5 simple solutions:

1. Raise retirement age
2. Eliminate the cap on payroll taxes
3. Cut benefits
4. Collect social security on personal income
5. Means testing

Strip Congress of its pensions/medical benefits, eliminate Congress's ability to enrich themselves while in office and immediately after (5 years), and have term limits and watch things change.

The article author doesn't get it:

"The downside of making 70 the official retirement age is that people who claimed benefits at age 65 would still face a 30% early-retirement penalty."

Downside?! That's why it works as a solution. There's going to need to be some decrease in benefits and/or increase in taxes for the system not to bust.

I can't have much respect for Mr. Graham. Following any form of accounting there is no social security trust fund. It's all been spent. The real tipping point is when contributions exceed expenditures. Either taxes will have to be raised or money borrowed to cover the difference.

Snoopy,

Eliminating the cap actually makes things worse in the long term. Or were you going to eliminate the cap on taxes but keep the cap on benefits?

I still say make social security a defined contribution system, not a defined benefit system. Fess up that it's a welfare system. Give everyone the same benefits. But those benefits depend on the last year's take. As currently designed social security will never be stable.

I keep hearing talk about increasing the retirement age. The only problem is the human body starts to noticeably breakdown around age 55. Increasing the retirement age will simply result in more people having to take disability, because they simply are not physically able to work to age 70. Social Security has become the worlds biggest ponzi scheme ever.

I would have been better off, if I could have invested the money tax free, and purchased a long term disability insurance policy and a life insurance policy.

Meanwhile, our President is planning on wasting billions of dollars on "climate change." Which according to flawed "climate change models" (nobody has been able to develop a model that is remotely accurate)will result in a reduction of global temperature increase of 0.0 to 0.2 degrees Celsius.

There is also the part of the SS problem few talk about: The cheap borrowing (from the SS 'trust fund') the gov't has been doing for decades is over and now has to be paid back. So any new borrowing and much of the old borrowing has to be at a much higher interest rate.

As to solutions most mentioned won't happen or work.
Raise the age, they did that, it was too small a change and took decades of ahead time. Also unless you make it retroactive, you started collecting already and now you don't for another 5 yrs, it won't matter.

Cut benefits, not going to happen not when some politicians and groups like AARP just keep saying it's fine they have money.

My 2 cents let it crash and burn, then from the ashes something sensile might come up.

"I would have been better off, if I could have invested the money tax free, and purchased a long term disability insurance policy and a life insurance policy."

Or do this.

Your (our) real obstacle is people getting paid the same no matter how poor their performance in managing these things.

5. Means testing ~ Posted by: Snoopy at December 31, 2015 6:44 AM

By all means, let's have the government determine if you should get your own money back.

George W. Bush's proposal to have people be able to set up and manage a portion of their Social Security was a good idea. First, it got people involved in planning for their retirement. Second, it gave them a sense of ownership. Third, it put at least some of the Social Security money outside the reach of the grasping arms of Congress.

But, Pelosi, Reid, and Clinton declared such a proposal "dead on arrival." So, now we're at the mercy of the government taking 12+% of our income (includes employer contribution) and spending it like drunken sailors, then telling us we made too much to get any of it back.

As originally designed, Social Security was intended to take money from a large working population and dispense it to a smaller retired population, saving and investing the non-dispensed money. That money would be saved and accrue interest to get the system through those years in which the working population was not large enough to support the retired population.

Then, Congress looked around for money for programs it couldn't coerce the taxpayers to fund. And decided to borrow money from Social Security and use it to fund its pet projects. In place of the borrowed money, Congress filled the trust fund with Treasury bonds (essentially IOUs). Now, they're coming due and we've got a large non-working population drawing unemployment and welfare benefits, a small working population feeling overtaxed and overextended, and a large retirement age population demanding it be paid the money it was promised. It's a perfect storm that, had the system been operated all along as intended, it might have been able to weather. Instead, the ship is taking on water and foundering.

So, now you won't get your money back, as promised, and what's more, self important liberals will tell you it was never promised to you and that you should look on Social Security withholding as just another tax; a cost of having the government take care of society - well, not all society, not your part of it at least, but some part of it, after all someone's getting your money. And that if you were a good citizen, you'd do your part and die the day after you retire, preferably through euthanasia.

To me, the real problem with raising the retirement age is that age discrimination is very real and many older folks will find themselves out of work and no retirement money coming in. Also some folks will age very poorly after 65 they will find themselves being unable to work and without retirement benefits.

Others will be forced to retire early and accept lesser money. Bigger companies might keep those older folks on the payroll but force younger workers to pick up the slack. That will breed resentment between the generations.

Either way, the whole system is messed up and folks are screwed.

As far as the idea of letting folks invest in their own system - well, in theory I like that idea. But, I think we all know the reality is that a lot of people either won't invest well or they will be taken in by scams and, guess what, they will scream the loudest and get politicians' attention and get bailed out anyway - costing even more than the current system.

Call me selfish - I don't care - but I want everything that I expected and let the whole country crash and burn.

However, I believe that I will be screwed some how or other - affirmative action has screwed me over too many times to believe my government will be fair about it. So I believe that they will find a way to screw me over while still paying others - like I have a retirement savings because I didn't overspend (no fancy cars or big screen TVs). And I no doubt will be forced to give up my Social Security benefits to pay for those who didn't save. They'll just call me sucker. Oh, and find some way to tax my own savings to further pay for the slackers in society.

First, they tell you to save for your own retirement. Then, they means test Social Security and you get less because you saved.

Government logic. Like telling car companies to build fuel-efficient cars and telling the public to drive less, then raising the gas tax because they're not getting as much money due to fuel-efficient cars and people driving less.

Sounds like California and the drought. We were told to reduce water usage and now they're raising our water rates because the water district is facing a shortfall in revenue.

Conan has it exactly right. The parallel is higher education. Mrs D went to work when the kids got older. "You have two incomes. You don't need aid." You run through calculations on the tax forms with some really big numbers, only to hit the "or the lesser of" line 487 or $200. Thanks a lot for wasting my time.

My plan is to keep working until I die, or beyond.

As far as the idea of letting folks invest in their own system - well, in theory I like that idea. But, I think we all know the reality is that a lot of people either won't invest well or they will be taken in by scams and, guess what, they will scream the loudest and get politicians' attention and get bailed out anyway - costing even more than the current system.

Not necessarily. You run it the same way companies run their 401K plans - with a set of directed investment plans depending upon one's goals (aggressive strategy to build value, low-risk/income strategy, etc.) - basically a set of mutual funds people can choose from, possibly with a self-directed investment option for those willing to choose their own investment vehicle. No Bernie Madoffs or mortgage portfolio schemes, just normally-accepted standard investment vehicles.

One advantage of this is the money invested by each individual in their plan becomes theirs and theirs alone. No government IOUs that don't earn interest, but a real growing fund that the person can monitor and feel connected to his own retirement planning (instead of a vague promise by a distant government to send him a check for an unknown amount each month when he reaches a certain age).

Another advantage is that it turns a bankrupt defined benefit fund into a defined contribution fund with the output based on money that's actually there.

If ordinary people can be trusted to direct their 401K accounts, why can't they be trusted to direct a portion of their Social Security funds?

+1 to Ben at December 31, 2015 6:57 AM

( insureblog.blogspot.com/2012/09/elephant-in-room.html )
Social Secrity funding: The elephant in the room
09/14/12 - InsureBlog by Bob Vineyard [edited]
=== ===
Well, there is a trust fund, but there isn't any money in it. Not real money. Only IOU's [a government promise to find the actual, consumable resources somewhere, somehow.] Those in denial say the federal government has never defaulted on their obligations so the IOU's are "secure".

Here is the truth. The accumulated debt is $16 trillion [18 T in 2015], roughly 100% of GDP. As if that isn't bad enough, you need to factor in our unfunded liability, the amount we owe for future obligations. Things like federal pensions, Social Security promises, and Medicare promises. The unfunded liability exceeds $100 trillion.
=== ===

There is nothing of value in the Social Security "trust fund" (or in any US government trust fund such as Medicare). There is only a politician's promise to find the money [real resources] somewhere that was paid in at one time, but has already been spent. The trust fund bonds are only a paper record of what was collected in taxes "in excess" of the immediate cash needs of Social Security. That amount "in excess" was put into the general Treasury and spent, leaving a bond behind to note the borrowing.

( easyopinions.blogspot dot com/2009/01/ponzi-schemes-like-social-security.html )
Ponzy Schemes Like Social Security

Social Security is a direct-pay program. Amounts collected this year are all paid out, either to recipients or to government programs. The Ponzi scheme is ending. From this time on [starting in 2010], more will be paid out than collected in cash from SSec payroll taxes. Only continued government borrowing can make up the shortfall. Or, the government will reduce benefits or inflate the currency. Seniors may get $100 in distributions, which may buy only what $50 buys today.

( xtranormal dot com/watch/11226537/?listid=18148621 )
Here is an XTraNormal video (2:12) which presents the facts about the Social Security Trust Fund bonds. (Don't be bothered by the name of the video, "Pharmacy tech qualification test".)

Summary: The trust fund bonds are obligations of the US government payable to the US government. They have no more value than a check which you write to yourself.

Amazingly, this is exactly like an insane person saving up for his children's college education. He puts $100 each Friday into his savings account. Each Monday he takes out that $100 and spends it on entertainment, but he carefully records what he owes to the "college fund".

When his kids are 18, he tells them that he saved $50,000 over the years, as shown on his "fund account paper" (the trust fund bonds). He only has to pay back what he took out, or borrow the money in the name of the children. Are they happy at that result?

This has been justified over the years with the bromide "we owe the money to ourselves, so why not spend it now?" OK. Now, in retirement, someone (the young?) will have to generate the real resources to pay for the seniors, if they can be forced to do this.

--- ---
The trust funds are already out of money, as there is no money in them. The scary news is that SSec is already spending more each year than it is taking in as SSec taxes. This requires that the government find the money somewhere, through higher taxes, borrowing, or asking the FedReserve to print it and produce inflation.

( www.washingtonpost dot com/wp-dyn/content/article/2010/08/09/AR2010080905559.html )
8/10/2010 - Allen Sloan
=== ===
[edited] From the introduction to the 2009 Social Security trustees report:

"Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public."

In other words, the trust fund is of no economic value.
=== ===

( www.ssa dot gov/oact/trsum/ )
A Summary Of The 2014 Annual Reports by the Social Security and Medicare Boards of Trustees
=== ===
Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010 and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The Trustees project that this annual cash-flow deficit will average about $77 billion between 2014 and 2018 before rising steeply as income growth slows.
=== ===

"Interest Income" is paid to the SSec trust fund as additional trust fund bonds, not as cash. There is no economic value to that interest income. "Non-Interest Income" is what is collected from payroll taxes. That is the only current economic input to the SSec system. The above says that the cash expenses of SSec are $77 B /year above taxes collected, and will be so for the indefinite future. That deficit has to be funded by increased other taxes or government borrowing.

The trust funds are a political veil. Their exact meaning is that they are a "pre-approved spending authority" granted by Congress. The Medicare and Social Security Trustees are currently empowered to redeem the Social Security trust bonds to the Treasury for cash as needed, without further action by Congress.

The veil is that all of this is entirely arbitrary and for show. The Treasury honors these redemptions by issuing more general debt, adding to the $18 trillion outstanding. Further, these welfare programs are entirely non-binding promises. They have the status of general government programs. Individuals have no individual claim on benefits. These programs can be expanded or cancelled at congressional whim.

I wouldn't worry about it - they'll just print the money.

Honestly, when the US Gov started borrowing money - straight off the printing press - from the Federal Reserve, after the financial crisis, I thought oh no way can this work. Every country that had ever tried to print its way out of its overspending had crashed and burned in hyperinflation - Zimbabwe, the Weimar Republic, etc. etc.

Preparing for the total catastrophic debasement of the dollar, I bought gold and silver - and have lost my shirt on it.

Because what I didn't realize was that this isn't a case where one irrelevant little country like the Weimar Republic was turning to the printing press during times of woe. This was the ENTIRE WORLD doing it. It's true you can't be the only country debasing your currency when no one else is. But when ALL countries are doing it? All you need to be is the cleanest dirty shirt in the laundry.

We are borrowing half of the money we spend every year, but I say why not borrow all of it? Why do U.S. citizens have to bother paying taxes at all? After umpteen many rounds of money-printing (which round of QE are we on now - I can't count that high?) the U.S. dollar is stronger than it was to begin with!

This, my friends, is the theory of relativity. No one in the world has stopped accepting paper currency in exchange for their labor, and when you go to the grocery store they won't accept anything other than currency, either. The United States doesn't have to become a shining beacon of fiscal responsibility - in fact it can do all the borrowing and spending it wants. Because most of the other countries in the world are doing far, FAR worse.

This situation could go on for years or even decades. When the old people need their Social Security checks, the money will be printed to meet that demand. Nobody's benefits will be cut, and your taxes won't even go up. Because what is the difference between $18T in debt and $100T in debt? Absolutely none, because neither of those amounts can EVER possibly be paid back. It isn't even expected. The Fed would rather lend us MORE money than admit the money they've already lent us is uncollectible, and besides, we're still a better risk than Japan.

If anything, look for the USA to debase the dollar further, because we can't export our stuff and our citizens can't get jobs if the dollar is too strong. It's not that things are great here, it's that you don't understand how much worse it is everywhere else.

I wouldn't worry about it - they'll just print the money.

Honestly, when the US Gov started borrowing money - straight off the printing press - from the Federal Reserve, after the financial crisis, I thought oh no way can this work. Every country that had ever tried to print its way out of its overspending had crashed and burned in hyperinflation - Zimbabwe, the Weimar Republic, etc. etc.

Preparing for the total catastrophic debasement of the dollar, I bought gold and silver - and have lost my shirt on it.

Because what I didn't realize was that this isn't a case where one irrelevant little country like the Weimar Republic was turning to the printing press during times of woe. This was the ENTIRE WORLD doing it. It's true you can't be the only country debasing your currency when no one else is. But when ALL countries are doing it? All you need to be is the cleanest dirty shirt in the laundry.

We are borrowing half of the money we spend every year, but I say why not borrow all of it? Why do U.S. citizens have to bother paying taxes at all? After umpteen many rounds of money-printing (which round of QE are we on now - I can't count that high?) the U.S. dollar is stronger than it was to begin with!

This, my friends, is the theory of relativity. No one in the world has stopped accepting paper currency in exchange for their labor, and when you go to the grocery store they won't accept anything other than currency, either. The United States doesn't have to become a shining beacon of fiscal responsibility - in fact it can do all the borrowing and spending it wants. Because most of the other countries in the world are doing far, FAR worse.

This situation could go on for years or even decades. When the old people need their Social Security checks, the money will be printed to meet that demand. Nobody's benefits will be cut, and your taxes won't even go up. Because what is the difference between $18T in debt and $100T in debt? Absolutely none, because neither of those amounts can EVER possibly be paid back. It isn't even expected. The Fed would rather lend us MORE money than admit the money they've already lent us is uncollectible, and besides, we're still a better risk than Japan.

If anything, look for the USA to debase the dollar further, because we can't export our stuff and our citizens can't get jobs if the dollar is too strong. It's not that things are great here, it's that you don't understand how much worse it is everywhere else.

In reverse order I guess,

Jo, yes the government has inflated the money supply. Yes, we do have inflation. And far in excess of the government's numbers. And yes, there are consequences. This is part of the reason the US economy isn't growing. Don't expect US GDP to grow at traditional rates until federal spending is brought more in line with revenues and the federal reserve returns to normal interest rates.

Conan, "By all means, let's have the government determine if you should get your own money back."

It never was your money. I know they lied. But guess what, it was never that hard to see through the lie.

"That money would be saved and accrue interest to get the system through those years in which the working population was not large enough to support the retired population."

Nope. Never happened. Any excess was immediately taken and spent elsewhere. This happened from day one. Yes, they said they would do that. Guess what, they lied. Once again, the lie was easy to see.

If it's gonna go dry in 13 years, they will hopefully repeal the payroll tax at that time.

BWAAAAHAHAHAHAHAHAAAA, that was a good one!

Happy New Year!

The "Trust Fund" is a fiction. It is a bunch of government bonds owned by an arm of the government.

It is like writing an IOU and sticking it in your own pocket. The dollar amount attached is utterly meaningless.

Anyone who refers to the "Trust Fund" is an idiot whose comments are not to be entertained.

Ah the ever recurring means testing. That will be an interesting decade long fight as to what is and is not counted.
Will ownership of primary home be a part of it? Had better be since it completely changes your living expenses. Living arrangements, medical bills, and family care make it a tangled web, which can change greatly one one slip on the ice. I look at the 3 eldest women of my family, living within 1 mile of each other, and wonder if any would make the cut or how one would tell.

It never was your money. I know they lied. But guess what, it was never that hard to see through the lie. ~ Posted by: Ben at December 31, 2015 7:33 PM

It was my money. It was taken out of my paycheck and promised to me when I retired. You can claim all you want that it is not my money and never was, that it is somehow "the government's money."

The income taken out of my paycheck to pay income taxes was my money as well.

You have to stop thinking of tax collections as the government's money, as if the government is somehow automatically entitled to a share of the proceeds of economic activity. It is and was the people's money. It's thinking like that that leads to apathy over government misuse of public funds.

Nope. Never happened. Any excess was immediately taken and spent elsewhere. This happened from day one. Yes, they said they would do that. Guess what, they lied. Once again, the lie was easy to see. ~ Posted by: Ben at December 31, 2015 7:33 PM

That's exactly the problem I was highlighting. Had the system been operated as originally designed, it might have remained solvent (perhaps a big "might"), but it was operated as a slush fund and robbed on a regular basis.

Reminds me of an old Doonesbury comic in which Uncle Duke is managing the Washington Redskins and has looted the retirement account, "But the pension fund was just sitting there."

Congress looks upon money as something that must be spent immediately to be useful. Money held for a rainy day is, in the collective mind of Congress, wasted today. No, the Social Security fund never had a chance.

Yes, the human body breaks down at 55, so you'd make exceptions for more physical jobs.

One thing you could do with Union jobs like teachers, etc, is instead of giving them an income of say, 80k a year (or whatever it is the job gets) after 20 years, is guaranteeing that income, that is, if they get a job, pay the difference between that and 80k. Right now a lot of people get jobs AND their retirement money, so end up making a bucket. If someone was earning, say, 60k, the government could pay the 20k difference, saving themselves 60k.

Conan and Ben, while you SEEM to be arguing, I'm actually agreeing with both of you.

Conan is making a judgment about the way things ought to be and he is absolutely right. I doubt Ben disagrees with him about the way things ought to be, but he's saying that isn't the way things are, and there isn't much we can do about it.

When someone says, 'This is the way things are,' they're not necessarily saying they advocate the current system or are happy with it.

Conan, about this: "You have to stop thinking of tax collections as the government's money, as if the government is somehow automatically entitled to a share of the proceeds of economic activity."

Look, I DON'T think it is the government's money! I'M the one who earned that money, but the government takes it away from me anyway. That's the way it is, yes, but obviously I don't agree that things should be that way.

What CAN I do about it, though? I can shake my tiny fists and shout at the sky, and then stop paying my taxes, but then I'd just wind up in jail or homeless, and that doesn't seem like a very effective strategy.

So with that in mind, I start sounding like Ben and just saying this is what we have to put up with, so stop expecting to get anything back from Social Security, consider it as GONE as the income taxes you were forced to pay, and start figuring out a way to survive without it in your old age.

I think we can do both. Maybe there is nothing we can do to change the corrupt system, and we should plan on taking care of ourselves without it. That seems wise either way. On the other hand, it doesn't hurt to try and figure out if there is a way to change it. Either way your ass is covered, and maybe you could find a way to change the system so it didn't suck. I just don't know what that is. Who could get elected by coming up with logical, problem-solving solutions and platforming on those? No one would vote for them. You have to promise them you can fart rainbows and poop gold. People just support whatever they think benefits themselves personally, in the immediate future, because most people aren't long-range thinkers.

NicoleK: "Yes, the human body breaks down at 55, so you'd make exceptions for more physical jobs."

Yea, but the problem is that is what happened in Greece.

They had just such a pension arrangement; those with more physically demanding jobs (such as construction workers) would be allowed to retire earlier than other workers.

But, then election politics came along to stink the whole thing up with some workers claiming, and the politicians caving in, that their job be considered "demanding" as well.

Folks like office cleaners, you know it is "hard work" pushing a broom around or it is hard to be bending over a wet mop. So, they were given early retirement too.

Even more learned how the game was being played and got their share; folks such as cashiers or hairdressers claimed that standing on your feet all day was "demanding" and they, too, were given the earlier retirement age.

And just how is Greece doing today?

Mind you, I'm not saying that all of Greece's finance problems are due to the greed of folks wanting to retire early; but, it certainly didn't help.

Any time you have a different set of standards people will find a way to manipulate the system as such a system seems unfair.

So, no, everyone should be treated the same. No different sets of standards for people.

Just as you should not be punished if you saved, nor be rewarded if you didn't; You should not rewarded if you held a more physically demanding job as you shouldn't be punished for an "easier" job. After all, if someone worked hard (e.g., did better in school instead of dropping out to dig ditches) to get that easier job why should they be punished for it?

Life ain't fair; but, that is no reason for the government to make it even more unfair.

"Had the system been operated as originally designed, it might have remained solvent "

1. On the very first day it was robbed. So unless it failed to operate as designed straight out of the gate it was always designed as a wealth transfer program (i.e. welfare). That it was sold dishonestly is immaterial.

2. It was never possible for social security to remain solvent. Flat not possible. All defined benefit systems are inherently unstable. There will always be economic situations where they go bankrupt.

3. As Jo says, social security monies are your's as much as military dollars are your and treasury department monies are yours. I still can't walk onto a base and drive off in a Humvee. Social security tax money is no different than any other tax money.

I keep pounding on 'what SS is' because this program was so fraudulently sold and so many people have so many lies about what it is and what it does. If you can't recognize what a thing is you can't deal with it intelligently. And our social security policy shows that.

I'm fine with making SS means tested. It won't solve the problem. But it will cut the support for SS quite a bit making real reform easier. It reveals that SS is a welfare program. People get very angry when you mention that today. Those angry voters need to get past their anger before anything constructive can be done.

I've mentioned a number of times the only real solution for SS is to make it defined contribution instead of defined benefit. I don't really care if you make accounts individual or not. And honestly I don't think there is the political support for individual accounts. SS does a lot of wealth transfer between people. Individual accounts stop that. So there is a large group of people who will oppose them.

There are other more realistic (in my opinion) paths for SS reform. Once you means test SS and publicly embrace it as a welfare program the expectation that contributions and benefits are related goes away. Then you could have a defined contribution program where everyone gets the same payout.

Look, I DON'T think it is the government's money! I'M the one who earned that money, but the government takes it away from me anyway. That's the way it is, yes, but obviously I don't agree that things should be that way.

Yes, but as long as you think of it or refer to it as "the government's money," you set yourself up for apathy or resignation about how the government spends it. Call it your money and pay attention to what the government does with it. And encourage that kind of thinking in others. It's the taxpayers' money, not "the government's."

We the taxpayers are $18 trillion in debt because we let the government go nuts spending "the government's money."

Time to change the way we think about government spending and "the government's money" - even if the seizure of it from us is inevitable.

On the very first day it was robbed. So unless it failed to operate as designed straight out of the gate it was always designed as a wealth transfer program (i.e. welfare). That it was sold dishonestly is immaterial.

Exactly, it never stood a chance. Despite the fact that it was originally designed to ride out the lean times, politicians came along and ruined it because they saw money just sitting there.

It was never possible for social security to remain solvent. Flat not possible. All defined benefit systems are inherently unstable. There will always be economic situations where they go bankrupt.

Flat would be fine. In days when there were more workers than retirees (i.e., Baby Boom workers supporting Greatest Generation and the post-WWII generation), money could have been set aside for the retirement of the Baby Boomers, but politicians lacked the will (and the intelligence) to figure out how things worked and save some funds. Money just sitting there is money not helping them get reelected.

I'm fine with making SS means tested. It won't solve the problem. But it will cut the support for SS quite a bit making real reform easier. It reveals that SS is a welfare program. People get very angry when you mention that today. Those angry voters need to get past their anger before anything constructive can be done.

You may be right about the need to destroy Social Security in order to save it (the question remains whether it should be saved). However, the solvency problem isn't going to be solved by means testing. The problem (as someone mentioned) is that it's a defined benefit system. Everyone get the same amount. the government takes the money in the system and divides it by the number of people needing benefits to determine payout. All means testing for eligibility will do is cut some folks who chipped into it out of it so more money can be spent on those who didn't save for retirement - and that number will grow as people discover there is free money in being foolish.

The problem is that we've convinced people that the government will take care of their retirement, so fewer and fewer people saved for theirs. And the lesson in means testing will be don't save for your retirement and you'll means test into a better payout.

Social Security needs to be a defined contribution system, as hard as that will be on the poor who can't by definition save much. That means tying the output to the input. Put in less and get less. Put in more and get more. Whether through individual accounts (which have the benefit of increasing government accountability to the individual contributor) or through some kind of contribution tracking won't matter in the end. Converting it to a defined contribution system will be what matters.

And, while we're at it, reform Medicare and the end-of-life calculations for benefits so Grandpa isn't being impoverished because Grandma had a stroke early in her retirement.

Keep in mind, too, that Social Security was originally intended as a supplement to retirement savings, not an old-age pension.

As I've implied before, whether one has children or not, one would do well to take a look back at the frugal lifestyles of many Victorian Americans - and imitate them, starting yesterday. Even if your kids are perfect, there are plenty of reasons why they just might die before you do, so you can't count on their support in your old age.

In historian David M. Tucker's 1991 book "The Decline of Thrift in America: Our Cultural Shift from Saving to Spending," he wrote that a popular plot in Victorian novels was for a spendthrift housewife to see the error of her ways, and all would live happily ever after.

IIRC, Tucker said that that trend more or less went into reverse when Henry Ford arrived on the scene. The last gasp of American frugality was in the 1950s.

In historian David M. Tucker's 1991 book "The Decline of Thrift in America: Our Cultural Shift from Saving to Spending," he wrote that a popular plot in Victorian novels was for a spendthrift housewife to see the error of her ways, and all would live happily ever after.

In Great Expectations Pip spends himself into penury and is rescued by his friend, who gets him a job.

Debt was a common thing in Victorian times. Failing to pay one's debts was, too. But it was looked upon as a failure of character and usually resulted in a prison sentence or exile to Australia.

Conan,

You can call a chair with some wires that hook to the electrical grid a bicycle. But it works much better as an electric chair. If SS couldn't survive a single day 'as designed', then maybe it wasn't designed for what you say it was.

You can call a chair with some wires that hook to the electrical grid a bicycle. But it works much better as an electric chair. If SS couldn't survive a single day 'as designed', then maybe it wasn't designed for what you say it was. ~ Posted by: Ben at January 2, 2016 12:26 PM

Possibly. But if you design something with two wheels and elongated seat that you call a bicycle and the builder removes the wheels and adds wires and a wide seat and still calls it a bicycle, it will work much better as a chair. Someone will then say you designed it wrong when they try to use it as a bicycle.

We don't know if Social Security could have stood the test of time, because almost from Day One it was bastardized. Politicians stole from its rainy day fund, companies and unions dropped or reduced pension plans since the government would take care of that now, the public relied on it to entirely fund retirement, and old folks banded together to get the politicians to increase the benefits and resisted any increase in the retirement age or restrictions on eligibility.

Social Security was never intended to be the entire retirement savings of a person. Nor was it intended to fund the continued life of survivors. It was a supplement to keep old folks from starving in the event of another economic downturn.

Not that I'm saying the original design was a great one. It was originally designed to exclude categories of work dominated by women and minorities - e.g., agricultural laborers, domestics, teachers, and nurses were not covered.

The Act was passed in 1935, the first money was collected and disbursed in 1937.

The Act was amended in 1939. Social Security had already collected $2 billion in only 2 years. The 1937 recession was blamed on the government collecting too much in taxes and denying needed money to the economy through lower spending (demand side economics were in vogue then). So, benefits were increased or expanded (including Aid to Dependent Children benefits) to get that money back into the economy.

In addition, the taxing provisions were moved from Title VII of the Act and added to the Internal Revenue code (as FICA). The Social Security Trust Fund was established to be managed by the Secretary of the Treasury. The SoT was authorized to invest the fund in marketable and non-marketable securities.

In the '50s and '60s, the excluded labor categories were added to the program. Medicaid and Medicare were added in 1965.

Amendments to the Act in the '70s tied cost of living increases to prices, not wages as had been the case before. Since, prior to the '70s, wages had generally increased ahead of prices, this was not considered a dangerous idea.

However, with the inflation of the '70s, prices grew faster and sooner than wages. FICA collections began falling behind the cost of the benefits being paid out.

A committee chaired by Alan Greenspan was empaneled to study the long-term viability of Social Security. The committee determined the program would be bankrupt by 1983 unless changes were made. Congress dallied until the last minute and finally made the recommended changes.

The 1983 amendment included a provision to exclude the Social Security Trust Fund from the unified budget (still not in effect today) and the withholding rate was increased. With the increased withholding, the Social Security system began to generate a surplus of funds, needed to cover the added retirement of the "baby boom" generation. Congress then "invested" this surplus into special series of non-marketable U.S. Treasury securities, backed by the full faith and credit of the U.S. government (these are the famous IOUs that are coming due soon).

So, SS did survive a single day as designed. In fact, it lurched drunkenly up to the '80s when the politicians took another look and said "besides the pension fund was just sitting there."

http://www.gocomics.com/doonesbury/1978/05/03

Conan,

The first SS beneficiary was Ida Fuller. She paid in a whopping $24.75 in taxes. Her first check back was $22.54, a 91% return. She died 35 years later and received around $23,000 in benefits. There is no way three years and a total contribution of $24.75 that money grew to match the $23,000 she got back. The very first beneficiary was a wealth transfer beneficiary. From day one SS was a wealth transfer program. As you describe things, the very first beneficiary broke it. So I guess it survived three years, until someone decided to use it.

http://www.crainswealth.com/article/20150129/WEALTH/301299999/the-story-of-the-first-social-security-beneficiary

The very first beneficiary was a wealth transfer beneficiary. From day one SS was a wealth transfer program. As you describe things, the very first beneficiary broke it.

Ida Fuller didn't break the system and there was no danger she and her generational cohort were going to break it.

The first payers were never going to pay in what they were going to get out. That was known. The system was designed around that fact. There were more workers vs. retirees then along with limited pool of eligible workers, so the system would quickly become solvent with more workers paying in than retirees drawing out. And the system could collect enough to carry it over through times when the ratio of workers to retirees eligible for benefits changed.

It didn't change for quite some time (remember a significant chunk of the working population was not made eligible until the '50s). The system was still taking in more than it was paying out.

Later, as the rolls of eligible retirees was expanded and the list of benefits was increased, the system started getting creaky.

Your linked article points out that the most dangerous thing in the Social Security system is the 1970s COLA adjustments that I mentioned in my post.

In the 1930s, Keynesian demand-side economics was in vogue. That school of thought said that money in the hands of consumers would drive the economy. So, interest rates, tax rates, and investment capital were ignored as drivers of economic activity. Increasing Social Security benefits by paying out more and depleting the system's first reserves was seen as the way to get more money in consumers' hands and spur a hoped-for recovery from the 1937 recession into which, ironically, demand-side economics had put us. That kind of thinking continued with subsequent laws and policies regarding Social Security for the next several decades.

The 1939 raid was the beginning of a series of robberies that threatened the solvency of Social Security. The COLA adjustments in the 1970s were the straw that almost broke the camel's back. "Investing" the surplus that started building with the 1983 reforms in the special series of non-marketable U.S. Treasury securities, backed by the full faith and credit of the U.S. government were what finally did break the camel's back. The system was generating a surplus and was on its way to being able to cover the Baby Boom's retirement. Then the government "invested" the surplus of Social Security funds in IOUs which could only be paid back with another surplus of Social Security funds, a surplus that the smaller working population of the 1990s and beyond simply could not generate.

The real damage the 1939 reforms did was dumping the Social Security money into the general fund. FICA continued to take in enough funds until the 1972 reforms sped the pace and size of payouts with no regard for incoming funds.

So, no, Ida Fuller did not break the system despite the wealth transfer the Social Security represented for her generational cohort.

We are currently $18 trillion in debt and facing the largest retirement population we've ever had. And we're doing it with a looted pension fund, high unemployment, the lowest portion of the population working, and the largest existing population of government dependents that we've ever had.

We'll have to cut benefits and means test just to survive. And the irony is that the generation that's retiring and demanding full payment of its funds is the one that looted the pension fund to begin with.

But she did highlight SS always was a wealth transfer system. It was always dependent on younger workers to pay for beneficiaries. The COLA and disability are mere extensions on what the system always was. Even without those changes the system would still go bankrupt as the number of workers vs. retirees changed. You only moved the date of default forward a bit.

Back in Ida's day you had ~40 workers per beneficiary. Today you have a little under 3 and still dropping. All the savings in the world wouldn't make a difference.

I do agree the baby boomers did their best to loot the fund. So I have no issue not paying them what they promised to themselves. Any of them who were half aware knew those payments couldn't be made. Those who weren't aware didn't want to know.

To put this another way, SS has always been a wealth transfer program. Currently there are 2.8 workers per beneficiary. The current SS tax is 12.4% of wages. The media worker income is about $40k. So the payout should be ~$14k/year. Current median payout is ~$16k/year. Things have to drop by $2k.

To look at the future by a bit, by 2035 the social security administration expects the number of workers per beneficiary to drop to 2.1. Maximum median payout drops to ~$10k/year.