Wednesday, February 17, 2010

Social Security

Paul Ryan, a Congressman from Wisconsin, has been making a few waves with his recently released "Roadmap for America," which presents his suggestions for making our government solvent in the long term. One segment of this roadmap involves Social Security: Ryan proposes to provide the option for investing in personal savings accounts, and also phases out some benefits for people under age 55.

Some people are not too pleased with this idea:
His Roadmap would achieve a goal that conservative opponents of Social Security have cherished for decades: killing the program by undermining its broad base of popular support. It would sap Social Security's resources, increase its complexity and hammer a wedge between the currently retired or near-retired (who would be guaranteed their current statutory benefits) and younger workers and the future workforce (who would be increasingly on their own). The term for this is "divide and conquer."
The author doesn't mention that Social Security is incredibly unsustainable as it is. In fact, he says
Its "fragile condition"? Social Security runs an annual surplus and has done so since 1983; no other government program can make that claim.

By the way, even when the program starts paying out more in benefits than it collects in payroll tax, that's not a "crisis."
In 2009, Social Security spending totaled nearly $700 billion, about 20% of all federal spending. The Congressional Budget Office states that
Even if other major categories of federal spending remained fixed as a share of GDP, the growth of those programs would push total federal spending well above the level that it has been throughout much of the post-World War II period. Left unchecked, such spending could cause major deficits to emerge, propelling the government's debt and interest expenditures to unprecedented levels.
The number of people in America between the ages of 65 and 75 will roughly double over the next twenty years, but the number of people paying SS taxes will not increase at the same rate. One doesn't need to be an actuary to recognize that something is amiss here. If nothing substantial is done to deal with this problem, eventually SS will have to be cut dramatically, leaving many people in a lurch come retirement. This is evidenced by the article's author (although his point is different than mine):
Social Security's value to the average American isn't "shrinking" -- it's expanding. In 1962, it accounted for 30% of the income of Americans aged 65 and older; in 2007 that figure was 36%. (These numbers come from the Social Security Administration.) Given what's happened to most families' financial assets since 2007, the percentage probably is even higher today.
This is not a good thing. As people become more and more dependent on this government program, they will prepare less themselves. And when the day of reckoning arrives, they probably won't be very happy.


Mom said...

There was another story on this morning's news about underfunded government pensions. Apparently, Illinois is the worst in the country at this. It made me wonder, before I read what you wrote, if things would have been better for everybody if pensions for workers hadn't been invented. Then the money invested in all the pensions and even in SS could have been kept in the form of more money in our paychecks and saved by individuals like I guess it was in the olden days, when people must have funded their own retirements. People would have had the expectation that they needed to save for their own retirements. It seems like that would have worked out to be cheaper for everybody. Were pensions and SS invented because people don't have the sense to save on their own? Plus, are actuaries going to be blamed for the underfunded pension mess?!

Alberta said...

The people who think they can live on their SS are going to be sadly mistaken. I don't know if I could even exist, if my whole income was SS. I think there needs to me so much more in money education, especially that saving is necessary. But then, I am just an old frugal soul.