The Opportunity before Us…and the Opportunity Lost

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.