If Social Security was really about funding your retirement …

posted by
January 21, 2015
Posted in The Inter-Rationale

The more I see and hear about Social Security, the clearer it becomes how many people misunderstand it.
I’m 65 and a few months now; after some deliberation, I filed last month. My considerations: file now, and get a slightly smaller monthly check (and maybe lose part of it, since I’d continue to do at least some work on the books); or wait until I hit 66 in July (“full retirement” for my age-group), for a bigger monthly check and no real limits on what else I chose to earn, within reason. I’m now waiting (finding other ways to cope) while they process the application, hoping all goes well and I have my first three months of “payback” in hand by mid-February.
I'm still editing part time, along with several months of full-time seasonal work to supplement things; once the regular checks start hitting my bank account, I might even put a little aside (yeah, sure!). I’m also thinking I could invest a little back into my long-dormant IRA account, or maybe put some cash into clean, full-band studio recordings of a couple of my better songs, then pitching those to create some residual income. Meanwhile, by making $300-500 a month on top of the SSA checks, I can probably live fairly comfortably for my tastes, and I’m already three quarters of the way to that level, just with current recurring projects.
However, I still sometimes wish I could have held onto a bit more (or all?) of what I earned, and done it my way. . . .

If Social Security was really about funding your retirement, it would be a lot different. For one thing, it would be tied to some sort of investment process, so that at the very least the money taken out of your paycheck each time was earning at least a savings-bank level of interest. (If you recall your high school math classes, the concept of compound interest is what makes even the smallest regular infusion of cash into an account something to reckon with. See the example a few paragraphs below.)
A lot of folks try to make the point that the amount taken out for Social Security (then, since the mid-’60s, FICA) has always been a relative pittance, and that even when you double the figures (by including the so-called “employer share”), the grand total is far less than any of us might withdraw during our senior years. Some talk about how they “already got back what I paid in, even what my boss did,” and pat themselves on the back for beating the system.
Unfortunately, this misses an important point: Had that “pittance” that was taken out over all those years (before you had a chance to decide where it might be better spent) been instead diverted into investment (even a simple 5% savings account, as once existed pretty much everywhere) it could now have been worth six figures (seven, in many cases)! Yes, I know savings accounts have become worth less over time; so you could have moved it to a simple CD 20 years ago for that 5% (maybe 10% or more, given that you were leaving it there for several decades, while making regular additional contributions).
Do the math (no Common Core required!): On average, those small FICA deductions, amassed over 40-50 years of your working days, with nothing taken out before retirement, would have built to the higher six-figure levels if not higher, even under those limited conditions. (Note that I didn’t say it went into the stock market, where—with a little intelligent financial management, like getting out (or shifting to low-risk stocks, or even T-bills) during the the crashes and returning a while afterward—one could easily have generated well over a million dollars from those little pieces. Let’s use a low number, the one Obama threw out as "insufficient" in his State of the Union address: $15,000. The current “minimum wage” of $7.25 an hour, over 40 hours a week, would amount to . . . $290 a week, which times 52 equals . . . $15,080!
If you averaged $15,000 a year over your entire working life (most working folks exceed that at least a good part of that time, but again let’s use the minimums), that’s $1870 a year (the $935 taken from you, plus the added 6.2% your boss could have paid you instead it going to FICA); over 45 years, even at that measly 5%, that small investment becomes . . . $335,100.73! (It’s a lot larger if you were to include the entire FICA deduction of 7.5%, doubled, but for now we’ll stick with just the smaller amount.)
Let’s say you now retire, then begin to take $1500 each month to live on fairly comfortably. (Remember, since you’re not losing that 7.5% to FICA anymore, nor presumably any paying taxes on it, what was once a monthly gross of $1250 or less is now . . . a net of $1500!) On $335,000 and change, the interest alone (even at that measly 5%) is $16,755 a year, or $1396 a month; assuming this is your only source of income now (no part-time jobs, internet surveys, lottery tickets, etc.), perhaps you pull an extra $100 each month from that principal to stay on that $1500 monthly course (Again, you’re now NETTING more than you were grossing with that $15,000 annual salary, and with no more FICA or withholding deductions being taken away it’s even more!).
Whatever, the case, that principal will still remain in six figures for quite some time, even if it’s now dwindling a bit faster (it would still be another 50 years or more before you began to run out of those invested funds). Meanwhile, want to spend more each month? There’s always that part-time work (look for something online!), or you could even invest a little of what you already have in something slightly more risky—maybe buy a few shares of that latest high-tech IPO, the next Amazon, Facebook or Microsoft wanna-be?
I’m not going to claim there aren’t lots of folks who wouldn’t just piss it all away along the way if they were given this opportunity; maybe there must be some restrictions on what you can do with your own money. The fact remains, though: from the outset. there was never any choice given in the matter; Social Security got implemented and imposed, and that was that! So much for the “entitlement” claims about all of this—even if, technically speaking, the program is and always has been administered as the definition of a Ponzi scheme (from before they started actually stealing from the “lockbox”): payments are transferred from the currently working (including us, if we still work part time?) to the non-working (retired, etc.).
Regardless of that, anything now coming back should be yours without question. The earning power that money could have had makes any trickle-back return now a small fraction of what the principal could have become. Meanwhile, with that investment to draw on all those years, who knows what ventures of your own you might have financed and succeeded at? You could also have taken some time off earlier in life, while that nestegg continued to grow, for a “sabbatical” of sorts—living off the interest for a few months of travel, perhaps, or investing some of the principal in your own business, or an arts project. Maybe you’d just be able now to pass on some of this accumulated wealth to your kids and grandkids. Imagine the possibilities, using YOUR OWN money.
* * *
So what could be done now to remedy this travesty? The honest approach would be to fund the existing claims (at least for those over about age 50) from general revenues (which is where all that FICA money has gone already); younger workers should be allowed to keep their money, using it while knowing its intended purpose. Maybe such a deal could be limited somewhat; perhaps it could only be used for further education, health crises . . . or retirement itself. It would still be more just, as a method for people working all their lives to prepare for an end to those days, as well as a comfortable seniority.
Let’s also not forget the other half of this outrage: that “employer share” that’s just as large as the wage deduction from the paycheck “earned” by the worker. That’s part of what your boss had to allocate, allegedly on your behalf, to hire you; it could as easily gone right to your pocket, without harming the bottom line one bit! (Again, it’s likely this money would also be restricted, but it could at least form the baseline of a personal account for each employee, just as easily as it’s now being funneled off through the SSA and Medicare accounts, then ending up paying for wars and corporate welfare.)
* * *
This writer has actually done a fair amount of thinking on this subject, for about three decades as of this article. My continuing thoughts on the matter involve “putting a floor on FICA”: Up to a certain level of annual income, NO deductions would be taken from a paycheck—for anyone. (Stay tuned for my forthcoming e-book to get a more detailed discussion on this; I’m rewriting the original essay a bit.)
To begin with, those who remain at low income levels throughout their shortened lifetimes rarely live long enough to collect on it, yet the first dollar they make loses seven-and-a-half cents (while another equal amount that could be going into their pockets is also taken from the employer's funds). Consider also, at the upper end of the income spectrum, FICA deductions now cease entirely once you ‛earn’ over $118,500.
This means that anyone who’s truly well-to-do (and least likely to miss it?) doesn’t pay this little bit on those higher earnings, while remaining eligible for full SSA payments at retirement anyway. Some “progressive” pundits have claimed that the solution to the current “shortfall” in Social Security (caused by both pilfering by other government programs and the rise and fall of population demographics) should be to raise this “ceiling,” continuing to deduct FICA from these higher incomes. Whether or not they do that, they should clearly be raising the “floor” at the same time.
Let’s postulate that “floor” as $15,000 a year—no windfall, but something livable for most of us. This would mean anyone making that much or less in a given year would have NO deductions taken from a paycheck for ‛FICA payments,’ an idea which is both entirely just and a good way to stop penalizing the “working poor” (Since those remaining at that level for more than a few working years rarely live long enough to collect it anyway, why steal from the poor to keep the middle and upper classes comfy?).
However, if it were run equitably, this measure would also apply to the first $15K anyone made each year. (Additionally, let’s put that “employer share” on the same set of scales, letting that “contribution” remain in each worker’s personal savings account, for medical, educational or retirement purposes; even those low-income workers could then accrue something for the long term, as would every other working person on the books.)
Imagine January, February, March . . . beyond, in some businesses: accounting departments with simplified jobs during their toughest quarter (processing the company’s corporate income tax forms, employee W2’s, etc.); every worker with an extra chunk of change in the paycheck (at least for a while), regardless of annual income; a quick recovery from holiday expenses; and more money in circulation throughout the economy, instead of wallowing as a paper entry in some ledger. (You didn’t think that money was actually being circulated, did you?)
Every time I hear someone scream out about the “need” for a minimum wage increase, I point this out: If low-wage earners got paid all the money it costs to employ them, they’d already be a bit closer a ‛living wage’! Yet from the first dollar earned, they lose that seven-and-a-half cents, along with the similar amount going to Washington from the company’s coffers. It’s all paper transactions, anyway; why can’t it stay in the worker’s pocket and/or in that person’s own emergency account? Before talking about raising the mythical “minimum wage,” we should be addressing this form of theft from the working poor. Meanwhile, why shouldn’t everyone benefit from having that money available, whether to spend or invest, at least from that first piece of the earnings?
It’s not entirely ridiculous to hope for this kind of sanity in our society. Yes, we still need to help the truly poor and the disabled, but those programs need to stripped away from retirement, and filed under their proper terminology: charitable giving. Social Security, as a retirement program, has failed miserably; its existing current and near-future claims must be funded, but for anyone with working years yet to go (enough to be able to self-plan for a retirement), opting out should be on the table. Social Security as it now stands must die, and be replaced with a more self-driven paradigm that encourages responsibility and good sense!


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