The most recent audit of the pyramid scheme that is the Social Security Administration has uncovered some bone-chilling facts.
This past week the Social Security Administration’s inspector general revealed that just over 300 conferences cost taxpayers roughly $100,000 each in travel, meals, and lodging expenses during a three-year period.
300 conferences in 3 years? That’s about one conference every 3 to 4 days. What do they need to talk about every 3 to 4 days? How to continue ripping off the American Tax Paying peasant? Social Security is already insolvent, how do they get away with doing this. When did our government become just a vehicle used to rip off its citizens of their hard earned money?
Social Security Insolvency: When And What To Do
When is Social Security going under? Before you can collect?
Bad news: The system is already bust. More money is going out in benefits and overhead ($714 billion a year) than is coming in from payroll taxes ($646 billion). For now, the government is covering the shortfall the way it pays for other things: by borrowing, collecting income tax and printing money.
There’s supposed to be $2.7 trillion set aside in a trust fund to cover Social Security benefits. It turns out that this fund is a fiction. The savings account is empty.
No, benefits are not going to be sliced right away. But the insolvency of the Social Security Administration means that down the road big changes are inevitable in payroll taxes or benefits or both. These will not be good. The purpose of this essay is to look at what changes are possible and how you can defend yourself.
I know a fair number of people who started their benefits early even though they could afford to wait. That is, they collected at 66 or even at 62 instead of waiting until age 70, when the payout reaches its maximum. They’re afraid that Congress will double-cross the late starters by chopping payouts.
I’ll consider the risk of a bad outcome like that, as well as the probability of a real reform that would replace the phony trust fund with real savings. But first, let’s look at the accounting for the system we’ve got.
When you contribute to a 401(k), you build up a genuine trust fund. Your savings are invested in stocks and bonds, which in turn fund capital assets like software, Pizza Huts and medical inventions.
When the federal government set up the Social Security fund, it didn’t do that. Instead, it “invested” in its own bonds.
Consider this analogy. Farmer Jones, saving for his old age, puts $10 a week into a coffee tin. He amasses $1,000. Then there’s a bad crop year and he takes the money out, replacing it in the tin with a piece of paper that says “IOU—retirement—$1,000.”
He fully intends to put the money back after a good crop. But honestly, how much does he have set aside now? Zero. With government accounting, he could claim to have $1,000.
The balance sheet fiction carries over to the income side. The “bonds” pay “interest” and this is used to help pay benefits. Another revenue item is a theoretically dedicated portion of income tax collections, the amount coming from an artificial boost in the taxability of Social Security benefits. (You should have to count only half your benefit as income, but the formula makes you report up to 85%. See How Much Of Your Social Security Benefit Is Taxable?)
A fairer way to describe what is going on: Fica (Federal Insurance Contributions Act) taxes are running $68 billion short and the government is covering that out of general revenue.
The shortfall is going to get worse as baby boomers age and the ratio of workers to retirees goes down. Come 2034, so say the system’s trustees in their 2015 report, the trust fund will be exhausted and, absent a law change, they will be able to disburse only 75% of promised benefits.
The law will change before then, that’s for sure. Here are the ways Congress could balance income and outflow:
- Increase the payroll tax, currently 11.7%. (If your salary is $100,000 your compensation, including the Social Security tax paid by your employer, is $106,200, and $12,400 goes to the Social Security Administration for retirement. Divide $12,400 by $106,200.) A two-point boost would erase much of the coming revenue shortfalls.
- Cut the cost-of-living adjustment. Legislators could fiddle with the formula, perhaps limiting the damage to higher-income recipients.
- Increase the tax base. The first $118,500 of salary is subject to Fica. This ceiling might be raised or, as with Medicare, eliminated. High-paid workers would get back only a sliver of their higher contributions in the form of higher benefits.
- Raise the retirement age. The normal retirement age is now 66, and it’s going up to 67 for people born after 1959. It could go to 69. That would be roughly equivalent to cutting benefits by 10%.
- Increase the maximum fraction of benefits subject to income tax from 85% to 100%.
- Steal benefits. When he was running for president, Chris Christie proposed reducing Social Security payments to people with retirement incomes above $80,000 and eliminating them at incomes above $200,000. This would mean not just taking money from the wealthy but also taking money from middle-class frugal workers and handing it to middle-class spendthrifts. He didn’t run far on this plank.
What’s going to happen? My guess is that Congress will spread the damage by adopting a blend of the first five choices. As for the proposal from Governor Traffic Cone: While we can’t rule out means-pilfering, the likelihood is low. I would put the odds at 33 to 1 against.
What to do?
Measure your benefit. In What’s Your Social Security Benefit Worth? there’s a calculator that evaluates your payout stream, discounted for time and mortality. It assumes that existing formulas (which reward you for waiting until 70 to collect) remain in place. If you’re healthy, it will probably tell you that waiting leaves you several hundred thousand dollars to the good.
As you read above, Social Security is already insolvent. It’s time we just abolish the whole scam and start over again.
Maybe a solution would be to privatize the system by just letting the people themselves pick and choose where to put their retirement savings?
Not sure what the solution is at this point though since banks and savings and loans are also crooks and we wouldn’t want to lose all our retirement money to a scam while banking CEO’s, whom will never be held accountable, get richer and richer. Just look at the 2008 banking meltdown where our government and the banking industry colluded to scam the US taxpayer out of billions of our hard-earned dollars under the guise that the banks are “Too Big to Fail.”
Sadly, the taxpaying peasant who got stuck with the bill wasn’t too big to fail and thousands of hard working Americans lost their homes to foreclosures. Not one banking executive, nor politician, who pushed for asinine regulations such as The Community Reinvestment Act were ever held to account. In fact, banking executes came out even better than before because of their so-called “Golden Parachutes”
Please share if you believe the American Citizen deserves the right to decided where their hard earned money goes….
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