Social Security Is Reverse Insurance...
...Leaving less for the future.
Insurance is sort of like saving for a rainy day. Social security is spending all the money that millennials and all the late-alphabet-letter generations put into the kitty now (and way beyond that).
When today's millennials and late alphabetters turn 65 and it gets rainy, well, they'd better hope they can find a semi-intact plastic grocery store bag from the trash to hold over their heads.
Oh...wait...we banned those plastic bags.
Getting back to the Social Security thing, at FEE, Gary M. Galles explains:
In a sense, Social Security does act as a form of mandatory old-age insurance for participants. However, rather than paying off with earnings from investments, as with private insurance, its taxes provide only promised future government benefits (though the Supreme Court long ago ruled in favor of the government's claim that it did not need to provide the benefits promised).However, for Social Security to really be insurance, a group's "premiums" would have to finance the benefits they receive. But that has not even remotely been true of Social Security. Older generations got far more in benefits than they paid. They may believe they deserve a massively subsidized deal (especially when it is falsely presented as if early recipients actually paid all the costs of their benefits), but that deal is dramatically unfair to younger generations forced to pick up the multi-trillion dollar bill to make good on program promises.
And this is where a key distinction must be noted. In real insurance, people pay more now so that they will have more assets in their future. But Social Security has transferred money in the opposite direction--giving more money to those currently older at the expense of subsequent generations. From society's perspective, then, Social Security acts as reverse insurance, leaving less for the future.
Here's the problem:
The attempt to make good on the unfunded commitments of this massive income redistribution to earlier beneficiaries is the source of Social Security's current financial problems, as well as why there is no fair way out of them--there is no way to make good on its over-promises but by being unfair to someone.Social Security's reverse insurance accumulation of negative balances is also used to oppose any attempt to shift toward private retirement mechanisms. Under private insurance, current workers finance their own retirement benefits--and only their benefits. But if those younger could access such options to escape having Social Security's huge unfunded liabilities imposed on them, someone else would necessarily be left holding the bag. So politicians instead pander to seniors--who are much more likely to be politically engaged and vote than the young--by demonizing any such move as threatening the status quo even though the status quo is unsustainable anyway.
Your suggestion for a solution?
By the way, in a Heritage Foundation paper, Kevin Dayaratna, Rachel Greszler and Patrick Tyrrell write:
Americans would be better off keeping their payroll tax contributions and saving them in private retirement accounts than having to contribute to the government's broken Social Security system.Foregone benefits vary across generations.
For average-earner males in Florida (a median-income state), lost investment earnings equal over $600,000 for those born in 1955; over $700,000 for those born in 1975; and over $1.1 million for those born in 1995. For average-earner females living in Florida, Social Security will provide over $190,000 less in lifetime income than personal savings for those born in 1955; over $230,000 less for those born in 1975; and over $420,000 less for those born in 1995.
We're from the government and we're here to give all that money you're making as a barista to somebody's wealthy granny, under the auspices of what was supposed to be an anti-poverty program. And then when you're old and this government Ponzi scheme has long since run out of money...hah, hah...joke's on you!
Simple. The system is going to fail before any reform is possible. Until then, the government will gin up the inflation engine to escape it’s debts, the deficit, and the social security mess.
The Democratic Party, and to a lesser extent, the GOPE is in the pocket of the AARP. No other outcome is possible. Through SSI disability, it has really become just another welfare program, and as I understand it, payments were shifted to SSI disability benefits to evade welfare restrictions.
Isab at May 16, 2019 8:05 AM
Not necessarily. IN the 2020 election, Millennials (Gen-Y) will make up 27% of the electorate and Boomers will make up 28%. Grandpa and Grandma won't have the political pull they're used to having. AARP membership pretty much tops out with early Gen-Xers these days and Gen-X has no political pull whatsoever, being heavily outnumbered by cohorts on both ends.
As long as the Millennials (Gen-Y) are confident of having enough savings for their own retirement and don't mind throwing Grandma to the wolves, SSI may be in danger of being voted out. Gen-Z is just now starting to voting in substantial numbers. It's a smaller cohort and young voters don't tend to be engaged about retirement issues, so they won't save Social Security from angry Millennials; more likely to join them in savaging the Boomer generation and blaming it for all of today's problems.
Conan the Grammarian at May 16, 2019 9:08 AM
Social security is scheme to take from young men and give to old white and Asian women. A white male, born in 1950, had a life expectancy of 67 or two years of retirement. A white woman, born in 1950, had a life expectancy of 72 or 7 years of retirement.
An average women woman collected social security for more than three times as long as a man. The average black man did not even make it to retirement.
Curtis at May 16, 2019 9:37 AM
Social security is and always has been welfare. The easy solution is to reduce payments to match income. 80% of current promises is roughly doable today. As for those complaining about 'my money', it is not and never was your money. The supreme court ruled on that long ago and shows no sign of changing that decision.
As for the Heritage Foundation's solution, they are pretty wrong. They make the assumption that people would actually save that money. If that had ever been true social security wouldn't have become law in the first place. Instead the majority will just spend what money they have and move in with their kids when they run out.
Ben at May 16, 2019 10:37 AM
Not necessarily. IN the 2020 election, Millennials (Gen-Y) will make up 27% of the electorate and Boomers will make up 28%. Grandpa and Grandma won't have the political pull they're used to having. AARP membership pretty much tops out with early Gen-Xers these days and Gen-X has no political pull whatsoever, being heavily outnumbered by cohorts on both ends.
You are missing a couple of facts. Millinials aren’t organized like the AARP and tend not to vote.
Secondly the Democratic Party for reasons of its own, (namely that SSI disability is a substantial part of its giant vote buying apparatus) will fight any change in social security (other than confiscating it from the middle class through taxation) tooth and nail.
Isab at May 16, 2019 10:38 AM
Just as with murder, the only solution is a forward looking one -- to prevent it happening in the future. This requires constitutional change, probably by way of a Convention of States. (Yes, that's risky, but history has shown what happens if deficit spending is allowed to continue until the process runs away. See Weimar Germany in 1923 and what came after it.)
In the meantime, those who can need to provide for our own futures by having large families, so that our children can directly support us as they did before Social Security was invented in the 1870s.
jdgalt at May 16, 2019 11:08 AM
I am no actuary, but using a compound interest calculator shows that, in my case at least, over a work life of 50 years the value of my social security contributions would be less than the value of an investment account with respect to generating income.
So, in my case, since I was forced to pay into SS instead of an account earning compounded interest, the idea that I will be "ripping off" the younger generation and getting something for nothing is nonsense.
Could we have stumbled upon a reason why both the left and right seem determined not to reduce the number of immigrants, legal or not, coming to join the party?
Finally, as noted above, our federal government exists mostly to transfer taxes paid by men to women. The average man pays the average woman hundred of thousands of dollars over the course of their lifetimes by means of this enforced redistribution scheme. And that's just at the federal level.
It would be nice if men got just a little credit and respect from women, instead of the constant feminist bitching. But when the U.S. government is your provider, why respect the wage slaves who make it all possible?
Jay R at May 16, 2019 12:32 PM
That you paid for someone else is irrelevant Jay R. Any money you would get from Social Security will come from current taxes from those younger than you.
Ben at May 16, 2019 3:15 PM
I think the best way we could possibly get out of the situation (as measured by cost and probability of actually happening) would be if we did something along these lines (ages tossed in for illustration, not based on any actual analysis)...
1.) we terminated program ENTRANCE (say, people under the age of 10)
2.) we had a set of folks who would get to choose to be in or out (say, from 10 - 22)
3.) keep it mandatory for those older
AND a) the government has to fund it at CURRENT levels for those up to a certain age (say, 40) - no inflation indexing from now forward, but your benefits are computed the same otherwise
AND b) the government has to fund it AS IT CURRENTLY EXISTS for those older.
It is cruel to pull the rug out on those with little time to adjust to changes, but it is also cruel to expect people to pay for others.
For what it's worth, I would be stuck in 3a - which I also feel gets the worst of it.
Anon at May 16, 2019 9:26 PM
3b doesn't sound too bad when I run the numbers Anon. If annual payments were limited to the previous year's revenue the plan becomes inherently stable. At this time you are looking at 70%-80% of what was previously promised. At the population changes that will go up and down, so people will have to account for that. But moving to a defined contribution plan instead of a defined benefit plan moves you from something guaranteed to fall apart into an inherently stable system. At which point we would just be dickering about how much we really wanted to contribute.
Ben at May 17, 2019 8:10 AM
Anon, I would add one more provision: starting immediately, prohibit all transfers of funds from the Social Security account to other government accounts. Unfortunately, it would take a Constitutional amendment to make this effective.
And yeah, I'd be a 3a also. I'm actually not sure these measures would save the situation at this point. The problem is that the tail end of the Baby Boom generation is now reaching retirement age. That's a big pool of high-revenue FICA-payers leaving, being replaced by a much smaller pool from GenX. So revenue is going to drop, and I'm not sure that revenue enhancement measures that actually stand a chance of passing will be effective at stabilizing the situation. Eventually, payouts will start to drop as the last of the Boomers die off, but that won't be complete until around 2040, and the fund will likely be bankrupt by then no matter what anyone tries to do. (And note that in any event, the decline in payouts is only temporary; the first of the Millennials will start retiring around 2055.)
Cousin Dave at May 17, 2019 9:38 AM
The social security fund has no money Cousin Dave. It 'went bankrupt' on day one. By any standard accounting method there have been zero assets ever since the program first started. If you are looking for when social security's costs exceeded revenue, that happened back in 2010. For the last eight years payments have had to be supported with debt. It is projected that medicare will have legal issues in 2026. It will be 'insolvent' in the legal sense. Social security is supposed to join it around 2034. But that is a very legalese term in this context. It doesn't mean what most people would think it means.
Ben at May 17, 2019 7:52 PM
Leave a comment