So Good, So Bad, So Long
In the depths of the Great Depression, when FDR signed the Social Security Act of 1935 into law, there were more than 40 taxpayers contributing to the trust fund for every person withdrawing benefits. Mortality tables foretold that a person living to age sixty-five was the exception to the rule. Back then if you could find a job, you worked, you retired, then you died. Many people just worked then died. By insurance industry standards, Social Security was an actuary’s dream-come-true – lots of premium with almost no claims – the new cash cow for the New Deal government.
The one thing our dispirited nation needed most back then was hope. If you were around in the 1930s, you probably conjure up images of rampant unemployment, bread lines, the poorhouse. The only thing worse than being poor was being old and poor. To combat the evils of the era, like the mythical opening of Pandora’s box, out jumped the gift of hope in the form of Social Security. How could this be anything but good? As the Greek myth counseled, the box was simply a metaphor for the unanticipated consequences of things politicians should leave well enough alone.
Asking politicians to keep their hands away from a trust fund bulging with cash is like asking a pack of wolves to keep their teeth away from a carcass of blood-red meat. Little by little our hard-earned cash was pilfered, replaced with IOUs in the form of treasury bills, moved into the general fund and spent on pork-barrel projects that buy votes in home states. Our Social Security trust fund was drained dry to reelect the very politicians who drained it.
But aren’t treasury bills just as good as cash? What’s the difference? you ask. The difference is that cash earns money, while IOUs cost money. If Social Security funds had not been squandered but left alone to fulfill their promised purpose, allowed to earn even a modest rate of interest slightly higher than the rate of inflation, by now we would have amassed enough reserves to eliminate FICA from present-day paychecks and permit endless generations to retire in style.
Instead, our Social Security system lives hand to mouth with nothing in the cupboards. Today there are only 3.3 contributing taxpayers for every Social Security recipient. We have 78 million baby boomers coming into retirement over the next twenty years. Millions of early boomers will begin to retire in 2008, when those born in 1946 reach Social Security’s early option retirement age of 62. Each year through 2025 more baby boomers will enter retirement.
Because baby boomers have not reproduced in numbers sufficient to grow replacement taxpayers, the ratio of 3.3 contributors to 1 recipient will diminish to roughly 2 to 1. Each double-income household will have to pay the Social Security benefits of one retiree (today an average of $1002 a month without counting Medicare) before buying their own groceries, paying the mortgage, utilities, clothing, school expenses, healthcare, etc.
What’s the bottom line? Three things: First, be thankful for what little Social Security benefits you get. Under the present system, the odds of your children getting it are slim, and of your grandchildren getting it, probably none. Second, be open minded to privatization of Social Security, and ignore party politics. They couldn’t mess it up any worse than it already is. And finally, teach your children (yes, I know it’s a line from an old Crosby, Stills, Nash & Young song). Seniors are still revered for their wisdom. Teach your children, no matter how old, to move money into their own private retirement fund until it hurts. Encourage them to teach their children to do the same. Saving money is a good thing. Really! It's a way to tell the politicians, “So long.”