The Truth About Social Security

Many people believe that Social Security is going to run out and people will not have the basic necessities to live when they retire. Please remember that Social Security is NOT a retirement plan it is an anti-poverty plan designed during the Great Depression. As of right now the Social Security "Trust Fund" will be just fine until 2037 at the earliest (this estimate comes from the Congressional Budget Office). The reason Social Security is at risk right now is because of the tax codes that were changed. Right now any income over $97,000 is NOT taxed.

-In 1983: 95% of wages paid Social Security tax
-In the 1990's 80% of economic growth went to the top 5%
Today: 85% of wages paid Social Security tax

So the fundamental reason for Social Security being in trouble is that all of the economic growth in the past 3 decades went to the top 5% and the top 5% is not going to pay any extra taxes because SS taxes are only on incomes up to $97,000. If the tax code was the same as it was in 1954 we would have enough money to pay for social security and have much higher benefits.


Don’t Risk Your Retirement
By: Patrick DeCosta

The Social Security system is the most successful piece of legislation to come out of President Franklin Roosevelt’s New Deal program. Social security has provided our older citizens with a stable and consistent form of income for over seventy years and has been a life line for citizens who become disabled and are no longer able to work. The social security system itself is a very stable source of investment and has little trouble generating the money needed to cover retirees. Many people believe that our current system will not be able to support the growing population of the nation and is in trouble. Those who believe that the Social Security system is in trouble propose that we scrap the system in favor of a privatized solution that eliminates the need for the government to take people’s money. Opponents of the current Social Security system would argue that people should control their own money and invest in areas that can provide greater returns, like the stock market. What they fail to understand is that the social security program, if left alone, would be more than capable of supporting the future retirees of the United States with a fraction of the risk that investing in the stock market or other securities would have. Social Security is facing difficult revenue issues and funding needs to be adjusted for the shifting demographics in the United States but privatization is not a better alternative.
The Social Security system in the United States is in trouble because the U.S. government continues to borrow from the Social Security account in order to pay for other expenses. The Social Security system was designed at a time when life expectancy was significantly lower and now more people are living longer which automatically puts a strain on the system. The percentage of people 65 and over will increase from its present level of 21% of the population to 27% in 2020. This essentially means that the Social Security system is more important than ever and it is more expensive than ever. Proponents of privatizing social security would argue that investing in areas with high returns would offset the increased expenses, while growing businesses and thus growing the economy. The supporters of privatization say that the current Social Security system is on shaky ground and will not be able to fund the retirements of those who plan to retire in the relatively near future. It is not the current form of social security that is the problem it is the reckless spending on the part of the U.S. government to finance things that it cannot afford. The system could stabilize if we simply used a fraction of the money we spent on tax cuts, which went disproportionately to the very rich, and spent it on Social Security. The Federal government believed that continued economic growth would make it possible to replace the borrowed money and there would be no issues. If Social Security was left alone and not abused it would be able to fulfill its commitments to the millions of people who hope to retire in the near future. Right now the social security system is in danger because it has not adapted to the changing demographics of the nation and the future surge in elderly dependent population that will come when the generation of “baby boomers” retires. Unless the government adopts serious reforms the current social security program will face major financial imbalances.
Privatization is not a better alternative to the current “pay-as-you-go” social security system because it will not help those who need retirement assistance the most. The rich, who have done very well in the past few decades, are getting money in the form of tax cuts that should be used to support those who have paid into the social security system and expect to have the benefits paid back when they retire. Funding for social security has not decreased it has been used instead as a national bank to pay for other expenses. Wealthy Americans are the ones who support the privatization of the social security system because it will increase choice and give higher returns. Wealthy Americans are also the ones who benefit least from the progressive form of redistribution that gives a larger percentage of benefits to those who paid less. For decades now Social Security has been a dependable arrangement for retirees and has kept millions of older Americans out of poverty and allowed them to live a comfortable retirement. As we have seen in the past few years, the private markets cannot offer that same stability. We need only look at the recent economic collapse in 2008 for an example of the stability of the markets. Privatization also claims to yield higher return on investments because stocks traditionally have a much higher rate of return than the bonds that the current social security system invests in. Higher returns in the stock market usually results from higher risk and high risk is not good for stability. Most people do not know the difference between a stock and a bond and would likely leave themselves exposed to exploitation by companies who would prey on their ignorance. People would be forced to work through investment companies who may or may not have their best interests in mind. Private companies are there to make money not to make sure you have a comfortable retirement.
Proponents of privatization say that increased choice will allow investors to choose the level of risk and reward that they are comfortable with. The lack of information and knowledge that everyday people have cancels out the increased choice offered by privatization. People must also consider the burden of choice that will add a much greater level of anxiety and pressure to their lives. Choosing the appropriate investment portfolio will demand that the person investigate the markets and gather information. Otherwise you end up paying investors to “gamble” your money for you and still have to pay them to do it which would be comparable to paying a tax. Choosing an investment strategy is not like choosing an ice cream flavor because you only get to choose once. Excessive transaction costs from bad decisions will eat away at any gains made. People won’t know if they have invested enough or made the right investments until it is too late and they are facing your own retirement. If those who are wealthy wish to have more choice and make higher returns, let them invest their private portfolios in riskier assets. There is no need to risk the livelihood of millions of people because private business can make boatloads of money off of an ignorant population foolishly investing in them.
Social security is not a high stakes game. People need a stable and reliable system that will ensure they will have the money necessary when they retire. Those who seek to maximize gains and increase risk through privatization either have the money to waste or are not aware of the ramifications of taking away the safety net that is the pay-as-you-go system. Adjustments must be made to offset the changing demographics of the population and the decades of abusing the Social Security system; but it is an essential program that would destroy the lives of millions of people if it were scrapped for a privatized system.