increase in Social Security costs over current funding rates (assuming that the system will collect enough taxes, under current rates, to pay 75% of the benefits promised once the trust fund is exhausted.

    The government will have two choices, increase taxes to a confiscatory level or monetize the debt (use inflation to reduce the real value of the promises). I’m thinking it will be the latter. Is there a reason why Fed chair Powell wants to re-ignite inflation? What could it be!?

    So, no, that’s not like saying the two forms of debt are the same.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s