"Social Security," the ultimate ripoff pyramid scheme
The supposed system of "Social Security" may constitute the biggest financial scam in human history - the biggest pyramid scheme ripoff ever. The very name of the program has an Orwellian tinge- meaning really exactly the opposite of what it implies, as this socialist program has done great damage to the actual financial security of our retirees.
Let's consider what retirement funds should look like, how Social Security actually works, it's history, outlook for the future, a better solution, and then some ideas on how to get from here to there.
WHAT RETIREMENT FUNDS SHOULD LOOK LIKE
Really, it's fairly simple. You take a part of your income each week and put it away. Without getting overly risky, you would expect to put it in bonds or basic mutual funds in the stock market, where the risk is spread across many companies in the mutual funds portfolio. Even if there's a dip in the market for a year or two (as has been the case recently), the market is always up over a period of years, and business goes on. That's because you're investing in the productivity of the whole economy and all the people in the companies in which you invest, who are being held to account in the market. You still own a piece of Halliburton or GE, even if the current cash value goes down for a minute or two.
Anyway, if the average factory or office worker put away the tenth part of their income in common low risk investments for 40+ years, they would have most of a million dollars built up. It's not voodoo economics or wishful thinking, just the basic logic of compound interest. Your savings becomes the backbone of the whole economy, providing basic seed money for building homes and businesses- and thus you get a cut of the harvest.
That's YOURS. You wouldn't be needing a Medicare drug benefit that the federal government has no way to pay for, or depend on hoping that Congress can raise money for you. It's yours by right, because you EARNED it. You've got money to live on, and money to pass on to your heirs.
HOW SOCIAL SECURITY ACTUALLY "WORKS"
The federal government managed to turn the simplest thing in the world into a huge, bankrupt unworkable disaster getting ready to happen. They've taken people's money for all their lives, and just blown it. They've turned hardworking retirees into welfare rats depending on Congress to take their money out of young people's hides.
Social Security FICA tax takes about 15% off the top of the average person's paycheck. That's half from you, and half from your employer- which is money they have to figure as wages to you.
Out of that, they pay skimpy benefits to current retirees, maybe as much as $1,000 a month. That's sure not much to live on, and not the half or even third of what you'd have if you had simply kept your money in the first place. Plus, you have no account to pass on when you die.
Social Security pays this pittance to current retirees, then they take every leftover penny and spend it - right now. There's no "lock box" as Al Gore talked about in 2000. There is NO Social Security trust fund. That $500 you paid last month in FICA taxes? Gone.
What do they do with it? It doesn't much matter. The feds might as well be buying crack rocks with your money and smoking them, cause the money is just as gone as if they had.
This leaves old folks dependent from month to month on the ability of the government to extract money from people working now, begging Congress for sustenance like welfare rats- despite having paid into the system all their lives. You may have been paying, but that money was not invested or even just saved under the mattress, and they only way YOU get anything is by the favor of Congress.
That favor of Congress also extends to SSI disability benefits, which add a big bunch of straight up welfare to the already untenable economic structure of Social Security. Blind and lame and mentally challenged or simply emotionally unstable citizens draw tends of billions of dollars from the till. This obviously does not help the economic viability of the system.
Note also that Congress does not HAVE to give you anything. A legitimate retirement fund is yours, and you have every right to cash in your accounts and get exactly what they're worth. Legally, though, Congress has no obligation to pay any particular amount of Social Security benefits.
Which is convenient, because soon they won't be able to. This is because the system has been run all along like a scam pyramid scheme. A classic financial pyramid scheme plays on a few people at the beginning of a setup making out good by taking the money from an exponentially increasing bunch of people under them. But as more and more people come in to the bottom, eventually there's no one left to recruit, and a bunch of people are left broke, having lost their money in schemes that had no inherent financial viability.
Likewise Social Security. Rather than safeguarding and investing your money, it's been turned over to the government and squandered. It's not accumulating interest and earnings. It's been smoked up like a crack rock. It's only worked as well as it has because of increasing populations coming up behind to pay. The boomers and Gen Xers are getting ready to find themselves holding the empty bag.
HISTORY OF SOCIAL SECURITY
When the Social Security scheme was started by Franklin Roosevelt in 1935, there were approximately 15 working people paying in for every one current retiree receiving benefits. It didn't take much to make it work with those kinds of numbers, and the modest amount given out in benefits.
Numbers were highly favorable, and continued on a favorable path because of the post World War II baby boom, which brought in yet more people to pay another generation of retiree benefits. That many people paying in, and with only modest benefits coming out the other end, the FICA taxes have generated far more money than has been paid out in benefits- even without the benefit of investment income and interest. We're somewhere near the top of that cycle now, with the baby boomers entering their late-career earnings peak.
We're getting ready to get slammed, though, and hard. This financial house of cards is ready to crumble. Social Security has unfunded liabilities for current and future retirees somewhere in the multiple TENS OF TRILLIONS of dollars - and not one red cent put away to pay any of it. Best current estimate I've seen suggests more than $26 trillion in Social Security liabilities alone, besides Medicare and Medicaid, etc.
Somewhere within about 12 - 15 years the FICA taxes coming in will be less month to month than the checks going out, the Social Security checks will start bouncing, and all hell's going to break loose. The federal government has been heavily subsidized for decades by simply writing IOUs to the supposed trust fund, and just spending the Social Security money - hundreds of billions of dollars every year. Before long, the incoming money not only won't provide hundreds of billions of dollars a year to subsidize the rest of the budget, but it won't even pay for current retirees.
When the baby boomers start retiring in mass over the next 20 years, we're going to get down to only about TWO people paying in for each retiree. How is that going to work, with no money saved?
No private company could get away with this. Enron nor WorldCom never mishandled investors money this grotesquely. Executives of these companies are quite properly being sent to prison for financial abuses not the tenth part as bad as Social Security.
By rights, every damned member of Congress -Republican and Democrat- should be doing a perp walk in front of the cameras on their way to penitentiaries for the financial fraud of Social Security - let alone anything else they're doing. Of course this won't happen, cause they're the ones making the laws. Besides, they're just doing it for The Children, or some such foolishness.
THE CURRENT SYSTEM, BEST CASE
Best case for the current system would be that Congress cuts benefits even below the already inadequate returns, raises the retirement age to squeeze a few more years of work and payments from the boomers, raise the crap out of the already exorbitant taxes- and pray for luck to limp the system by.
THE CURRENT SYSTEM, WORST CASE
If nothing is done to fix this mess, we're just going to have a train wreck. Congressmen can promise you anything, but if the money's not there, they can't give it out. Congress will just have to say, "Sorry, those other guys before us just screwed you. There's no money." Then they shrug their shoulders. Sorry about your bad luck. And you won't be able to just vote it away.
Something not far from that bad is not entirely unlikely, because reality is tough. You can't get blood from a turnip, and how are just two people going to cough up your thousand bucks a month- and pay their own bills and for the whole government besides?
SO WHAT THE HECK DO WE DO?
Right now, we've got just a few years where we can change course and head this big ship in a better direction. Any way we do it, people are going to get screwed. The quicker we start moving to a more viable model, the less bad the screwing.
The boomers are still working and paying in. If we let people start putting their supposed retirement money into their own accounts, there will be something there, and something to start earning some interest and dividends.
Exactly how to approach this gets complicated, and the parameters we're working in get more narrow and less appealing the longer we wait.
One simple way to start extracting us would be a cut-off that anyone under a fairly young age, say 25 or 30 be required to put away the 15% in their own private accounts. This should be an optional opt-out for older people. Obviously people who are near retirement age would prefer to keep what they've been promised, and there's some calculations for people in between as to what to do.
Even someone as old as 50 might would be better to cut their losses, figuring that keeping that 15% for their last 15 years in the workforce would give them at least that much real savings that will actually be there. Also, we could offer buyouts with private annuities to make those opt outs more attractive. Such things can be gotten relatively cheap, especially for younger people where the investors get more time to work with their lump payoff from today to make the money to pay the future annuities.
All of this is expensive (all the more reason to eliminate other unconstitutional programs such as the Department of Education and agricultural subsidies), but there's going to be a price for fixing this mess one way or another, and the sooner we start doing it, the cheaper it'll be and the sooner the old folks get the REAL security they deserve.
Then the younger people get to keep their own retirement money, investing it and not having it subject to governmental whim. If they take the same 15% out that has been taken in FICA, in the first place they will actually have something solid to show - not just empty government promises. Not only that, but they'll end up with at least several times what they would get from Social Security, even if they managed to actually pay as promised.
There's one main obvious legitimate objection to purely privatizing Social Security: Some people simply won't save. Then they get old, and we have to take care of them or let them starve in the streets- which we obviously aren't going to do.
To that end, it might be necessary to have a law requiring minimum private retirement savings. I'm not real thrilled with this on general principles. For one thing, that starts putting the government thumb on the market scales in deciding what constitutes a legitimate, qualified retirement investment. Plus, I'm less than thrilled with the government knowing your business to the extent that would be necessary to enforce this. Plus, how is the federal government qualified to run your retirement? They've fully and thoroughly proven just the opposite. There are probably several other good objections.
Nonetheless, something on this order might be a reasonable compromise. It would be likely to actually work. It would certainly work a lot better than the guaranteed disaster we have coming down the road otherwise. Old people wanting their retirement would no longer need to feel like they're taking the bread out of their children and grandchildren's mouths.
ONE MITIGATING NOTE
Fortunately, people tend to be smarter than government officials. Tens of millions of people have REAL retirement accounts, all those beautiful 401K plans and such. Those are real, and they're going to be there - if Congress doesn't come up with some clever way to tap them to fund their unfunded Social Security debts.
Cling to your 401Ks - they're your real social security.
Meanwhile, you might want to ask Senator Bayh and your local congressmen (Republicans and Democrats alike) what they've done during their time in office to stop this ridiculous squandering of YOUR life savings.
You might also ask them where in the US Constitution they find the authority for this program in the first place. Hint: the correct answer is "nowhere."
Let's consider what retirement funds should look like, how Social Security actually works, it's history, outlook for the future, a better solution, and then some ideas on how to get from here to there.
WHAT RETIREMENT FUNDS SHOULD LOOK LIKE
Really, it's fairly simple. You take a part of your income each week and put it away. Without getting overly risky, you would expect to put it in bonds or basic mutual funds in the stock market, where the risk is spread across many companies in the mutual funds portfolio. Even if there's a dip in the market for a year or two (as has been the case recently), the market is always up over a period of years, and business goes on. That's because you're investing in the productivity of the whole economy and all the people in the companies in which you invest, who are being held to account in the market. You still own a piece of Halliburton or GE, even if the current cash value goes down for a minute or two.
Anyway, if the average factory or office worker put away the tenth part of their income in common low risk investments for 40+ years, they would have most of a million dollars built up. It's not voodoo economics or wishful thinking, just the basic logic of compound interest. Your savings becomes the backbone of the whole economy, providing basic seed money for building homes and businesses- and thus you get a cut of the harvest.
That's YOURS. You wouldn't be needing a Medicare drug benefit that the federal government has no way to pay for, or depend on hoping that Congress can raise money for you. It's yours by right, because you EARNED it. You've got money to live on, and money to pass on to your heirs.
HOW SOCIAL SECURITY ACTUALLY "WORKS"
The federal government managed to turn the simplest thing in the world into a huge, bankrupt unworkable disaster getting ready to happen. They've taken people's money for all their lives, and just blown it. They've turned hardworking retirees into welfare rats depending on Congress to take their money out of young people's hides.
Social Security FICA tax takes about 15% off the top of the average person's paycheck. That's half from you, and half from your employer- which is money they have to figure as wages to you.
Out of that, they pay skimpy benefits to current retirees, maybe as much as $1,000 a month. That's sure not much to live on, and not the half or even third of what you'd have if you had simply kept your money in the first place. Plus, you have no account to pass on when you die.
Social Security pays this pittance to current retirees, then they take every leftover penny and spend it - right now. There's no "lock box" as Al Gore talked about in 2000. There is NO Social Security trust fund. That $500 you paid last month in FICA taxes? Gone.
What do they do with it? It doesn't much matter. The feds might as well be buying crack rocks with your money and smoking them, cause the money is just as gone as if they had.
This leaves old folks dependent from month to month on the ability of the government to extract money from people working now, begging Congress for sustenance like welfare rats- despite having paid into the system all their lives. You may have been paying, but that money was not invested or even just saved under the mattress, and they only way YOU get anything is by the favor of Congress.
That favor of Congress also extends to SSI disability benefits, which add a big bunch of straight up welfare to the already untenable economic structure of Social Security. Blind and lame and mentally challenged or simply emotionally unstable citizens draw tends of billions of dollars from the till. This obviously does not help the economic viability of the system.
Note also that Congress does not HAVE to give you anything. A legitimate retirement fund is yours, and you have every right to cash in your accounts and get exactly what they're worth. Legally, though, Congress has no obligation to pay any particular amount of Social Security benefits.
Which is convenient, because soon they won't be able to. This is because the system has been run all along like a scam pyramid scheme. A classic financial pyramid scheme plays on a few people at the beginning of a setup making out good by taking the money from an exponentially increasing bunch of people under them. But as more and more people come in to the bottom, eventually there's no one left to recruit, and a bunch of people are left broke, having lost their money in schemes that had no inherent financial viability.
Likewise Social Security. Rather than safeguarding and investing your money, it's been turned over to the government and squandered. It's not accumulating interest and earnings. It's been smoked up like a crack rock. It's only worked as well as it has because of increasing populations coming up behind to pay. The boomers and Gen Xers are getting ready to find themselves holding the empty bag.
HISTORY OF SOCIAL SECURITY
When the Social Security scheme was started by Franklin Roosevelt in 1935, there were approximately 15 working people paying in for every one current retiree receiving benefits. It didn't take much to make it work with those kinds of numbers, and the modest amount given out in benefits.
Numbers were highly favorable, and continued on a favorable path because of the post World War II baby boom, which brought in yet more people to pay another generation of retiree benefits. That many people paying in, and with only modest benefits coming out the other end, the FICA taxes have generated far more money than has been paid out in benefits- even without the benefit of investment income and interest. We're somewhere near the top of that cycle now, with the baby boomers entering their late-career earnings peak.
We're getting ready to get slammed, though, and hard. This financial house of cards is ready to crumble. Social Security has unfunded liabilities for current and future retirees somewhere in the multiple TENS OF TRILLIONS of dollars - and not one red cent put away to pay any of it. Best current estimate I've seen suggests more than $26 trillion in Social Security liabilities alone, besides Medicare and Medicaid, etc.
Somewhere within about 12 - 15 years the FICA taxes coming in will be less month to month than the checks going out, the Social Security checks will start bouncing, and all hell's going to break loose. The federal government has been heavily subsidized for decades by simply writing IOUs to the supposed trust fund, and just spending the Social Security money - hundreds of billions of dollars every year. Before long, the incoming money not only won't provide hundreds of billions of dollars a year to subsidize the rest of the budget, but it won't even pay for current retirees.
When the baby boomers start retiring in mass over the next 20 years, we're going to get down to only about TWO people paying in for each retiree. How is that going to work, with no money saved?
No private company could get away with this. Enron nor WorldCom never mishandled investors money this grotesquely. Executives of these companies are quite properly being sent to prison for financial abuses not the tenth part as bad as Social Security.
By rights, every damned member of Congress -Republican and Democrat- should be doing a perp walk in front of the cameras on their way to penitentiaries for the financial fraud of Social Security - let alone anything else they're doing. Of course this won't happen, cause they're the ones making the laws. Besides, they're just doing it for The Children, or some such foolishness.
THE CURRENT SYSTEM, BEST CASE
Best case for the current system would be that Congress cuts benefits even below the already inadequate returns, raises the retirement age to squeeze a few more years of work and payments from the boomers, raise the crap out of the already exorbitant taxes- and pray for luck to limp the system by.
THE CURRENT SYSTEM, WORST CASE
If nothing is done to fix this mess, we're just going to have a train wreck. Congressmen can promise you anything, but if the money's not there, they can't give it out. Congress will just have to say, "Sorry, those other guys before us just screwed you. There's no money." Then they shrug their shoulders. Sorry about your bad luck. And you won't be able to just vote it away.
Something not far from that bad is not entirely unlikely, because reality is tough. You can't get blood from a turnip, and how are just two people going to cough up your thousand bucks a month- and pay their own bills and for the whole government besides?
SO WHAT THE HECK DO WE DO?
Right now, we've got just a few years where we can change course and head this big ship in a better direction. Any way we do it, people are going to get screwed. The quicker we start moving to a more viable model, the less bad the screwing.
The boomers are still working and paying in. If we let people start putting their supposed retirement money into their own accounts, there will be something there, and something to start earning some interest and dividends.
Exactly how to approach this gets complicated, and the parameters we're working in get more narrow and less appealing the longer we wait.
One simple way to start extracting us would be a cut-off that anyone under a fairly young age, say 25 or 30 be required to put away the 15% in their own private accounts. This should be an optional opt-out for older people. Obviously people who are near retirement age would prefer to keep what they've been promised, and there's some calculations for people in between as to what to do.
Even someone as old as 50 might would be better to cut their losses, figuring that keeping that 15% for their last 15 years in the workforce would give them at least that much real savings that will actually be there. Also, we could offer buyouts with private annuities to make those opt outs more attractive. Such things can be gotten relatively cheap, especially for younger people where the investors get more time to work with their lump payoff from today to make the money to pay the future annuities.
All of this is expensive (all the more reason to eliminate other unconstitutional programs such as the Department of Education and agricultural subsidies), but there's going to be a price for fixing this mess one way or another, and the sooner we start doing it, the cheaper it'll be and the sooner the old folks get the REAL security they deserve.
Then the younger people get to keep their own retirement money, investing it and not having it subject to governmental whim. If they take the same 15% out that has been taken in FICA, in the first place they will actually have something solid to show - not just empty government promises. Not only that, but they'll end up with at least several times what they would get from Social Security, even if they managed to actually pay as promised.
There's one main obvious legitimate objection to purely privatizing Social Security: Some people simply won't save. Then they get old, and we have to take care of them or let them starve in the streets- which we obviously aren't going to do.
To that end, it might be necessary to have a law requiring minimum private retirement savings. I'm not real thrilled with this on general principles. For one thing, that starts putting the government thumb on the market scales in deciding what constitutes a legitimate, qualified retirement investment. Plus, I'm less than thrilled with the government knowing your business to the extent that would be necessary to enforce this. Plus, how is the federal government qualified to run your retirement? They've fully and thoroughly proven just the opposite. There are probably several other good objections.
Nonetheless, something on this order might be a reasonable compromise. It would be likely to actually work. It would certainly work a lot better than the guaranteed disaster we have coming down the road otherwise. Old people wanting their retirement would no longer need to feel like they're taking the bread out of their children and grandchildren's mouths.
ONE MITIGATING NOTE
Fortunately, people tend to be smarter than government officials. Tens of millions of people have REAL retirement accounts, all those beautiful 401K plans and such. Those are real, and they're going to be there - if Congress doesn't come up with some clever way to tap them to fund their unfunded Social Security debts.
Cling to your 401Ks - they're your real social security.
Meanwhile, you might want to ask Senator Bayh and your local congressmen (Republicans and Democrats alike) what they've done during their time in office to stop this ridiculous squandering of YOUR life savings.
You might also ask them where in the US Constitution they find the authority for this program in the first place. Hint: the correct answer is "nowhere."
posted by Al | 10:19 PM
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