You are viewing an archive of a previous version of etfguide.com. Click here to browse current articles or return to the main site.

Social Security: Celebrating 75 Years of Mismanagement

Social Security: Celebrating 75 Years of Mismanagement
By Ron DeLegge
August 18, 2010

SAN DIEGO (ETFguide.com) – It was a joyful occasion on the House Steps of the Capitol on July 28, 2010 as elected politicians celebrated the 75-year anniversary of Social Security.


House Speaker Nancy Pelosi concluded her speech saying:

“So again, I thank my colleagues for their participation in this. I thank them for what they have done, what they are going to be doing as we go into August so that we can say, as we say happy birthday to Social Security, we will say may we wish you many, many generations to come. Thank you all very much.”

Interestingly, there was no mention at the party of another important milestone achieved this year by Social Security: It now pays out more in benefits than it receives in payroll taxes. How could they miss such a major detail?! Not that it matters, but this dangerous threshold wasn’t supposed to be reached until around 2016, according the Congressional Budget Office.

What’s wrong with them? What’s wrong with Social Security?

Built on a Very Strong and Solid Sand Foundation
President Franklin D. Roosevelt signed the Social Security Act into law on August 14, 1935. The general idea was to offer temporary financial assistance to the aged, disabled and unemployed. Social Security payments were to be funded through payroll taxes called Federal Insurance Contributions Act (FICA). In terms of dollars paid in, Social Security is now the largest government program in the world and the single greatest expenditure in the federal budget.

Despite being the magnificent apparatus that it is, Social Security is being sucked dry. Today, payments being drawn from the system have dramatically increased because destitute people are applying for benefits sooner than they had planned. Furthermore, the program’s revenue has sharply dropped because there are fewer paychecks to tax. Nationwide unemployment near 20% has exacerbated the problem.

Meanwhile, the collapse of 401(k)’s and other retirement plans linked to the stock market during the 2008-09 financial crisis thrust Social Security into a role it was never intended for: As a primary and permanent retirement income vehicle for millions of Americans to rely on.

Fixing a Jalopy
The earliest age at which reduced Social Security retirement benefits are payable is age 62. Thereafter the normal retirement age to collect full benefits increases and depends upon when you were born.

Perhaps, one good solution to fixing the Social Jalopy System is to raise the eligibility requirement to unachievable age limits. What if 85 became the new 62? Don’t laugh. Referring to possible solutions for refurbishing Social Security, Senator Lindsey Graham (R-SC) said, “No idea is off the table.”

Analysts, in their infinite wisdom, have tried (unsuccessfully) to estimate when the Social Security “trust fund” will officially run out of money. Doomsayer’s projections already show Social Security is insolvent while frolicking pacifists argue the “trust fund” is healthy until 2080. You’re cordially invited to believe whomever you wish. Also, believe and know that the current state of Social Security is a short-fused time bomb ready to blow.

Complicating this conundrum is that the government keeps spending payroll taxes earmarked for Social benefits on things not related to Social Security.

Privatizing Social Security
Now to the part of Social Security Theatre that captivates us most – privatization!

According to the plan, workers would be allowed to divert a strict percentage of their money into private investment accounts. At various times within our recent past, it’s been irrevocably proven most workers have no clue how to invest their money and those that think they know don’t really know that they don’t know. And that’s where Wall Street comes to the rescue (or for the kill) depending upon your own uniquely deranged perspective.

In short, privatization would shift the responsibility of managing Social Security money away from the government who knows nothing about managing money to Wall Street who knows nothing about managing money.

As one might guess, talk of privatizing part of Social Security has put Wall Street’s largest money managers in an erotic-like frenzy. Just imagine how already fat profit margins would look if the U.S. government cuts loose trillions of dollars for them to mishandle. Fund executives and portfolio managers could then upgrade their aging Ferraris for something more refined like a Maybach or Buggati. (In case you didn’t know, Ferraris went out of style in the mid-1980s when television producers replaced Tom Selleck’s Magnum P.I. with Knight Rider.)

In President Roosevelt’s world, “privatization” wasn’t even a word.

Conclusion
Life before Social Security was so much easier. Employees had larger payroll checks. Employers didn’t have to fuss with inept accounting software to calculate FICA formulas. And financial subcommittees didn’t have to devise half-hearted schemes to make everything look fine.

The Social Security experiment never looked so insecure and disruptive as it does now. A younger generation of Americans is being forced to shoulder the financial burdens of older generations. Where’s the financial security in that?

Before the invention of Social Security, individuals were responsible for their own retirement income - not the government and not taxpayers. Guess what? After Social Security crashes and burns, individuals will be responsible for their own retirement income, not the government and not taxpayers.

The more things change, the more they stay the same.  

CommentsAdd Comment

suspicious22 said on August 25, 2010
  George, no doubt, social security HAS BEEN good (past tense) for those privileged to draw from it. The deficit is too massive to be filled, especially with the current balance sheet. There are too many retirees taking and not enough workers giving. SS under current circumstances can't survive. If private pension funds have problems, SS surely will do. One more thought, if SS is so great, why does Congress have their own retirement system (and healthcare)? Because they know what the average citizen gets blows.
 
 
George said on August 24, 2010
  OK, Ron, I will take you at your word. I don't want to drag this on any longer, so hopefully this will be my last comment. But I must point out in closing that most of the "fuzzy math" I have seen has come from those making outlandish claims about Social Security.

I will leave it there. I can tell you are philosophically opposed to it and that's fine. But I still maintain Social Security has improved the lives of millions of good American citizens who worked hard and played fair all their lives. I think that's a good thing and I've seen nothing that indicates the system cannot on go on working well with only minor tweaks for a long time to come.

Thanks for the discussion and regards!
 
 
Ron said on August 24, 2010
  Hey George,

Disagreement about Social Security's cloudy future as an operating concern is not a political statement against the government, the people who collect it or any political party.

For the record, ETFguide.com is a politically neutral publication. Hopefully you understand that.

That said, we ARE NOT mathematically neutral and when we SEE fuzzy math, we'll point it out.

I appreciate your passion for this topic but please don't mistake us for being anti-government types or those with a political agenda, because we have none. Thanks again.
 
 
George said on August 23, 2010
  Well, Ron, I'm sure you've read the columns and articles by another Nobel prize winning economist, Paul Krugman, so I won't repeat them here.

And the idea that the Social Security system is a pyramid scheme is ludicrous. Please! Sure my children will help rebuild the funds in the SS system as they labor, just as I did for my parents, and after them their children. Every one pays in - invests - and gets their pension when due.
The baby boomer bulge will cause a temporary shortfall -- that's t e m p o r a r y - get it? As I said and as many others have documented well, only very minor adjustments are needed to cover even that minor blip.

And should our economy boom again (as it will) the coffers will rapidly fill up and we'll have a surplus again and all will be well.

It is the people determined to destroy this program and their misleading propoganda that are the only real threat to social Security. Don't be part of that.

Why does everyone hate our Government these days? Politicians, I get, but the Government is us. It is, essentially, what makes this country great. I just don't get it.

At any rate, thanks for the comemtns and I fervently hope things work out much better than you fear!
 
 
Ron said on August 23, 2010
  Hi George,

I'm a sap for a good passionate argument and while I take no offense at your wine/park bench criticism, it does little to solidify the view that Social Security -- as it's currently being handled, administered, etc. -- is sustainable.

One individual's retirement "security" is coming at the cost of another's.

The fact that more people are drawing and draining the Social Security system is good for them personally, but BAD for a massive base of younger workers whose financial contributions to the system will only grow.

Here's another little known fact: Social Security is a government-sponsored Madoff Scheme. Even Nobel Prize winning economists like Paul Samuelson acknowledged this faulty characteristic. Like all belatedly discovered Pyramid investment scams people get burned. A positive outcome SIMPLY isn't possible. Why? Because financial perversion always leads to perverted results. Put another way, "What a man sows is what he reaps."
 
 
George said on August 22, 2010
  Hey Ron - sorry about that last sentence in my previous comment. Obviously, I strongly disagree with your article, but that was uncalled for. My apologies.
 
 
George said on August 22, 2010
  Ron, lighten up and get real. The Social security system is a long, long way from crashing and burning as you should know. Millions of Americans lead better lives in their retirement years because of this system. Before it was created, millions suffered and died in poverty.

Only relatively small adjustments are needed. All the doom and gloom predictions are bunk -- mostly political fear mongering.

I'm very disappointed to see crap such as this on the ETFguide site. Your readers deserve better. Grab your wine bottle and go stand on a bench in a park somewhere and scream at passersby -- a venue better suited to you, I think.
 
 
Nono said on August 19, 2010
  "... government who knows nothing about managing money to Wall Street who knows nothing about managing money."

But AIG, Lehmann Brothers know/ knew ;-)
 
 
EVA said on August 19, 2010
  Social Security like all entitlement programs is a sham. Did you hear me? A SHAM! It's the systematic unfair and unwanted process of re-distributing the American public's wealth to places is doesn't belong.
 
 
Grandpa said on August 18, 2010
  Here's another way of understanding what's going on with Social Insecurity right now:

Papa and mama took care of son and daughter for the first 25-30 years of their life. Now it's time for son and daughter to take care papa and mama for the final 25-30 years of their life. The only problem is, population-wise, there's a lot more papas and mamas compared to sons and daughters.

And that's one major contributing factor to why Social Security is going broke. The sons and daughters being taxed are handedly outnumbered by the pappas and mamas on the receiving end. It's elementary, my dear Watson!
 
 
Next page

Comment:
Your Name:
Your Email: (Email will not be displayed anywhere)
Verification Code: