In January of 2024, I posted a piece on this blog concerning Social Security reform. I believe with all my being that Social Security is a critically important program for our government and that it should be preserved and remain in place for our elderly population going forward. I see it not simply as a challenge for our government…I think it is an OBLIGATION of our government.
This
is a long post and there are many details and references; but it is a critical
issue for our nation and one that is often discussed through sound bites and
misrepresentations. You owe it to yourself and your
children to make an attempt to understand the substance of this issue; it will
very likely affect you directly in the balance of your life and the lives of
your family. I am not a
professional journalist, but this is at least an attempt to rationally discuss
this important matter facing our country.
I
know from my life experience that there are many, many elderly Americans that
rely SOLELY on social security
benefits to live…every single day, week, month, and year. It is
all that they have. And I can tell
you for a fact that in my part of
rural Kentucky…most of them draw less
than the average monthly social security benefit that I will reference later in
this piece. They do not complain. They
do not bitch and moan. They simply make
do with what they have. As I say later
in this piece…they are the true “silent
majority.” I believe there is no
segment in our population that suffers more in silence…and does not receive the attention they deserve…than our elderly. In many respects, how we as a people treat
our elderly is a shame upon us.
As
I note in the piece that follows, a program currently exists in our government
that can help to implement this essential reform. It is the Thrift
Savings Plan that all current federal employees participate in for a portion
of their retirement benefits. It was
created in the mid-1980s when the old Civil Service Retirement System (CSRS)
was terminated and replaced by the Federal Employees Retirement System (FERS). It
is a fundamentally sound, reasonable, and fiscally sustainable program that
could easily accommodate the influx of social security recipients who might
choose to exercise the investment option I will suggest. Here is a partial reprint from that 2024
item. It is rather long and detailed, but that is what it takes to fully address
this issue.
My
children (aged 49 and 42) both tell
me that they have no realistic expectations of drawing social security benefits
in their lifetimes. I expect this belief
is common among others in their generation.
They have both been paying social security taxes since they began
working well before age 16. Are they correct? Is the current social security system
unsustainable? Will it go bankrupt and
simply fold up…or…will benefits be
reduced proportionately due to a shortage of funds? How will the dynamic of those paying in
correlate with those receiving payments?
These
are all good questions; but they avoid the REAL
question. The real question is the
elephant in the room…Whether or not any National Party or
bipartisan group of elected officials will EVER find the courage to honestly address
the fundamental financial flaws in our current social security system. The Democrats have eternally demagogued social
security and have dared the Republicans to go anywhere near it with reform on
their mind. The Republicans, being the
stalwart statesmen that they are (wink,
wink), have been cowed by this threat and have taken the coward’s way out
by avoiding any substantive discussion about social security reform. Oh…they can talk it; just don’t ask them to walk
it.
Donald
Trump made clear in his first term that he would have nothing to do with social
security reform. As of this date,
neither Ron DeSantis nor Nikki Haley shows any indication of possessing a
serious approach to social security reform.
Joe Biden? Yeah…I will give you moment to get off the
floor from your laughing fit. At some
point, someone … somewhere … somehow
must come up with the backbone to broach this subject in a meaningful fashion
and start the process of reform. The
challenge remains: How does that process
begin?
Social
security is a fundamentally-essential part of elder Americans’ financial
survival; it is a good, solid concept; and
it is worth saving. The plain
and simple truth is that there are legions of elderly Americans who rely solely on their social security benefits
to survive; and they do so in stoic
silence. You have heard of the silent majority; here is your silent minority. Post-boomer generations do not fully realize
this fact and they further do not realize how important social security might
be for them someday. Their “live
for today” attitudes preclude them from looking far enough into the future
to contemplate their retirement years.
Let’s
consider some fundamental facts about the social security system. In 2024, the maximum amount of social
security benefit an individual can draw is $58,476 per year/$4,873 per
month. The average social security
benefit is $20,472 per year/$1,706 per month.
The average annual income for American workers is $60,575. That means that at a social security tax rate
of 6.2 percent, the average worker is paying
in about $3,756 per year/$313 per month; while his/her employer will pay in
an equal amount to the system. For
self-employed individuals, they will pay the full 12.4 percent. If the average monthly benefit is $1,706 and
the average monthly tax paid is $616 ($313
x 2), it is pretty clear that we need a lot more workers paying in than we
have retirees drawing social security checks.
The average American today is about 39 years old. Full social security benefits are available
at age 66 or 67, depending on your year of birth. Reduced benefits may be claimed at age 62,
but are then locked in for life at that reduced level.
The
Social Security Administration estimates that 180 million people are working
and paying in social security taxes (along with their employers); while 67
million people are drawing social
security benefits. In 2022, about $1.107
trillion was paid into the system by working Americans and their
employers. That same year, about $1.232
trillion was paid out to retirees. The
Social Security Trust Fund earned about $66 billion in interest that year.
Now
the social security system is a complex mechanism and it is easy to
over-simplify aspects of it. The process
of taxing income and paying out benefits is multi-faceted and one size does not
fit all. All of the numbers mentioned
here are moving targets and subject to volatile economic factors. Much like people who like to cherry-pick
scriptures to prove debatable biblical points; many will cherry-pick select
social security statistics to support their personal views. But at the end of the day, it is clear to
anyone paying attention that if the system is not adjusted in some fashion,
there is a distinct possibility (perhaps
more a likelihood) that it will not be sustainable. The biggest fears of my children that I
mentioned previously will, in fact, come to pass. Here is a good summary (SSA website) of the current social security system financial
standing: https://www.ssa.gov/policy/trust-funds-summary.html#:~:text=Sources%20of%20Trust%20Fund%20Income,2023%2C%20which%20their%20employers%20match.
I
recall when Obamacare came into being. I
wrote about it here: https://centerlineright.blogspot.com/2013/10/the-fundamental-problem-with-obamacare.html
. At that time, I also drew comparisons
between that debate and the social security dilemma we are addressing in this
piece. Like the specific elements in the
Obamacare discussion, there are a lot of areas in the social security reform
issue that should be readily agreed upon by all involved parties. Let’s consider a few….
People
are living longer. People are working
longer. Medical care has progressed at
an astronomical rate; extending both the ability to live and work longer. The social security retirement age should be
raised. Reasonable people can
debate the size of the increase; but increase it must.
The
social security tax wage limit must be increased. Currently, a person is not required to pay the
social security tax on any income beyond the social security wage limit. In 2023, that limit was $168,600.
As
a result, you will pay no more than $10,453 per year ($168,600 X 6.2%). There are
some who say that social security benefits should be means tested. In other
words, the amount of social security benefit you are eligible to receive will
be decreased as your income rises. I
cannot support this concept. The same
benefits formula should apply to all social security beneficiaries. If you pay in more, you should draw
more. To me, this is a point of
fairness. On the other hand, if you are
going to make a lot of money, and eventually draw a lot of social security
benefit, then you should pay the social security tax on the full amount of your
earnings. The wage limit should be
increased. Once again, the amount of the increase is
debatable.
I
am not financial wizard; nor a proficient accountant. But history plainly tells me that the best
way to accumulate true and lasting wealth in this nation is through the stock
market. Historically, equities (the stock market) have out-paced the
rate of inflation and have thus resulted in true economic growth. This is
the main formula for the rich getting richer. Unfortunately, there are two big factors that
prevent many people from realizing the great financial benefits available from
equities. First, a lot of folks simply
do not have sufficient disposable income to invest in the stock market. While it is true that savings requires
sacrifice and discipline…that is just not sufficient explanation for the
failure of many to save. Lots of folks
simply cannot afford it. Secondly, the stock
market is a roller coaster ride. While
in the long run it has yielded reliable gains; there have always been, and will
always be, periods where the market experiences losses. Equities must be regarded as long-term
investments; not short-term income producers.
It is undeniable that the stock market has accounted for the vast portion
of the true wealth held by rich Americans.
It is foolish for the social security system to continue to ignore this
plain fact.
There
is a win/win proposition which can be placed on the table. First, we should allow social security tax
payers to voluntarily designate a limited portion of their social security
tax to be invested in the equities market.
Since this option is voluntary, the payer will enjoy the gains…but will
also absorb the losses. Also, since the
equities investment option is only a portion
of the tax they will pay in, the traditional system will continue to be funded
for future use and those choosing to exercise this option will not be allowed
to put their entire social security
benefit at risk. Secondly, not only will
this allow a large number of working Americans to participate in the equities
market whereas they could not before; it will also broaden the economic
vitality of the market by expanding and diversifying corporate ownership across
our population. More people will be able
to share in the historical prosperity of American capitalism and the social
security system will share in this increased growth. Increased investment in equities should
translate to increased opportunities in business…for everyone.
There
will be short-term considerations as the amount of incoming taxes shrinks due
to the re-direction of that portion to the equities market and the demand for
current beneficiary payments continuing unabated. But let’s be honest here…the social security
largesse was raided by Congress a long time and it is not longer valid to
consider it a free-standing system. It
is now part-and-parcel of the federal budget and that fact should allow for
addressing any short-term funding issues that the equities option might incur.
These
are three reforms that can be implemented today
to our social security system so that it might continue to support the many
Americans that rely daily on its
benefits. These changes can also help to
insure that the social security system will be around tomorrow to support future generations in their retirement years.
One more quick note: social
security was never intended to be the sole
support for retired individuals. It was designed to be a supplement to the savings that individuals accrue through hard work
and discipline during their earning careers.
It is an empty argument to say that social security benefits are too
small to allow for a reasonable lifestyle.
The social security system is only one of many government support
programs that help to address the challenges of limited-resource Americans as
they face daily challenges to exist financially. Any attempt to alter or mold the social
security program into one that provides 100 percent of the income needed for
reasonable retirement is a distortion of monumental proportion and will lead to
the rapid and ultimate demise of the entire system. It will also be a slap in the face to the multitude of Americans who have worked hard
for a lifetime, sacrificed daily desires for long-term security, and earned the
right through blood, sweat, and tears
to have a comfortable retirement.
That
last point only emphasizes what I addressed earlier: one should draw from
social security based upon what one pays in.
That is the fairness and integrity of the system that should be
preserved. The equities option can
create new possibilities for many that otherwise might not exist; but the
social security system never has been, nor should it ever be, a gift to those
who failed to provide for their futures due to their irresponsible indulgences
of the present. If one expects to
someday draw social security benefits; then one must accept the responsibility
of paying in social security taxes.
If
suggestions such as these sound unrealistic to you and you have difficulty
seeing how that might even be conceivable in today’s political
environment, I submit to you that a
blueprint for this to happen currently exists.
Honest, transparent, equitable, and practical reform of a huge
government program CAN BE ACCOMPLISHED!
Faced with a similar challenge of fiscal sustainability in the
decades-old federal employee retirement system, Congress and the President made
hard choices and reformed that system in the 1980’s. That reform has met with unqualified success
and was based on many of the principles that I mentioned above (in particular, the equities option).
As
a follow-up to this piece and further insight into the federal retirement
reform and the overall pension crisis in America, here is a good background
post: https://centerlineright.blogspot.com/2020/04/the-pension-time-bomb-is-closer-to-boom.html
. Note the original date of this post
and reflect on how much the fiscal situation being addressed has worsened since
then.
