Social Security: Celebrating 75 Years of Mismanagement
By Ron DeLegge
August 18, 2010
SAN DIEGO (ETFguide.com) – It was a joyful occasion on the House Steps of the Capitol on July 28, 2010 as elected politicians celebrated the 75-year anniversary of Social Security.
House Speaker Nancy Pelosi concluded her speech saying:
“So again, I thank my colleagues for their participation in this. I thank them for what they have done, what they are going to be doing as we go into August so that we can say, as we say happy birthday to Social Security, we will say may we wish you many, many generations to come. Thank you all very much.”
Interestingly, there was no mention at the party of another important milestone achieved this year by Social Security: It now pays out more in benefits than it receives in payroll taxes. How could they miss such a major detail?! Not that it matters, but this dangerous threshold wasn’t supposed to be reached until around 2016, according the Congressional Budget Office.
What’s wrong with them? What’s wrong with Social Security?
Built on a Very Strong and Solid Sand Foundation
President Franklin D. Roosevelt signed the Social Security Act into law on August 14, 1935. The general idea was to offer temporary financial assistance to the aged, disabled and unemployed. Social Security payments were to be funded through payroll taxes called Federal Insurance Contributions Act (FICA). In terms of dollars paid in, Social Security is now the largest government program in the world and the single greatest expenditure in the federal budget.
Despite being the magnificent apparatus that it is, Social Security is being sucked dry. Today, payments being drawn from the system have dramatically increased because destitute people are applying for benefits sooner than they had planned. Furthermore, the program’s revenue has sharply dropped because there are fewer paychecks to tax. Nationwide unemployment near 20% has exacerbated the problem.
Meanwhile, the collapse of 401(k)’s and other retirement plans linked to the stock market during the 2008-09 financial crisis thrust Social Security into a role it was never intended for: As a primary and permanent retirement income vehicle for millions of Americans to rely on.
Fixing a Jalopy
The earliest age at which reduced Social Security retirement benefits are payable is age 62. Thereafter the normal retirement age to collect full benefits increases and depends upon when you were born.
Perhaps, one good solution to fixing the Social Jalopy System is to raise the eligibility requirement to unachievable age limits. What if 85 became the new 62? Don’t laugh. Referring to possible solutions for refurbishing Social Security, Senator Lindsey Graham (R-SC) said, “No idea is off the table.”
Analysts, in their infinite wisdom, have tried (unsuccessfully) to estimate when the Social Security “trust fund” will officially run out of money. Doomsayer’s projections already show Social Security is insolvent while frolicking pacifists argue the “trust fund” is healthy until 2080. You’re cordially invited to believe whomever you wish. Also, believe and know that the current state of Social Security is a short-fused time bomb ready to blow.
Complicating this conundrum is that the government keeps spending payroll taxes earmarked for Social benefits on things not related to Social Security.
Privatizing Social Security
Now to the part of Social Security Theatre that captivates us most – privatization!
According to the plan, workers would be allowed to divert a strict percentage of their money into private investment accounts. At various times within our recent past, it’s been irrevocably proven most workers have no clue how to invest their money and those that think they know don’t really know that they don’t know. And that’s where Wall Street comes to the rescue (or for the kill) depending upon your own uniquely deranged perspective.
In short, privatization would shift the responsibility of managing Social Security money away from the government who knows nothing about managing money to Wall Street who knows nothing about managing money.
As one might guess, talk of privatizing part of Social Security has put Wall Street’s largest money managers in an erotic-like frenzy. Just imagine how already fat profit margins would look if the U.S. government cuts loose trillions of dollars for them to mishandle. Fund executives and portfolio managers could then upgrade their aging Ferraris for something more refined like a Maybach or Buggati. (In case you didn’t know, Ferraris went out of style in the mid-1980s when television producers replaced Tom Selleck’s Magnum P.I. with Knight Rider.)
In President Roosevelt’s world, “privatization” wasn’t even a word.
Life before Social Security was so much easier. Employees had larger payroll checks. Employers didn’t have to fuss with inept accounting software to calculate FICA formulas. And financial subcommittees didn’t have to devise half-hearted schemes to make everything look fine.
The Social Security experiment never looked so insecure and disruptive as it does now. A younger generation of Americans is being forced to shoulder the financial burdens of older generations. Where’s the financial security in that?
Before the invention of Social Security, individuals were responsible for their own retirement income - not the government and not taxpayers. Guess what? After Social Security crashes and burns, individuals will be responsible for their own retirement income, not the government and not taxpayers.
The more things change, the more they stay the same.