So here is the clear unvarnished truth that every American needs to hear and understand: There is no money. It has all been spent, every last dime. In fact, 2011 is a momentous year for the SSTF, because it is the first year in which payments to beneficiaries exceed the “contributions” from taxpayers. This year $45 billion more will be paid to recipients than will be collected from the paychecks of American workers. The money will come from the general tax fund – or more accurately, borrowed from China as new government debt. Unless the Social Security system is reformed, we will never again see a year in which Fund income exceeds benefit payments.
Here’s another truth: From this point forward, Americans who receive Social Security benefits have to realize who is paying those benefits to them – their children. If they want increased benefits, they will be taking them directly out of the paychecks of their kids. If you don’t have working children, you are taking the money from someone else’s kids.
You ask what happened to the money. The government (both Democrats and Republicans) took the excess money in the SSTF and spent it on the general needs of the government, such as defense, the EPA, and the Interior Department. Instead of collecting more taxes, cutting government, or borrowing the money (just like they’ve done to create our $14 trillion debt), they just took the money from the Social Security honey pot. Every year, our leaders would take out a piece of paper and write “I owe you $37 billion,” or whatever was the difference that year between what they collected in FICA taxes and what they paid out in Social Security benefits. Americans now have a little folder with a bunch of IOUs that are worth………zero, zilch, nothing.
So now what can we do? One suggestion – which has been successfully implemented in Chile – has been to have young workers put their Social Security payments into private accounts, where they could invest the money. The Left goes apoplectic about this because to them, the only thing more evil than Hitler is Wall Street. Could someone please explain how Wall Street could possibly do worse than our government, which has left us nothing for our retirement despite all the money we paid? Restrictions could be placed on private accounts that would only permit investments in money market accounts, government bonds, or AAA-rated corporate bonds. Any way you look at it, Wall Street couldn’t do any worse than our elected officials and the government bureaucrats who spent it and then lie to us that it stills exists.
That debate will go on for a long time, but here are some changes that we could enact quickly and easily to improve this disastrous situation:
1. Increase the retirement age immediately – and not over a 40-year period (which is the current policy). By the time the retirement age is increased by two years, our lifespan will increase by five years -- making the whole plan silly. We need to make regular reviews and increase the eligibility threshold every five years, if necessary.
2. Stop paying money out to people who do not need it. The biggest stumbling block here is that Democrats refuse to stop calling this a retirement program. We should immediately redefine Social Security as a government benefit program – from which you only receive money if you’re eligible. One of my CPA friends has a client who has reached retirement age and receives Social Security, despite having an annual income that exceeds $500,000. If we were truthful about the program, we could tell this person “Yes, you paid in and yes, you are not getting any benefits – sorry. Be happy you don’t need it.” In exchange for that we would stop the continuous increases in amounts they pay into the fund.
Another friend of mine had a client who had a child late in life and passed away when the child was still in his teens. The child inherited a large income (from cash-producing investments), and his mother took over the substantial estate. Despite that, the child started receiving Social Security benefits. That is just nonsense.
3. Stop placing ridiculous restrictions on pension plan contributions. People need to save as much as they can for retirement, and imposing self-righteous constraints based on income limitations is counterproductive. If you are in a 401(k) program and other people in your company choose not to contribute, why should your savings be limited? We also need to raise ridiculously low contribution limits put on various pension plans, such as $5,000 on IRAs. We need to do whatever we can to encourage Americans to save for retirement. Above all, we need to get the message out that you cannot count on Social Security as your sole means of support when you are too old to work.
That is the truth. There won’t be enough when you retire, so you’d better start saving more now. But this is the government and most politicians – and almost all of the media – will not tell people the truth. Fortunately, there are a few new people in office who are willing to confront the problems we face, and openly discuss the difficult choices ahead. Now that you know there is no money set aside for you, what are you going to do about it?