What is Social Security?

I guess I missed blogging Eason Jordan week, but to continue my non-Rome related political rants I'm going with social security. I think the system is broken but not because there might be a deficit 40 years in the future. At least it has fixed costs. Medicare is out of control. Retirees are getting more drugs and doctor care and nursing home reimbursement than social security checks.

While both are stolen from me on a weekly basis, a much bigger bite is taken out by social security. This theft is predicated on a promise that this money will be returned with interest in my 'retirement.' A date which is determined by the federal government.

For the great majority of Americans, social security is billed as a government controlled retirement plan. You pay them a percentage of your income and at age 65 (or 66, or 67, or as high as they want to set it now) you get a certain amount until the month you die (based on whatever cost of living increases deemed necessary. While the initial determination is based on your working history, the checks keep coming without regard to how much you actually accumulated in the sytem.

In effect, social security is a longevity lottery. Two people with similar salary histories could get the same check. If one lives for another 10 years and the second lives for 30, the second will get three times as much out of the system. The exception is only for a spouse of a retiree who survives them. It also means that the spouse of a high wage earner will get the higher benefit, not their own.

This starts to put the lie to the pension theory. In any other system, the money you put in will eventually come back. If you die at 65 or 60 or any other time, the benefit will pass on to your family. An IRA will almost universally earn more than social security funds will. Of course, it is a fixed amount and could get tight if you live a long life. But don't worry, the most long lived people in general are the wealthy who can afford comforts and medical care and needed breaks. They benefit greatly from the parade of checks that continue far longer than those for the working poor who could have really used that extra money in their weekly paycheck.

What is social security? It's not an IRA, that's for sure. The money taken now from paychecks is being used to pay current recipients. The people who got checks at its inception never 'paid into the system' at all. It is designed to support people who may not be in a position to support themselves. However, a political decision also made it 'fair' by giving checks to anyone, rich or poor. This way, everyone is a conspirator to the largest component of the Federal Budget.

Should Social Security be abolished? I don't think so. People don't or can't save enough in this country. The family structure is not conducive to expecting their support for elderly relatives. I do, however, propose one of two possible changes.

1. Means Testing - The ridiculous idea of making social security 'fair' led to the twin dilemmas of only making people pay social security taxes up to the first $90,000 in income (a defacto regressive tax on the poor) and paying the highest benefit amounts to people who more than likely have a pension system of their own. If the government insists on considering it a pension system for the rich and poor it must consider the second option.
2. Private Accounts - The down market of 2001-2003 put the damper on investing in the stock market. Of course, the Dow is twice what is was 10 years ago. Even in the down times, it is 90%+ higher than it's value the previous decade. Investing in a fund with the possibility of growth would make social security like any rich guy's IRA. Ultimately, it doesn't matter to me. The government can still invest in its stagnant bonds, but the accounts should be individual. Even if you get hit by a bus at 50, your family should still have some result from the decades you spent paying into a proposed pension system.