The Social Security System of the United States US
A Real Story: Pat, born in 1948, started working in 1970 earning $5,784 per year. A good median income at the time and, being rewarded with cost of living wage increases each year, Pat retired in 2009 with a final salary of $44,144 per year – still about median income. Pat paid $53,234 into Social Security and is entitled to government retirement benefits of $18,514/year. Accounting for Pat’s employer contributions which matched Pat’s SS Taxes, Pat will consume all $106,468 (her contribution + employer match) sometime during year 6 of retirement (age 71); after which Pat starts taking “other people’s” money.
NOTE: Data to support the above calculations can be found here: http://www.ssa.gov/OACT/ProgData/retirebenefit2.html
Here is what is going to happen:
Today- We know that politicians didn’t save Pat’s contributions but rather spent them replacing Pat’s government “nest egg” with an IOU. As more and more “Pat’s” from the baby boom generation retire, the government needs to borrow more money to pay the benefits. The current plan is for the US Federal Reserve to buy US Government debt to maintain the financial stability of the economic system. Read that again- The Fed is buying US Treasuries with money it prints so that the US Government can give Pat $18,514/year.
Long term- (1) Ration healthcare so Pat doesn’t live too long and (2) make all illegal immigrants citizens so we can apply the 6.2% tax to their meager wages.
In a parallel universe: Using the same basic data, Pat’s SS Taxes and the matching employer contribution are placed in a government trust fund that earned 3% return on average. Pat now has $291,603 and, at the same withdrawal rate, this money would last almost 16 years until Pat was 81.
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If you like Pat's story don't forget to read about Elieen, Peg, Matt and Bob (click).
Ted, your final point about the 3% annual growth is an important one. My belief has always been that the SS payments from individuals and their employers was being invested in growth vehicles. So you can't just look at the payments made into the fund. You have to factor in the annual growth from the investment vehicles used by SSA...right?
ReplyDeleteSS taxes collected by the government go into the US Treasury and are co-mingled with all other government revenues. These revenues, including the SS taxes, are used for general operations of the US Government.
ReplyDeleteWhat this means is: There is no SS Trust Fund. The phrase "Trust Fund" is used to reference a notional account that represents the net present value of future liabilities.
Historically, more SS Taxes were collected than needed to be dispersed in SS benefits. The excess tax revenue was not saved but rather spent on other government operations.
Hence, excess SS payments were not invested. They were spent.