As Wealth Grows, Social Security’s Political Potency Plummets

Last month it was reported (yet again) that Social Security will run out of money in 2035. And as is frequently the case with news items like this, pundit-class alarmists spilled all sorts of ink telling readers of the need for more babies, more reform, and all manner of other government solutions to fix what they deem a “crisis.”

Except that the surest sign there’s no Social Security funding crisis can be found in the expectation that the fund which pays Social Security benefits is expected to run out. About the latter, notice how recipients didn’t panic. Of course they didn’t. Right or wrong, it’s always been implied that any alleged Social Security shortfalls will be paid out of general revenues.

Yet arguably the bigger, more important story about the report could be found in the non-reaction among those who aren’t yet receiving Social Security benefits. It was as if the report didn’t even drop. Which is the point, or should be. Social Security’s relevance to tomorrow’s retirees is in decline, and with it, the so-called “third rail” is losing its political potency.

One seemingly obvious reason for the above can be found in market-based retirement plans of the 401(k) variety. That they run circles around Social Security is no insight.

Of course, that 401(k) and other private retirement plans lap the one offered by the federal government logically reduces fear related to what Social Security will eventually pay out. As private wealth grows, the meaning of what the government provides shrinks by the day. Good.

 Even better, stop and think of any retirement plan that individuals can access starting at 62, and all the way up to age 70. Social Security is not just losing financial relevance for the typical individual, it’s also true that the program itself is hopelessly behind the times. 62 to 70? People in that age range increasingly look like they’re in the 40s and 50s. Retirement is for old people, Social Security is for really old people, but those in their 40s, 50s, and 60s just don’t see themselves leaving the work place between 62 and 70.

Work is less and less backbreaking, and increasingly a reflection of our unique skills and intelligence. Think about this with Social Security top of mind. It was the third rail back when people had much less wealth, but also when they expected to stop working much sooner. That’s just not happening today.

Precisely because work is more and more a reflection of what’s unique about us, there grows the likelihood that as opposed to Social Security looming as the third rail, it will be the aforementioned private accounts that we own, and that grow wealth much more quickly, that we most treasure.

Combine rising passion about work with private savings, and it’s easy to see the political potency not of shoring up Social Security that is more and more an afterthought, but instead of delaying the age at which individuals have to start withdrawing funds from private retirement accounts. Throw in reduced taxes on those withdrawals as something that will similarly matter.

It cannot be stressed enough that Social Security was a political rail when the money mattered. But as private wealth leapfrogs what government can pay out, the focus on government retirement programs is set to shrink. Which is a reminder that beyond Social Security’s looming “insolvency” not really mattering, it’s arguably a signal of a rapidly changing electorate that doesn’t care if it’s saved, but cares a great deal that it will get to keep as much of its private retirement savings as possible.

Republished from RealClear Markets

Author

  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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