(first published in North State Journal 12/19/18)
Everyone
knows Social Security is the ‘third rail’ of American politics. Touch it or
even talk about it as a politician, and ‘you will die’ as they say.
Does
everyone also know that while Social Security worked to help alleviate
suffering during the Great Depression, massive demographic changes since then
have made it one of the worst financial investments Millennials will make without
any freedom to invest their money otherwise?
‘Currently, for every $1 a middle-earning
couple (born in 1985) pays into Social Security, they can expect $1.01 back in
benefits when they retire. That’s not a great return on investment, and it may
fall in the future because Social Security isn’t on track to keep paying this
level of benefits. If the government cuts benefits enough to make the program
solvent they’d only get $0.80 for every $1 they pay in’*
Welcome to
your Social Security Lump of Coal this Christmas, Millennials!
Social
Security provides 50% of retirement income for close to 50% of the 62 million
seniors (31 million) on Social Security.
20% of all seniors (12 million) rely almost totally on Social Security
benefits with no other retirement income streams.
The biggest problem
with Social Security in the minds of freedom-loving, market-based conservatives
is not that it is too expensive or too big of a government program. The problem
is that it does not provide a much higher retirement benefit to the very people
it was designed to help in the first place: lower and moderate-income senior
citizens.
The sad part
about Social Security is that it forces people to rely on a relatively measly average
payment of $1422/month or $17,532 per year post-retirement at age 66. (In 2027,
seniors have to be 67 to receive full benefits)
Fervent opponents
of Social Security reform have kept tens of millions of retirees from living a
far more comfortable life in retirement than they are today. With the same
amount of money paid into OASDI, a middle-income retiree could retire with a nest
egg of hundreds of thousands, perhaps over a million, dollars had they been
able to invest those same dollars in a traditional retirement account for 40
years.
Absent any
changes today, Millennials will be looking at more dismal rates of return on their
OASDI payroll tax ‘contributions’ (sic) 35 years in the future.
What happens
when a recession hits and stock portfolios take a beating?
The
government could act as a backstop just as it did during the banking crisis of
2008-09 and guarantee a payment each month to get retirees back to at least their
projected average monthly Social Security check based on what they would have
received from the old system and calculation.
Not full payment; just a partial
payment to make them whole.
Once the
economy and stock and bond markets recover, those emergency payments can stop.
There really
is a basic fundamental question to be asked here. Is it fair to force American citizens to accept
a substandard system of funding their retirement when there is a much more
lucrative system available to them?
Based on
aging demographics and declining birth rates, the majority of OECD countries have
come to the conclusion that they must expand and encourage mandatory private retirement
accounts in addition to public funds. (see chart above)
The United States does not allow any private investment of OASDI tax payments into personal accounts under Social Security. None. Whatsoever.
This Christmas when Millennials go home to talk with their enlightened Boomer parents, they should tell them they love them and want them to keep their substandard Social Security benefits for as long as they live. No one wants to, or will, ever change that.
However, Millennials and future generations should want to do better. Far better. For each person individually and, then by happy extension, for every other American who will grow old with them.
* https://qz.com/860988/there-is-a-progressive-case-for-privatizing-social-security-in-the-us/
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