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Social Security – don’t hold your breath!

May 1, 2012 by
Filed under: Uncategorized 

canstock0179531 Social Security   dont hold your breath!

By Bob Jentges (Editor Emeritus, Clarion Advisory) 5-01-12

The future of Social Security has been in the headlines the past few weeks, which reminds me of the Social Security options I had when I retired from my job in 1999.  I had the option of taking 75% of my Social Security benefits if I retired at age 62, receiving 100% of my Social Security benefits if I retired at 65, or getting 135% of my Social Security benefits if I waited to retire until age 70.  I guess those options still exist, but don’t hold your breath.  

According to their 2012 Annual Report, the Board of Trustees overseeing the Social SecurityTrust Fund, concluded that Social Security faces an unfunded liability of $8.6 trillion, or $73,167.83 per family.  Unfunded liability means the amount of future benefits promised to those currently contributing to Social Security.  Without changes, the unfunded liability 75 years into the future balloons to $20.5 trillion.  Those who contend Social Security is a “Ponzi scheme” may be correct. 

For a brief history on Social Security, I recommend syndicated columnist Robert Samuelson’s April 9, 2012 article The Origins of Entitlement.  But since you probably do not have time to read it, I will summarize and add a few of my own comments Samuelson gives a classic example of how a social program instituted with good intentions evolved into an entitlement, that because of changing demographics has become wholly unsustainable in its present form.  Yet when recent responsible changes to “save” Social Security are proposed, those changes are demagogued by many. . . for political purposes.

Samuelson points out that when FDR originally proposed Social Security in 1935, he envisioned a ”contributory” pension plan wherein contributions from workers payroll taxes would be saved and later used to pay toward their own retirement benefits.  FDR recognized that before workers had time to pay into the system toward their own retirement, there would need to be temporary subsidies for those already retired; the operative word being, “temporary.”     

Samuelson correctly points out that FDR squarely rejected the idea that ,over the long term, Social Security should be a pay-as-you-go system where payroll taxes of current workers would be used to pay retirement benefits to those already retired.  According to Samuelson, FDR believed a pay-as-you-go system would saddle future generations with huge debts—or higher taxes—as the number of retirees expanded. 

Samuelson further points out that when FDR discovered the original Social Security draft proposal was not a ”contributory” pension plan he demanded the plan be rewritten, complaining to his Secretary of Labor Frances Perkins: “This is the same old dole under another name.  It is almost dishonest to build up an accumulated deficit for the Congress…to meet.”  

Unfortunately, Congress did not heed FDR’s admonitions and gradually switched Social Security to a pay-as-you-go system after FDR died. 

In 1960, there were five workers per each Social Security recipient—today there are three—by 2025, the ratio will approach two.  FDR was a visionary in that regard— for the burden being placed on today’s workers and that which will be placed on future workers, is unsustainable and will continue to be unless immediate changes are made to the system.  

So when Republicans propose a plan to save Social Security for present beneficiaries—and future retirees who are now 55 and older but not yet of retirement age—while devising a sustainable plan for the younger generations, we must not accept demagoguery from the Democrats!  

We need solutions to the Social Security problem however, the Democrats have offered none that I am aware of. 

Hey, you know what?  It happens to be an election year— let’s vote them out !


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