Social Security is not a savings plan
Many Americans, including me, view Social Security as a government mandated savings plan. Every American worker, under the age of 99, has contributed a substantial portion of their earnings into Social Security for their entire working lives. It is a common misconception that those funds were put into a savings account or invested on behalf of the contributing worker. Social Security was to be viewed as a contract between the federal government and the worker that as long as you contributed during your working life, the government would take care of you after you retire.
This is not how Social Security actually works. The current Social Security trust fund, in round numbers, holds about $3 trillion. If contributions stopped today, Social Security and Medicare/Medicaid would run out of money in about two years, maybe less. In addition, there are approximately $5 trillion in excess contributions that have been "borrowed" by other parts of the federal government. Assuming that this money could ever be recovered, a big "if", then Social Security and Medicare/Medicaid could be extended by an additional couple of years.
What this means is that if you stop paying FICA from your paycheck, then Grandma and Grandpa stop getting retirement income and stop receiving healthcare in less than five years. And it also means that people nearing retirement age can never retire and will someday become dependent on either their children or the state.
My retirement went into Social Security and a corporate pension fund. Corporate pensions dried up when the federal government passed well-meaning legislation that prevented corporations from siphoning off excess pension dollars. Even though more than 15% of my effective pay was siphoned for retirement for most of my career, I will have nothing to show for it if Social Security goes away. Social Security was built as a Pyramid Scheme with the built-in assumption that there will always be more young people than retirees. In the era of zero-population growth, this is no longer a reality.
So if I am paying for current retirees, why does it cost so much?
Simple economics. There are about 65 million Americans on Social Security. There are about 140 million Americans working. Each working American is paying nearly half of the cost for another retired or disabled American. The question is really "why does it cost so little?"
How to Fix the Problem?
- The politicians who enacted Social Security and the people who received retirement but did not pay are all long dead. You can't punish them for taking advantage of their children. Punishing dead people is hard to do. Move on ...
- People are living longer with active lifestyles than when Social Security was enacted. We can reduce the burden on working families by raising the minimum retirement age.
- Slowly phase out Social Security by reducing the benefit annually and continuing to raise retirement age. And by slowly, I mean REALLY slow, like over decades. Slow enough that working families have enough advance warning to save for retirement outside of the Social Security framework.
- Introduce legislation that requires all excess FICA collections to be kept on the books of Social Security and Medicare trust funds and not lent to the general fund. Any excess principal above statutory requirements should be invested by money managers who have a personal financial interest in the performance of the investments.
- If younger workers refuse to plan for retirement and are projected to become a burden on society, then we can discuss privatized Social Security savings plans on a sliding scale that increases as traditional Social Security is phased out.
Social Security vs. Private Retirement