While I’m thinking of pensions…
I was talking to my mom the other day about Social Security. It’s great that she listens to me on a soapbox. In general:
- Keep in mind Social Security was created in traditional nonsensical political style: the idea was hardly anyone would be entitled to benefits. In 1937, the age to receive benefit was 65; the average life expectancy was about 60. Demographics were definitely in the program’s favour, as there were about 40 workers paying into the scheme for each retiree.
- The plan was never designed to be ‘forced savings’ in nature. It is NOT a case of ‘Social Security is just giving back the money I put in, plus interest’. The program is pay-as-you-go: today’s retirees are paid with the contributions of today’s workers.
- In the beginning of the program, there were about 40 workers paying into the scheme for each retiree. Now there’s about 2-3 paying for each retiree, with this number expected to drop as Baby Boomers keep retiring.
- The reserve fund of the program contains US Treasuries. While these are supposedly ‘risk free’ assets, they are also future claims on US tax revenue. Again, this is a pay-as-you-go system.
- The reserve fund is being depleted, and Social Security finances are in doubt. Benefits are unsustainable – either we raise retirement ages or taxes or both.
- The key conclusion is I’m not convinced most folks in America understand that the millennials of America are being quietly asked/demanded/robbed to contribute to their parents’ retirements, when millennials will very likely either have much reduced or non-existent benefits themselves. Not very headline grabbing, and not very vote-gathering for a society in which the beneficiaries vote much more than the payers.