It’s popular to say that there’s “no money in the Social Security lock box” or that Social Security will “run out of money” by 2035, 2036, or name your year. Name it because it doesn’t really matter.
The simple truth is that Social Security is not running out of money, and it’s not owing to the basic truth that monies collected via the employer/employee tax never realistically existed to fund Social Security. They were just taxes foisted on employers and employees beyond the corporate and individual income tax. Politicians exist to spend, and they attain funds to spend in all sorts of ways.
What funds Social Security is not the incoming from the tax collected in its name, but the sad reality that Americans are wildly overtaxed. The rich in particular. And since they’re overtaxed now and in the future, Social Security is easy to fund, and will continue to be easy to fund.
Investors around the world line up to buy Treasury debt, which means those anticipating Social Security checks needn’t worry about whether or not they’ll receive them. Receive them they will, and if you’re still not convinced imagine a scenario in which you suddenly owned your future Social Security payments in the way that you presently don’t (see Flemming v. Nestor if you’re wondering). If so, rest assured that any bank, investment bank or investor more broadly would happily purchase the income streams from you at reasonably close to face value. The latter exists as evidence that uncertainty about Social Security’s future is more of a political discussion than it is a discussion of actual market realities.
About what’s been written, none of it should be construed as a defense of Social Security. The view here is that this government pension program was a monumental mistake that has long robbed savers of staggering amounts of retirement money. With compound returns top of mind, imagine how much your account would be worth if you owned it, and if you had the ability to direct your savings into more aggressive (see equities) savings programs.
At the same time, the sad fact that the Social Security Administration never allowed its future beneficiaries any leeway in terms of how the funds were invested hasn’t deterred reasonable people from saving in reasonable (see equities) ways. Precisely because “your” Social Security “returns” are measured in terms of the most vanilla of short-term Treasury returns, there’s been an incentive for Americans to save in more intrepid fashion with their own retirement accounts.
The above is firstly a reminder of Social Security’s superfluous nature. Americans “get it” and have long recognized the much more cushy retirement potential of saving and investing in intrepid fashion.
Which is the point. Americans have proven that on their own they can craft much better, much more remunerative retirement savings plans than government can. Evidence supporting this comes care of a recent piece by Emily Brandon of U.S. News & World Report. Brandon notes that the maximum possible monthly Social Security payment one could get is $3,627, and that the number can only be reached if a worker has been taxed the maximum annual amount over 35 years of paying into the Social Security system. $3,627???
Yet as anyone with a pulse knows, someone who’d funded a private account over the same 35-year timeframe with the same amount of money would be on the verge of receiving quite a bit more on a monthly basis. Which is the much greater point. Since Americans once again “get it,” more and more are situated on their own for a cushy retirement. They’ll still get Social Security, but most won’t care as it will increasingly exist as a tiny portion of a much bigger, privately arrived at retirement whole.
Republished from RealClearMarkets
