On Social Security

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.

End soapbox.


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