Social Security: Now What Are We Supposed to Do ?
The call it Social Security, but a better term would probably be Social Insecurity. The
Social Security System is Broke. It is broke in the US, it is
broke in Europe and also Japan. They know it, but do
you? Your taxes are going up - your benefits are going
down. What do you want to do about it?
Social Security in the United Sates, and many other countries for that
matter, have a very similar arrangement, and the concept was certainly
perhaps a noble idea on the part of politicians, albeit not a
economically sustanable one. However, the problem is that most
people really did not understand what the system was all about, and how
it truly functions. If they really knew, they most likely would
have rejected the idea from the start. Which is to say, many
people think (or thought) the government was taking money out of their
paychecks every month and putting it away somewhere in a special
account. In other words, many people were lead to believe that
the government was saving money on that persons own behalf for
retirement. Not True, or in the least this is not the way it
works. It was a nice party while it lasted, and now comes the
Almost all of these programs are what is known as a Pay As You Go
program. In simpler terms we can say it was a sort of modern day
Robin Hood government wealth transfer process. People that were
currently working and making payments into the system were (and are)
really supporting the people that are currently retired (or those
persons taking a check). The concept of course was based upon
demographics. Demographics, which have changed, and really the
problem has been that such changes have never been addressed in terms
of how the system operates. In addition, as the years have
progressed, the politicians have also changed whom and for what Social
Security funds are meant to pay for. This is also a major part of
the problem and why a crisis in looming on the horizon.
When former US President Roosevelt signed Social Security into law on
August 14, 1935 the United States was experiencing a deep economic
crisis - or the Great Depression if you prefer. The idea behind
Social Security was to act as an economic stimulus. In other
words, a way to put funds into the hands of retirees so they could
spend it and have the cash flow needed to stimulate the economy (the
applied economics theories of John Maynard Keynes). Of course it
was sold to the general public as a plan to help the elderly, which it
did do at the time of course. Regardless, Social Security was
originally envisioned and meant to be an income supplement, and NOT a
full-fledged government sponsored retirement program. In
addition, coverage for medical care expenses (Medicare Social Insurance
for the Elderly), benefits to widows, orphans and the disabled were all
added on later as additional draws on the Social Security system.
So, also as a result, the benefits and who was eligible to receive them
expanded in later years.
In any event, when the system was originally put into place (1935)
there were anywhere from roughly 30 to 40 persons (depending upon what
statistics you look at) paying in for each one person taking out a
check. So, of course the amount of the check for one was spread
out among 30 or 40 people and the payments these people made at the
time were fairly minimal as a result. Things have changed.
The United States witnessed a surge in birth rates directly following
World War II, the period from about 1945-1965, or the baby-boom
generation. After that period (1965 and onward) the affects of
inflation and changing societal issues meant that it took two incomes
to offer up the same middle-class lifestyle as before. In other
words, many couples decided to have only one child or in some cases,
none at all. The result was a drastically reduced birth rate and
lower population coming into the work force to support the so-called
pay as you go system.
You might ask - What about the Social Security surplus or trust fund
often talked about? Well, this came from all those baby-boomers
paying in, or more correctly, the fact that a surge of people in the
population that were in reality paying in an excess of what was
needed. Supposedly this money was put aside or saved by the
politicians into a special trust fund, but the truth is they spent it
all. Which is to say that these funds were placed into a
so-called trust fund and carried on the accounting records of Social
Security as a surplus, BUT it was then loaned out to the federal
government and in its place, an IOU was given to the trust fund in
turn. So, the money was spent and the only way to replace it is
if the US Federal Government (and of course the tax payers) collects
even more new money in the future to replace these borrowed
funds. What if the government put that money into gold or other
kinds of investments whereby the politicians could not touch it?
Well, for sure it would result in a much better scenario than what
exists today, but even still, this would not eliminate the problem
There are a variety of different statistics floating around, and in
some cases these figures even contradict each other. However, the
fact remains that this group of baby-boomers will start to retire and
ask for social security checks right NOW in 2005, and the wave of new
retirees will continue exponentially each year afterwards.
Regardless, starting in 2012 (and some statistics claim other dates,
indicating from 2012 up until 2017) Social Security will pay out more
in benefits than it collects in revenues. Also, as of 2004,
Medicare has already been operating with a deficit, and generally
speaking health care costs have been rising more rapidly than any other
expense (at double digit rates). Also, in 1950, the average
worker paid 2.96 percent of their salary or income into the social
security system. Today that amount is almost 16 percent. In
effect, this means that since Social Security is broken out as separate
so-called contribution payment (they do not call it or classify it as
income tax, but rather a contribution towards Social Security,
abbreviated as FICA), it is actually a hidden additional tax against
income amounting to about 16 percent on average. So, if you think
you are in a 32-percent tax bracket, you had better think again.
In reality, one way or another, you are probably giving the government
almost 50 percent of your earnings away in tax payment (32 plus 16
In the 1990s, social security spending increased at 6% per year (double
inflation), while Medicare continued at over 11% growth per year (3-4
times faster than inflation). According to the 2005 Trustee Report,
Medicare went into deficit spending in 2004.
Some Additional News Articles:
REPUBLICAN REVOLUTION? Oct 14, 2005 - by Mark M. Alexander
What on earth has happened to Republicans in Washington? Twenty years
ago, we conservatives could only dream of an opportunity like the one
our elected representatives are now squandering: a Republican President
with majorities in both houses of Congress, and two chances to nominate
constitutionalists to the Supreme Court. For reasons we can't begin to
explain, the Republican Party is in the midst of an identity crisis.
Indeed, with each passing week, they behave more like the Democrats we
elected them to displace. From education to prescription drugs to
transportation to hurricane indemnity, today's Beltway Republicans
can't seem to stop redistributing our money.
Modest proposals to cut the rate of Medicare and Medicaid growth were
dropped. Even promised cuts to wasteful federal education programs, to
Amtrak and to public broadcasting, quietly disappeared. In all,
discretionary, entitlement and interest spending for FY2006 will exceed
But as egregious as pork barrel spending is, it isn't responsible for
the fiscal crisis we face. The ever-expanding largesse of federal
entitlement programs -- government do-gooding ad nauseam -- actually
threatens the solvency of the Republic.
Social Security faces collapse in just a few decades. According to the
2005 report of the Social Security actuaries, the entitlement's
un-funded liability is $11.1 trillion in perpetuity. That's "trillion"
with a "T." To his credit, President Bush has sought to reform the
big-government enrichment scheme known as Social Security, though
without success to date or much hope in the near future. When
compared to Medicare, however, Social Security's liabilities are a mere
pittance. Medicare's total un-funded liability is $68.1 trillion in
perpetuity. (If you are not appalled by this number then you are not
alone; precious few humans can comprehend the immensity of one billion,
much less sixty-eight thousand billions.) And the program could go
belly up in just a few years. To lend further perspective to our
misplaced Social Security angst, the total indebtedness of the recently
enacted (but un-funded) prescription drug benefit accounts for $18.2
trillion -- more than one and a half times the entire Social Security
liability. Summing up, never let anyone tell you that you're getting
free drugs from Uncle Sam. Your grandchildren will most certainly be
paying for them.
Social Security is hurtling toward a cliff; that is clearly one of the
ways in which it is getting worse over time. Because it is a
pay-as-you-go scheme, with current retirees' benefits paid from current
workers' taxes, it can remain solvent only as long as the ratio of
workers to retirees stays comfortably high. But that ratio is
plummeting -- from 17-to-1 in the 1950s to only 3-to-1 today. With more
retirees than ever living into their 80s and beyond, and with millions
of baby boomers soon to retire, the pressure on the system is only
going to get worse.
SOCIAL SECURITY STILL NEEDS FIXING - October 13, 2005 by Jeff Jacoby
In little more than a decade, payroll taxes will no longer be enough to
cover benefits. Social Security's deficits will rapidly explode. By
2020, it will be losing $72 billion a year. By 2030, losses will be
$275 billion a year. Between now and 2070, Social Security will need to
come up with an estimated $27 *trillion* (in 2004 dollars) over and
above what it is scheduled to collect in taxes. To keep the system from
collapsing, Congress will have no choice but to massively hike taxes,
slash benefits -- or both.
That isn't the only way in which Social Security is getting worse over
time. When the program began, payroll taxes consumed a tiny fraction of
American paychecks -- just 3 percent of the first $3,000 of income, or
a maximum of $90 a year. On that "investment," workers could expect to
earn a very handsome return, assuming they lived to retirement age.
But over the years, payroll taxes have been relentlessly raised -- the
rate is now 12.4 percent of the first $90,000 earned, or as much as
$11,160 a year -- and the return on those taxes has dwindled to almost
nothing. According to Stuart Butler of the Heritage Foundation, the
average male worker about to retire today will realize only a 1.27
percent return on his lifetime of payroll taxes -- less than he would
have gotten from a savings account. For younger workers, the outlook is
even worse. A 25-year-old employee can now expect a lifetime return of
minus-0.64 percent -- a net loss. And the more Social Security takes
out of Americans' paychecks, of course, the less Americans have left to
save for themselves.
THE BOTTOM LINE
So, the question remains: What do You Want to Do About It? What
do you think the politicians will end up doing? Will they cut
benefits, raise taxes, and extend the eligible retirement age - or
not? Will the situation get better or worse? If worse, who
is going to suffer? The politicians always like to say when there
is a problem: We are all in this together. What is
this we business? Who is this we that had control over the
money? Who do they use the word we, when they really mean
Many people will post the argument that the government would never let
Social Security fail - but what does that mean really? Does it
mean that they will run the printing presses like wild and give you
money down the road that will be worth less and less due to
inflation? Does it mean they will tax all the younger workers to
such an extent that they will feel resentment (not to mention the
financial burden and reduced standard of living due to less disposable
income)? Does it mean that we have to wait until 85 years of age
to check the get (if we live that long)?
HERE ARE SOME IDEAS:
Number One: Forget about Social Security. It is broke, and
none of the possible options will do you any good (higher taxes, lower
benefits, extended retirement age, the government printing of more
money and more inflation, etc., and so on). They tricked you,
they fooled you, they got your money - so be it. As my
grandfather used to say - Let the harm of the year go with it.
However, to quote a famous song by Roger Daltry and the WHO - We won't
be fooled again. Hope for the best, but plan for the worse.
Which is to say, if you can figure out how to support yourself and how
to retire on your own, it really does not matter what kind of nonsense
comes down the line later on. If they tell you - sorry, we have
to cut your retirement check in half, be in a position to laugh instead
of cry. If they tell you they want to take even more money away
from you going forward, tell them you decided to quit. Tell them
you resign. Tell them you decided to fire them as a government
and that you decided to go look for another. Governments are a
kind of service provider, just like the cable company. Your
current cable company gives you bad service and wants to double the
bill for even worse service and benefits? What do you do?
You cancel the contract and go look for another. Same thing with
where you are living at the moment. You do have options and
choices. In addition, you do have ways to secure your own
financial future without the help (or meddling) of any politician.
Number Two: Take heed of number one because it means you have to
think long and hard about taking care of yourself. This could
mean some very interesting choices, such as expatriation for one
thing. Yes, expatriation - the idea of just saying no and going
to live somewhere shall we say, less taxing? Many Americans and
Europeans have decided to relocate to places that do NOT have this
looming problem (no extensive social welfare state to contend with),
much lower cost of living, much lower housing costs, better year round
climate, possibly much less taxes AND the ability to be far away from
any possible negative social fallout that might occur as well.
Where are some of these places? How about Argentina, Brazil,
Bolivia, Dominican Republic, Panama, Thailand, and Cambodia - just to
name a brief few. What? Me, live in a third world
country? Well, I have some news for you - these places just
mentioned are far more modern than you might think. Plus, they
offer lower cost of living, lower housing costs, comfortable climate
AND possibly even much. much (did I mention much?) lower taxes.
If you like the idea of taking care of yourself without the government
picking your pocket, then you owe it to yourself to check out these and
perhaps other destinations.
Number Three: Get out of debt and buy your retirement home for
CASH. What a novel idea? The lower that your fixed monthly
expenses are, the better off you will be. How much money would
you need if your monthly expenses were simply electricity, telephone,
cable, and grocery shopping only? If you owned your own home
mortgage free, this can be a reality. The problem is where can
you afford the same if not more of a home (in terms of space and
amenities) than what you already have for US$150,000 or less?
Refer back to some of the countries mentioned above. Where as to
purchase a comfortable middle-class home for half the price of the home
you are in now (without giving up too much in terms of size and
amenities) in North America or Europe will be almost impossible, this
is not so elsewhere in the world.
Number Four: Consider becoming a proactive and informed investor
instead of just a helpless victim of foolish politicians and
irresponsible government spending policies. Also, remember that
you are a sovereign individual and not the chattel property of any
state. This means that you have to right to live where ever you
wish, and it also means you have the right to change countries and
citizenship if that is your decision as well. Part of the problem
is the number of false stereotypes and rumors floating around. Do
not believe them, but instead investigate and go see for
yourself. Instead of doing what your normally do for an annual
vacation, go visit another country that you think you might like to
live in or retire to. Go and visit the Dominican Republic, or
Thailand or Argentina or Panama or anywhere else that you like.
Investigate for yourself if what the idiot from the accounting
department (who never traveled anywhere in his life) told you at the
office water cooler was true - or not. I am going to bet after
visiting a few of these places, you will become enlightened and more
positive about what is possible, and what is indeed the truth. In
addition, you will come to realize how idiotic and naïve some
other people truly are, but so be it. Your life is your own
responsibility. Live it to the fullest, invest in yourself and your own
future. It is certainly a worthwhile investment, do you not think?
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