The Impossible Math of Social Security

From my archived blog "Keeping it Unreal" at donaldjeffries.wordpress.com

Note: This is another in a continuing series of previously published articles. Please subscribe to my primary Substack “I Protest” here: donaldjeffries.substack.com

The establishment is finally acknowledging just how screwed up the Social Security system is. CNN and other mainstream outlets reported recently that for the first time in the history of the program, a married working couple who turned 65 in 2010, would on average receive less in benefits than what they paid into the system.

While a similar working couple, making an average income, would have received some $120,000 more in benefits than they paid, had they retired in 1990, the 2010 couple was set to get about $21,000 less than was taken from their paychecks over a lifetime worth of work. According to the same research, the problem is just going to grow more pronounced. A couple presently in their early forties can expect to pay more than $100,000 in payroll taxes than they will get back after retirement.

In the past, retirees could get as much as ten times what they paid into the Social Security and Medicare systems upon retiring. This was largely because payroll taxes were much lower during their working years. Even though payroll taxes have been increased over the past few decades, the simple fact is there are fewer workers to support the exploding number of Baby Boomer retirees. The system pays more out than it collects, and the so-called “trust fund” will be depleted by 2033.

The great “tax cutter” Ronald Reagan not only raised payroll taxes, he signed off on the odious proposal of the Greenspan Commission to start taxing Social Security benefits, beginning in 1984. The estimated windfall from this double taxation was supposed to go into the trust fund, but instead it was mixed into the general revenue, to finance endless no win wars and occupations of foreign lands, mindless foreign aid, still secret intelligence agency budgets and the like.

Payroll taxes, which are withheld from paychecks in order to finance Social Security and Medicare, are about as regressive as can be imagined. The Social Security part of the tax is only levied on the first $119,000 of income. If anyone can explain the logic in that, I’d like to hear it. Under this system, Bill Gates, Warren Buffet, and the rest of the One Percenters are taxed like someone making $119,000 annually. Few if any politicians advocate for all income being subject to Social Security taxes.

During his 1992 presidential campaign, Ross Perot kindly and gently suggested voluntary means testing for Social Security benefits. This suggestion was met with howls of protest, from the AARP and other lobbying groups. In reality, means testing must be part of any rational attempt to preserve Social Security for the majority of Americans who will truly need it. As Perot also explained, he certainly didn’t need it, but couldn’t even voluntarily turn it down.

In reality, retirement is fast becoming another privilege only the rich and upper middle class enjoy. An astounding 40% of Americans aged 55-64 have no formal savings in any retirement account. The number of employees with a traditional pension (the kind paid for by the employer, unlike 401Ks) was down to 31% by 2010. The median amount of retirement savings for those in that age bracket is just $14,500. Even those in that age group with formal retirement plans have an average of just $104,500.

The average balance in a 401K-type of retirement account for those in their late 50s to early 60s is a pitifully small $17,000. As in so many areas, we have regressed here to an embarrassing degree. By any measure, and by all statistics, Americans are far less prepared financially for retirement than they were in the 1980s or even the 1990s.

As I will go over in detail in my upcoming book Survival of the Richest, conventional pensions have been all but eliminated in corporate America. As recently as 1989, two thirds of Americans still had a pension through their employer. As of 2013, in contrast, a typical American couple only had $5,000 saved for retirement. Research from Boston College shows that the percentage of households who will fall short of being able to financially survive retirement has risen from 31% in the early 1980s to 52%.

Leftists continue to deny the giant elephant in the room that illegal immigration represents in terms of many issues, including Social Security. Since so many illegal immigrants are paid under the table, they obviously aren’t paying into the Social Security and Medicare systems. As the Washington Times and others reported last year, the IRS actually encourages illegal immigrants to steal Social Security numbers. According to these reports, some one million Americans have been victimized by this government sanctioned theft.

The Social Security Administration also issues millions of “non-work” Social Security numbers. Although these cards have “Not valid for employment” printed on them, their own audits have found that illegal immigrants use them widely. Those highly valued immigrant farm workers are not subject to withholding taxes, and neither are several other classes of visa workers. Even lawful immigrants have it better in many ways than those born in America. For instance, it’s not widely publicized that legal immigrants receive significantly more government benefits than the U.S.- born.

One of the countless advantages the wealthy have over the common riff-raff is a significantly higher life expectancy. Since Social Security pays benefits for as long as you live, obviously this tends to reward them even further, as they receive a benefit they don’t need for a longer period on average than the vast majority of retirees. Men with the highest 10% of incomes live an average of twelve years longer than those in the bottom 10% bracket, while the wealthiest women live ten years longer than their poorer peers.

More than 47,500 millionaires got Social Security benefits in 2010. 7.2% of beneficiaries reported a yearly income in excess of $100,000. The median beneficiary income for Social Security, meanwhile, is just $26,000 per year. 27% receive less than $15,000 annually. Since those at the bottom in terms of Social Security benefits almost certainly had no pension or savings to rely on, we can reasonably conclude that more than one-fourth of Social Security recipients are living in abject poverty.

Echoing Ross Perot, as he did so often during his presidential campaign, Donald Trump suggested his fellow One Percenters opt out of the system. “I have friends that are worth hundreds of millions and billions of dollars and get Social Security. They don’t even know the check comes in,” the loose cannon billionaire declared in 2015. Trump has declared that he will not support any cuts in Social Security, as the Paul Ryan-types of Republicans clearly desire. It remains to be seen what the president does on this issue, as well as so many others.

The math is very simple here. Unless means testing and taxation on all income is implemented, the Social Security system will eventually crash. There is an incomprehensible $107 trillion in “unfunded liabilities;” or the difference between promised benefits and anticipated revenues. According to the Cato Institute, that’s twice the world’s annual Gross National Product. With an exploding population of elderly Baby Boomers, who will rely even more upon Medicare, clearly that problematic program is doomed as well.

Then there is the Social Security Disability Fund. A favorite target of Ayn Rand- worshiping conservatives, SSDI has been teetering on the brink of insolvency for the past few years. With the frightening increase in both obesity-driven health problems, and mental illness-related issues (antidepressant medication, for example, increased an incredible 400% from 1988-2011), the definition of “disability” has been greatly expanded.

Before Social Security, nursing homes were a rarity in this country. Older family members were simply taken in by their children and grandchildren. The program was never designed to be a retirement program. With the disappearance of pensions for most workers, however, and the general lack of reverence for the elderly in America, Social Security has become an absolute necessity for most retirees. And besides, they’re simply getting the money back that they paid into the system.

The more financially stable Baby Boomers can look forward to becoming “snow birds,” and heading for the warm climes of Florida.  Most Americans, however, aren’t that fortunate now, and far fewer will be that fortunate in the future. For them, along with the inevitable infirmaries of old age, will come a fearful financial impact.

As usual, I have no confidence in our political leaders to address this problem rationally. Their pensions are top-notch, and thus if Social Security is privatized or eliminated altogether, they will not be subject to any repercussions. What are possible solutions? I’ve advocated that any drastic changes to Social Security come with the option of a lump sum payout, with the entire amount paid into the system by workers being awarded to them. Actually, this would probably be an option many might take anyhow, in lieu of monthly payments.

To save Social Security, all income must be subject to taxation. This way, Bill Gates will contribute just a bit more than your local car mechanic. And there must be strict means testing. No One Percenter needs Social Security. But knowing our leaders, they’ll probably just raise the retirement age to 90.