Yes Virginia, Social Security Really is Going Broke

Andrew Napolitano states it flat out:  Rick Perry was right about Social Security.  It has become a Ponzi scheme:

In the first of several challenges to the constitutionality of Social Security, the Supreme Court found that the Social Security fund did not consist of your money. It was merely tax revenue.

It also held that [...] Congress could collect funds, claim it was holding the funds in a savings account and then spend those funds as it saw fit -- for those in need after age 65 or for any other purpose.

... even the court recognized that there would be no trust fund in the traditional sense when it found that the tax dollars collected and supposedly designated for Social Security were "not earmarked in any way."

Thus, the feds have conceded and the courts have agreed that the money you have involuntarily contributed to the so-called trust fund is not yours and can be spent by the government as it pleases, just like any other revenue that the feds collect. (Andrew Napolitano)

I say this with no glee in my heart, and my purpose is not to anger my progressive friends, but to establish some inconvenient and uncomfortable facts.  We all know it by now—Al Gore’s lockbox is full of IOU’s written by the pirates in both parties, but even if it were not, Social Security is still unsustainable in its current state. Payouts have exceeded contributions for decades, making it a de facto pay as you go system, and demographic changes will only exacerbate the problem.

In 1960, there were five workers per recipient; today, there are three, and by 2025 the ratio will approach two. (Origins of Entitlement)

Something’s gotta give. FDR himself wanted to prevent what Social Security has become…

Roosevelt rejected Social Security as a "pay-as-you-go" system that channeled the taxes of today's workers to pay today's retirees. That, he believed, would saddle future generations with huge debts - or higher taxes - as the number of retirees expanded.

Discovering that the original draft wasn't a contributory pension, Roosevelt ordered it rewritten and complained to Frances Perkins, his labor secretary: "This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress . . . to meet."

But Roosevelt's vision didn't prevail. In the 1940s and early 1950s, Congress gradually switched Social Security to a pay-as-you-go system.

Millions of Americans believe (falsely) that their payroll taxes have been segregated to pay for their benefits and that, therefore, they "earned" these benefits. […] The trouble is that contributions weren't saved. They went to past beneficiaries. The $2.6 trillion in the Social Security trust fund at year-end 2010 sounds like a lot but equals slightly more than three years of benefits. (Origins of Entitlement)

Recipients get more out than they pay in...

A one-earner couple with average wages retiring at 65 in 1960 received lifetime benefits equal to nearly 14 times their payroll taxes.    (Origins of Entitlement)

Government has made improvements since then (ironically, Reagan is the big hero here) ...

A two-earner couple with average wages retiring in 2010 would receive lifetime Social Security and Medicare benefits worth $906,000 compared with taxes of $704,000, estimate Steuerle and Rennane. (Origins of Entitlement)

Who fills in that $200K per couple shortfall? Should Social Security be converted to an old-age welfare program, with checks sent only to those who are in need and apply for the benefit?

Lest the Left Blotistanis accuse me of defaming FDR, I post this link wherein Conrad Black (one of the many Bete Noires of the left) defends FDR.   I believe Roosevelt was wrong on many things, but sincerely wrong rather than sinisterly so.

We can argue over government crowding out private enterprise, which FDR did do, but I generally agree with Black's assessment.  Roosevelt took action to give men work so they could feed their families, and it got a lot of infrastructure built.  Also, from the previous links I have cited, perhaps FDR could not foresee the great damage future politicians would do to Social Security and other originally-modest social programs.

See also:
Social Security Trustees Report 2012
Social Security Funds to Run Out by 2035

Privatize Social Security?

Yes, it's been done. Successfully. In Chile.  No, we can't do it here because we are broke.

Progressives in this country hate the Chilean privatized retirement  model. The dumber ones try to call it a failure, backing their assertion with towering stacks of lies, but the smarter ones studiously ignore it, because the facts cannot be refuted.

Getting the Government out of the Pension Fund Business

The point of privatization is to get old age pensions off the federal government's books, but the transition is not cheap...

“For the U.S. right now it would be impossible,” said Alejandro Micco, who was the chief economist at Chile’s Finance Ministry until last year. To change to a private pension system “you either need to have a very big fiscal surplus to pay retirees without income from workers, or go into debt.” (Cain's Social Security Model)

We're already deep in debt, so I don't see how we would accomplish privatization. Regardless of the system, private or public, there will always be problems...

The bank found that exorbitant fees and other costs charged by private pension fund managers eat up as much as 15 percent of the contributions made by average Chilean workers, and even more for poorer workers. Investment returns have been far more modest than the hefty 11 percent return claimed by the private managers. The Chilean government's pension superintendent says actual returns for someone earning Chile's minimum wage were only 3.7 percent between 1994 and 2000.

A recent report by the Chilean government brought more grim news, forecasting that as many as half of all workers won't be able to save enough to receive the minimum pension when they retire—even after paying into their accounts for 30 years—and will therefore rely on government subsidies. More than 17 percent of Chile's retirees now continue working because they can't afford to live on their pensions, according to that study, and another 7 percent want to work, but can't find jobs. (Mother Jones)

All true, but misleading...  

Returns were 11% during the boom times, and even at 3.7%, the Chilean model still beats our social security theoretical average return of 1-2 %.  Also, we will always have the situation where some at the low end of the earning scale simply cannot save enough for their own retirement, especially when their savings is so small that the interest it earns is eaten into by flat fees that the big savers absorb much easier since those fees are proportionally smaller the more money you have in the account.

Finally, you need a lot of money to throw off the chains of wage slavery, and it's got to come from somewhere, regardless of the system.  Far short of privatization, there are a few easy things government could do to help us all save money for our retirements:  Stop taxing our money after we earn it, and stop inflating the currency, which is a silent, insidious tax on us all.

No Easy Answers

There are no easy answers, especially when standing in a deep chasm of our own making.  This is not a sexy topic, but I find it interesting, and collected some links while researching this, so I thought I would share what I found for those who are interested.

More Links:
Freeman – How We Privatized Social Security
New American – Chile’s Privatized Social Security System is 30 Years Old
For Social Security, a Birthday Makeover
Social Security Administration – The Chilean Experience

Czar of Chaos

Creating Chaos… and turning chaos into a new order

Many conservatives miss the mark when evaluating this administration’s actions. We want to believe Obama really wants to do the right thing, but is simply misguided from his liberal past.

The truth is he wants to tear down our current system and implement his own. It’s not a matter of degrees of opinion on the future of this country; but instead a fundamental philosophy that desires to tear down the old system, then usher in a new socialist one.

In almost every area of federal oversight we can see Obama working to create problems in order to bring about a public reaction – with a liberal solution waiting in the wings. From banning offshore oil drilling to massive federal borrowing we see this administration sowing the seeds of trouble and chaos.

Meet Cloward and Piven

From the beginnings of the Progressive Movement it was seen to remake America into a “better” society, certain bulwarks had to be removed. Family ties, Christianity, the Constitution, and American culture as a whole had to be razed to the ground before a Socialist America could be constructed. In other words, the system had to be crashed. Then order out of the chaos.

The theory of creating a new order out of chaos was described by two liberal professors out of Columbia University named Cloward and Piven. The thrust of the theory was to overload the governmental system with welfare freeloaders, and out of that tumult a new socialist order could be constructed. Subvert… destroy… and then rebuild.

We can see this at work during the Great Depression. A created financial crisis… national suffering… a New Deal… and soon most Americans were suckling the government teat. According to Alan Simpson, “Social Security is a cow with 310 million tits!”

Speaking of the Great Depression, it was a manufactured crisis. Ben Bernanke admitted as much when speaking of the Federal Reserve of the 1920’s: “We did it… very sorry, won’t do it again”. The same names were at it then as today: the Federal Reserve and Goldman Sachs.

A Senate staffer recently told me a month ago the system was going to financially collapse. All of us around the table were slack-jawed to get this from officialdom.

The collapse of the entitlement state is coming into view. This year Social Security began to borrow to pay current retirees. To balance the federal budget without cutting Social Security or Medicare poses no obvious solution.

We have passed the point of being able to pay off our debts. All that is left is to wait for the collapse and a massive devaluation of the dollar.

I’ve never expected to collect social security and but a fraction of my military retirement. Instead, I’ve invested in hard assets like land, buildings, precious metals, and even base metals (like lead in 7.62 mm diameter).

Problem / Reaction / Solution

A societal manipulation technique by those in power is to first define an end-state solution. Then a problem is created (by a bureaucracy or useful idiots) that alarms the population and leads them to the end-state solution.

We can see this administration is adept at supporting rabble-rousers and troublemakers, from union thugs in Wisconsin to the Muslim Brotherhood. The administration even sent out Jimmy Carter and the DNI to exclaim the “Muslim Brotherhood is secular”. That doesn’t even pass the giggle test.

This President is still a community organizer at heart. I believe he wants to create a climate of financial chaos in order to usher his version of a New Deal II. A climate where the American people will cry out for a new solution. I believe the solutions Obama will offer will shred the Constitution.

Don’t fall for the Hegelian Dialectic, as fellow blogger Rev. Gregori reminds us. Let your fellow citizens know that a crisis usually doesn’t just happen, but is made to happen with a goal in mind. Fight back by supporting conservative causes that stall the “solution” offered by the administration. Write your congress-critter. Slow the beast down. Stall the plan. Frustrate The Man.

The Problem / Reaction / Solution process has a shelf-life. If it is slowed down, and the American people are educated, the whole dialectic falls apart. Those apologists for the “solution” are seen for the destructive individuals they are. They then will have a choice: shrink into the shadows or become oppressive. If they become oppressive, the mask is finally off and even more Americans will be woken up.

Hegelian Dialectic: "If you want to take total control over large populations, first you devise a solution to a problem that does not exist. Once you know that your solution will work, you then cause or allow the problem (or incident), for which you devised your solution, to take place so that you can implement your solution."

A question: Is there a group using Liberals as useful idiots to destroy America, in order to bring in something quite different than Socialism?

- Hugh Farnham

photo chop courtesy of Chicago Ray

Progressive Logic & Compound Interest

Social Security by the Numbers

There has been a lot of talk on the left and right about slashing pensions, medical benefits, and other retirement plans of folks who are already retired, or who have contributed into those plans for many, many years.

"I would like to see any Tea Party member cut their Medicare Card. Or not to cash their SS check. Or quit their government job (whether state or federal) or refuse any benefits associated with a past or present government job."

"Federal, state, and corporate pensions should be substantially reduced if not eliminated entirely."

"A quick fix to all government budgets is to stop paying pensions and benefits."

"All pension should be abolished ! ! ! ! ! ! ! Including federal government." [sic]

You can opt out of the benefits, but not the taxes
These comments are not unique and are reflective of the problem with the progressive mindset. If you are against their programs, you ought to opt out... don't collect that social security check of which you are paying 6.2% (12.4% if you are self-employed) on the first $106,280 of income. Of course in the progressive mind, while you ought to opt out of the benefit, there is no opting out of the taxes. They seem to think that Social Security is some form of government largesse as opposed to a rather shitty return on a government mandated investment.

$252,246.35 in...
Let us perform a simple mathematical exercise on a hypothetical entrepreneur who started working at the age of 21 and who retires at age 66 on December 31,2010. This person, born in 1945 started working in 1966 and earned the maximum FICA taxable income through this period. This person, over his 45 year work history, would have paid $252,246.35 in Old Age Survivors Disability Insurance (OASDI) on his income.

The total is based on social security tables and breaks down all the payments, year by year. OASDI subtotal column used, because since 1994 there is no upper limit on what you are taxable on for Hospital Insurance (HI). In 1993, where the OASDI figure is $7142.40, our subject would have paid the maximum $3915 in HI, in 1994 there would be no maximum and our subject would have paid an HI amount based upon his total income. http://www.ssa.gov/history/pdf/t2a4.pdf

$269,724 out!
Now, this person who is 66 years old, if a white male, can expect to live to 75.6 years of age, that's another 114 months. The maximum benefit payout is $2366 a month for a total annual income of $28392, so in the remainder of his life (ignoring cost of living increases) the social security payout will be $269,724 presuming he gets the full amount without any income offsets. AH HA you progressives exclaim... evil white conservative guy is stealing $17,478.


What if you put the money in a bank account instead?
But compound interest makes it a more interesting story. If our subject wasn't very investment savvy and had simply stuck all that FICA money in a savings account at 1% interest, he would have ended up with $285,833.49, more than enough to cover his predicted withdrawals of $2366/mo and his heirs would have received $30,062 (remember, the principal keeps earning interest). Had he invested conservatively and received an average return of 4% when he retired his portfolio would have been worth $440,270 and his heirs would have received $299,960.34... as it stands now, the SSA pockets all that money (or they would if the government didn't play funny money games).

What if you invest it?
Suppose instead that our subject had invested all that money in stocks, from 1966 until the day he retired. The Standard & Poor's annual average rate of return from 1966-2010 was 10.95%, had our subject invested wisely his portfolio upon his retirement would have been worth $1,621,653.73 and if he continued to earn 10.95% interest and withdrew only the maximum allowable under social security ($2366), when he died the portfolio would have been worth $4,074,116.83. So you can see, your government largesse has screwed our poor fellow and his heirs out of $3,804,392.83

So instead of not cashing my social security check, how 'bout I fold it into sharp corners and shove it up your...

That's the problem with progressives, they take your money and expect you to be obsequiously grateful as they dole out the pittance they think you deserve.

Compound Interest calculated using:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm