Social Security - Of Pyramids and Pyramid Schemes
From the dawn of civilization, we human beings have been burying our dead, but it's only in the last century that we've begun entombing our living as well. The ancient Egyptian Pharos invested their excess wealth in building pyramids and other monumental tombs in which their mummies were placed after they died. We fill our hospitals and nursing homes with living mummies (and daddies), sometimes over the objections of all of the family members involved. The wealth we spend postponing the clinical death of our elderly by a few days or weeks dwarfs the amounts the Pharos spent on immortality.
So the Egyptians had their pyramids, and we have our pyramid schemes known as Social Security and Medicare. Unlike the Egyptian pyramids that have stood for thousands of years, our pyramids (as we know them) will collapse in the near future. Are there easy solutions to the Social Security and Medicare shortfalls? Sure, raise the retirement age and lower the benefits for both programs. It's going to happen eventually, but the the AARP will fight it until the programs are so far into the red that the it will be a miracle if the replacement programs allow senior citizens (like myself in 30 years) enough to rent a room and buy cat food for a thin fiction of a cat.
I'm sure I don't need to go into the details for my readers, but the Social Security system is officially broke in 2011 by normal business standards. In 2011, the benefits paid by Social Security will exceed the contributions made by all working Americans, at which point and ever growing portion of the Social Security benefits will become a budgetary line item for the government. Under the fantasy pushed by politicians, there's money in the trust fund to last another three decades, but in reality, there is no trust fund. It's just a filing cabinet full of IOUs issued by the government. In other words, the only way the government has to pay back the money "borrowed" from Social Security is to raise taxes or take it from other existing programs. Guess which they'll choose.
Despite the central role Social Security plays in the American social contract, most people, entrepreneurs included, remain woefully ignorant of how the program works, who it covers, and why if they're young and have a brain in their heads they'll support reforming the system. One common myth I've encountered amongst self-employed colleagues is that your ultimate Social Security benefit is calculated based on your best three or five years of employment. I even know one aging entrepreneur who plans to pay himself at an artificially accelerated rate during his last three years (reverse-laundering money from his savings) because he's convinced he'll get it back times ten through higher benefits. He won't.
Our eventual social security benefits are based on our average monthly earnings over the best 35 years of our working lives. This is used to compute how much we would receive at full retirement age, currently 65. Workers can choose to start collecting retirement benefits at an earlier age, 62 in the current implementation, but it doesn't make much sense unless you are part of a high risk group, like single, unmarried men (statistically slices six years of your life). If a currently retiring person continues to work after retirement age, the benefit increases until age 70, after which it's a wash.
There's a worksheet for figuring your actual benefit on the Social Security site.
Just don't count on collecting it:-)
Somebody famous once said, "Big government grows biggly." Alright, maybe it was me, but the principle is a sound one. The Social Security system was initially proposed as the centerpiece system for ensuring Americans a regular check in retirement. It was never a savings scheme, it's actually an insurance program where the premiums paid by current workers pay the benefits of retired workers. Thanks to people living longer, the program would have gone broke sooner or later in any case, but it's been hastened along by an expansion of benefits beyond retirees. You can argue whichever side you like as to whether or not some of the non-retirees receiving benefits should be getting supported by direct government expenditure, but including people who have never worked in a retirement system was a bit of a stretch.
In the year 2001, the government paid out a little over 1.1 trillion dollars in direct benefits to individuals. That comes to around $4,000 per citizen, but of course, most of us aren't getting any of the money. A little under half the amount ($450 billion) went to retirement and varied disability payments, and a slightly greater amount ($476 billion) went to direct medical payments. Income maintenance benefits (a combination of Supplemental Social Security, Family Assistance, Food Stamps and grab bag of other needy programs) accounted for $111 billion and unemployment benefits came in at a mere $32 billion. Veterans benefits were second to last on the big ticket list at $26.5 billion and Federal Education and Training came last at $13 billion. All other little pork barrel boondoggles together came to just $3 billion. 2001 was in fact a milestone year, the first time medical benefits outstripped retirement and disability.
Some Americans are saving for retirement outside the Social Security system, though fewer than you might think. A little less than half of American households have an IRA of any type, in 2002, around 33 million had a traditional IRA, 12 million had Roth IRA's and under 8 million had the self-employed styles, (SEP, SAR-SEP or Simple). There are over 300,000 401K plans out there, but they probably represent less than 40 million participants (not counting single participant plans).
To give a broad sweep of the benefits for the really needy, about 5% of American households received food stamps in 2000, down from a high of around 8% just a few years before. About 4.5% of households lived in public housing, up from 3.4% two decades earlier. 13.5% of American received Medicaid assistance in 2000. Over 18 million Americans are considered "work disabled" by the U.S. Census Bureau, with 3.5 million of those under age 34. Just under a third of work disabled Americans get Social Security benefits, two thirds are covered by Medicare, one in six receives Food Stamps and one in ten reside in public or subsidized housing.
On the bright side, over 88% of American households surveyed in the year 2000 contributed to charity. The leading recipient was religious institutions, garnishing contributions from over 60% of giving households. Health oriented charities were next (they have excellent fundraisers) at 38% of giving households, followed by Human Services, Youth Development and Education. We won't give the whole list here, but Adult Recreation came in last, I didn't even know it was a charity.
So the Egyptians had their pyramids, and we have our pyramid schemes known as Social Security and Medicare. Unlike the Egyptian pyramids that have stood for thousands of years, our pyramids (as we know them) will collapse in the near future. Are there easy solutions to the Social Security and Medicare shortfalls? Sure, raise the retirement age and lower the benefits for both programs. It's going to happen eventually, but the the AARP will fight it until the programs are so far into the red that the it will be a miracle if the replacement programs allow senior citizens (like myself in 30 years) enough to rent a room and buy cat food for a thin fiction of a cat.
I'm sure I don't need to go into the details for my readers, but the Social Security system is officially broke in 2011 by normal business standards. In 2011, the benefits paid by Social Security will exceed the contributions made by all working Americans, at which point and ever growing portion of the Social Security benefits will become a budgetary line item for the government. Under the fantasy pushed by politicians, there's money in the trust fund to last another three decades, but in reality, there is no trust fund. It's just a filing cabinet full of IOUs issued by the government. In other words, the only way the government has to pay back the money "borrowed" from Social Security is to raise taxes or take it from other existing programs. Guess which they'll choose.
Despite the central role Social Security plays in the American social contract, most people, entrepreneurs included, remain woefully ignorant of how the program works, who it covers, and why if they're young and have a brain in their heads they'll support reforming the system. One common myth I've encountered amongst self-employed colleagues is that your ultimate Social Security benefit is calculated based on your best three or five years of employment. I even know one aging entrepreneur who plans to pay himself at an artificially accelerated rate during his last three years (reverse-laundering money from his savings) because he's convinced he'll get it back times ten through higher benefits. He won't.
Our eventual social security benefits are based on our average monthly earnings over the best 35 years of our working lives. This is used to compute how much we would receive at full retirement age, currently 65. Workers can choose to start collecting retirement benefits at an earlier age, 62 in the current implementation, but it doesn't make much sense unless you are part of a high risk group, like single, unmarried men (statistically slices six years of your life). If a currently retiring person continues to work after retirement age, the benefit increases until age 70, after which it's a wash.
There's a worksheet for figuring your actual benefit on the Social Security site.
Just don't count on collecting it:-)
Somebody famous once said, "Big government grows biggly." Alright, maybe it was me, but the principle is a sound one. The Social Security system was initially proposed as the centerpiece system for ensuring Americans a regular check in retirement. It was never a savings scheme, it's actually an insurance program where the premiums paid by current workers pay the benefits of retired workers. Thanks to people living longer, the program would have gone broke sooner or later in any case, but it's been hastened along by an expansion of benefits beyond retirees. You can argue whichever side you like as to whether or not some of the non-retirees receiving benefits should be getting supported by direct government expenditure, but including people who have never worked in a retirement system was a bit of a stretch.
In the year 2001, the government paid out a little over 1.1 trillion dollars in direct benefits to individuals. That comes to around $4,000 per citizen, but of course, most of us aren't getting any of the money. A little under half the amount ($450 billion) went to retirement and varied disability payments, and a slightly greater amount ($476 billion) went to direct medical payments. Income maintenance benefits (a combination of Supplemental Social Security, Family Assistance, Food Stamps and grab bag of other needy programs) accounted for $111 billion and unemployment benefits came in at a mere $32 billion. Veterans benefits were second to last on the big ticket list at $26.5 billion and Federal Education and Training came last at $13 billion. All other little pork barrel boondoggles together came to just $3 billion. 2001 was in fact a milestone year, the first time medical benefits outstripped retirement and disability.
Some Americans are saving for retirement outside the Social Security system, though fewer than you might think. A little less than half of American households have an IRA of any type, in 2002, around 33 million had a traditional IRA, 12 million had Roth IRA's and under 8 million had the self-employed styles, (SEP, SAR-SEP or Simple). There are over 300,000 401K plans out there, but they probably represent less than 40 million participants (not counting single participant plans).
To give a broad sweep of the benefits for the really needy, about 5% of American households received food stamps in 2000, down from a high of around 8% just a few years before. About 4.5% of households lived in public housing, up from 3.4% two decades earlier. 13.5% of American received Medicaid assistance in 2000. Over 18 million Americans are considered "work disabled" by the U.S. Census Bureau, with 3.5 million of those under age 34. Just under a third of work disabled Americans get Social Security benefits, two thirds are covered by Medicare, one in six receives Food Stamps and one in ten reside in public or subsidized housing.
On the bright side, over 88% of American households surveyed in the year 2000 contributed to charity. The leading recipient was religious institutions, garnishing contributions from over 60% of giving households. Health oriented charities were next (they have excellent fundraisers) at 38% of giving households, followed by Human Services, Youth Development and Education. We won't give the whole list here, but Adult Recreation came in last, I didn't even know it was a charity.
posted by Morris Rosenthal at
1:51 PM
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