You Can't Cheat an Honest Man - James Walsh [153]
The First Sign of Collapse
For people who retired before the early 1990s, Social Security was a great deal. Those who began paying into the system during the Depression typically took out twice as much as they paid in. According to one study, during the 1990s an average retired two-earner couple in their early eighties would receive Social Security benefits worth a total of $208,000. That’s $133,000 more than the value of all Social Security taxes paid by the couple and their employers, plus interest.
Many people think they are paying for their own retirement and that the money is safe because it is in the government’s hands. This sounds eerily reminiscent of the complaints that burned Ponzi investors make after a scheme collapses.
In fact, the Feds use current workers’ Social Security contributions to pay the benefits of current retirees. The current workers’ own benefits will, in turn, be dependent on the working population in the future. This means there is no money in any account to pay any future retiree. Economists worry that, as the overall U.S. population ages, it will become impossible to come up with the money to pay promised benefits.
In June 1996, Treasury Secretary Robert Rubin announced that government projections showed Social Security would be bankrupt in 2029. The same study projected that the trust fund which pays Medicare bills for 30 million seniors will be broke in 2001. The Social Security Administration also projected that in 2013 payments of benefits to retirees would begin to outstrip payments into the system. In short, the mass retirement of baby boomers will break the system.
During 1997 and 1998, the federal government cut spending and collected enough tax to create a projected budget surplus for several years. This created much excited talk about bailing out Social Security. But even if all of the surplus is used to help the program, it won’t make an unsound proposition any more sound.
Demographers and economists predict that in 2050, some four generations after the end of the baby boom, more than 15 million boomers will still be alive—and watching the mail for their Social Security checks.)
The signs have already started to appear. In 1996, for the first time in the history of Social Security, some categories of new retirees—particularly middle- and high-income single males—could expect to get back less for their contribution to Social Security than if they had invested the same amount of money in low-risk securities.
That projection held true even if the system managed to pay beneficiaries all promised benefits into the 21st Century. Most experts considered that an unlikely proposition—unless the Feds were able to pass sizable tax increases or other adjustments to the program. So, it seemed that a growing number of retirees would likely get substantial negative returns on their contributions.
Social Security promoters insist that this doesn’t mean the scheme is starting to collapse. By their reckoning, such talk is politically-motivated rhetoric. “There’s been a steady campaign under way...to raise doubts about the solvency of Social Security, to lead to privatization,” grumbled AARP executive director Horace Deets in 1996.
The History of the Scheme
Social Security was never intended to be an investment plan for retirement. It was intended to be a sort of national insurance to supplement private savings and pensions.
Franklin Delano Roosevelt and the other architects of Social Security believed that a pay-as-you-go system was needed and just, because—in the Depression Era of the 1930s—older people faced extreme poverty. But even these architects understood that the system needed limits. In 1939, Roosevelt’s Social Security Advisory Council wrote that support of retirees could not come
at the expense of...lowering of the standard of living of the working population. No benefits should be promised or implied which cannot be safely financed not only in the early years of the program, but when workers now young will be old.
The program’s administrators