The
opportunity before us….
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 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 a 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; into their own personal account.
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 continues unabated. But let’s be honest here…the social security
largesse was raided by Congress a long time ago 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 this might even be conceivable in today’s political environment, I submit to you that a blueprint for it to
happen currently exist. 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 mid-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). It could be used as a model for social security reform and could even interact with it to some degree.
The
opportunity lost….
I
am writing this piece in between the Republican Iowa caucuses and the Republican
New Hampshire primary. It goes without
saying that in politics…especially in
today’s politics…anything and everything is possible. But having said that, it certainly looks like
a sure bet to say that Donald Trump will be this year’s Republican presidential
nominee. Ron DeSantis put all his
marbles on Iowa and came up short. Nikki
Haley thought she might ride a late surge to second place in Iowa and she
too…came up short. It is possible that Haley
might pull off a remarkable upset in the Granite State, but it just ain’t too
likely. This race sure does feel like it
is over.
I
can assure you that if you polled all Americans who are likely to vote in this
year’s presidential election, an overwhelming majority would tell you that they
would prefer someone other than Biden or
Trump to be their choices. Instead,
both national parties have inexplicably selected the one candidate that could
lose to the other party’s weakest candidate. Think about it…DeSantis or Haley either one
would be quite likely favored to defeat Joe Biden handily in November; but the
Republicans seem determined to nominate Trump with all of his baggage.
As flawed as they might be, the Democrats have options other than Biden that would likely give
them a far better chance to retain the White House; but they are apparently
sticking with Biden.
Either
Ron DeSantis or Nikki Haley would make a far better president than either Biden
or Trump. They would not be encumbered
by Trump’s legal issues nor would they be saddled with Biden’s senility. They would not usher in the return of MAGA
chaos and they would not be hampered by the stupefying incompetence of the
Biden Administration. Both of them have
demonstrated that they are exceptional executive managers by serving successful
stints as governors. Both are young
enough to serve two full terms and still retain a fresh and open-minded
approach to governance. Either one of
them would bring a new vitality and sense of rebirth to the White House that
could possibly prove to be infectious and thereby renew the spirit of the
Executive Branch in our government.
Alas,
this seems not to be in the cards.
Instead, we are barreling down the road towards four more years of
decline with Slow Joe in the White House or four years of frenetic political
venom featuring Trump versus the World.
Choose your octogenarian. Choose
your quagmire. Choose your stalemate. Choose your political poison. And when it gets here in January of 2025,
then learn to live with the fact that you let the opportunity for positive,
invigorating change slip through your fingers.
