In 1935 the government passed Social Security into law setting up a government managed retirement plan for the majority of US workers. To fund the plan, they passed the Federal Insurance Contribution Act (FICA). The law mandates that employers withhold a portion of the worker’s salary (contribution) and requires the employer to match the contribution.
It was sold to the public as a form of annuity, with each worker’s contributions and benefits based on their income. While Social Security has features similar to an annuity (paying lifetime benefits), in many ways it is different.
In 1960 the Supreme Court (Flemming v. Nestor) ruled, “that no one has an accrued property right to benefits from Social Security.” Contributions are now taxes with an indirect correlation to benefits.
An annuity with a private insurance company is a legally binding contract. The insurance company must honor the agreement or risk being sued for breach of contract.
With Social Security the government is the insurer holding all the power.
| Social Security is nothing more than a government promise that can be unilaterally modified or broken. |
The government has made many modifications since 1935.
There is a “Social Security Trust Fund” which many feel has been raided. While there may be a fund, allegedly $2.6 trillion, it consists of Treasury IOU’s. It was great for the government when the amount of social security taxes collected exceeded benefits being paid. Today baby boomers are retiring at a rate of 10,000 per day and benefits paid exceed current taxes. The government must borrow to make up the difference – in addition to the normal government borrowing to support their deficit spending.
US government debt roughly doubled from $10 to $20 trillion from 2009-2016. Debt will continue to escalate unless there are radical changes in taxes and spending. Raising taxes and cutting spending is politically unpopular, creating class warfare, while politicians pander to their political base.
Young people today must understand what Social Security is, and is not. A portion of their salary will be taxed, with a government promise to pay them benefits for their lifetime once they retire. How much those benefits will be, when they can retire, and the correlation of benefits to their personal wealth is undetermined.
Workers will probably get something; however it’s likely the promises will be modified many times. The government will jerk them around like The Wild Mouse roller coaster before the end of their ride. Benefits are nothing more than political promises.
The negotiation games are beginning
Yahoo Finance published the First Draft of the GOP’s Plan to Overhaul Social Security. Rep. Sam Johnson (R-TX), Chair of the House Ways and Means Subcommittee on Social Security, drafted the plan and has now introduced it as a bill.
A second group chimed in:
“…Rep. Tom Cole of Oklahoma, an influential House Republican, and Rep. John Delaney of Maryland, a moderate Democrat, renewed their support for a plan to create a bipartisan, 13-member panel to recommend to Congress ways to prevent the massive trust fund from running out of money …”
Remember a camel is a horse designed by a committee. A bipartisan committee of politicians produces a camel the size of a giant blow up balloon in a Macy’s parade! It is jam packed with compromises to satisfy everyone to the point it is unlikely to come close to the original objective.
Here are highlights in the current bill in the House of Representatives:
- Gradually increasing the retirement age for full benefits from age 67 to 69.
- Adopting a less generous Cost of Living Adjustment (COLA) Formula.
- Means testing, reducing benefit payments to wealthier retirees.
- Eliminate COLA increases for wealthier individuals.
- Increase the minimum benefit for lower-income workers.
The article summarizes, “Johnson’s proposal … is little more than an opening bid in a much larger conversation about entitlement reform in the coming year.”
The government is broke and eventually changes will be made. Everyone will bear some burden of “entitlement reform.” Young workers will see higher taxes. Increasing benefits for low-income workers, benefits based on means testing and eliminating COLA adjustments for wealthier individuals is turning Social Security into a wealth redistribution program.
Inflation – the elephant in the room!
The impact of COLA changes will have major negative effects on baby boomers and retirees.
Prior to the high inflation Carter presidency, retirees had a fixed monthly check. Congress occasionally voted to increase benefits. The elderly cheered – the benevolent Uncle Sam gave them a raise. Historically the increases did not come close to keeping up with inflation.
Future inflation risk cannot be accurately calculated. During the five-year period, 1977-1981, accumulated inflation amounted to 59.9%. If a person retired on 1/1/77 and received $1,000 per month, five years later they would need $1,599 per month to have the same buying power.
Will we experience high inflation in the future? The way the government is creating trillions out of thin air, there is a high probability. No worker, young or old wants to bet his or her future financial survival on low inflation for the next several decades. Inflation is the government’s friend and stated goal. They want inflation to sneak up on seniors, unlike the double-digit increases like the Carter years.
The deck is stacked. Younger workers will find their taxes increasing and their retirement date pushed back, while seniors and savers will see reduction in the buying power of their benefits.
What’s missing from the plan?
If the Hon. Representative Sam Johnson (R-TX) wants his bill passed he needs more public appeal. How about a provision calling for immediate elimination of all pensions for current and former federal elected officials? Congress should be on Social Security, just like the rest of us. The public is fed up with the elites. Put all elected officials under Social Security and Medicare like most Americans and then address changes.
While it is fun to dream, putting congress on the same plan with everyone else is for our emotional benefit. The system is broken and expecting politicians to fix it is foolhardy.
What should all workers do now?
1. Recognize Social Security for what it is and work around it. Social Security was designed to provide supplemental income for retirees based on their income. It’s now another typical government “entitlement program” redistributing the wealth of the nation. The working class may end up with something; however the benefits will have little correlation to your contributions.
2. Maximize your savings, particularly your 401(k). Workers cannot depend on Social Security to protect their lifestyle. The proposed changes are designed to punish savers; the wealthier you become the more your benefits will be reduced.
Workers will have to go head on into the incoming tide and move forward. Maximize your savings in 401(k) type accounts – particularly if you have some sort of employer matching. You have the benefit of reducing your current taxable income and accumulating wealth on a tax-deferred basis.
3. Invest your 401(k) wisely. Having your investment income tax deferred is a good benefit but only if you grow your wealth. Don’t just make contributions and ignore where it is invested. If you need professional help to guide you, it is money well spent.
4. Increase your inflation hedge. The most buying power a retiree will have will be their first monthly check. By design, the buying power of each additional monthly check will decrease. For the “wealthy” the process will be faster.
In addition to maxing out your 401(k), continue to regularly buy gold. Only Gold provides historical gold prices. On 1/1/77 the gold price was priced at $133.77/oz. On 12/31/81 the price rose to $400/oz. During the Carter years gold almost tripled in value, appreciating well ahead of the inflation rate.
Buy and accumulate well past your normal retirement age. Your social security check will not keep up with inflation. Eventually retirees will have to sell small amounts to make up the difference to pay the bills.
5. Think before deciding to defer benefits. The government offers higher benefits to those who defer taking them when they are eligible. Making the wrong decision could cost thousands of dollars.
The decision about when to draw benefits is different for each individual. Not only do you need to “run the numbers”, realize you are making a bet with the government on how long you will live. How much do you trust the government not to change things?
6. Can Americans really depend on Social Security? It depends on your definition of depend!
Retirees need “income certainty” – having enough money to pay the bills regardless of what happens in the markets, inflation increases or any other unexpected economic changes – without having to worry. Should means testing and reduced COLA adjustments become part of the revision, income certainty will be replaced with worry. Retirees can depend on the government to send them something every month, but they cannot depend on it to continue to pay all the bills it may have covered in the past.
We have updated our FREE report, “An Honest Person’s Guide to Social Security”. Click HERE for your free download. You will find information your financial advisor is not likely to tell you.
And Finally…
A government big enough to give you everything you want, is strong enough to take everything you have.
– Thomas Jefferson
Until next time…
Dennis
Miller, On The Money
You can depend upon social security as long as people believe paper scrip and computer digits represent real money. If/When that’s ever called into question it’s game over.
All government employees, congressman, senators and presidents should only have Social Security, no pensions! This will clean up the system extremely fast! also, add them to medicare as well.
Let me give you the short answer to that question.
Bwahahahhahahaha
I’m counting on Social Security for my old age. If it’s not there, I can always go back to male prostitution.
Iska. Work harder and stick with the female ones.
Even queers have a limit.
What person in their right mind would expect that?
I know schools suck now, but have they always been this bad?
@HS: One word answer: NO
I went to school from 1944 through ’56 as K-12.. The teachers were in charge of discipline – usually with a yard stick – or as I remember a 3′ long 5/8″ dowel painted red/white/blue.
They wanted two things out of you – your abject attention and your best efforts.
We had a few exams scattered throughout the year to allow the teachers to assess how well you picked up the material and we got grades from A to F. No consideration was given to insuring a poor widdle student felt good about anything. If you got an F on an intermediate test, you got to do make up work and yu better not fail the next one. A final exam at the end of the year – make a D or better, on you went. Make an F and you got to repeat the course.. We had very few F’s..
Hi Muck,
You started a year ahead of me. I wanted to chime in about the educational differences.
I did not find out much of this until years later – but most all of our male teachers and coaches were WWII veterans, and officers because they had college degrees. They did not put up with any crap.
Our gym teacher was an army colonel who had some very important duty in WWII. My science teacher (who later became a school principal) was a Marine officer. The list goes on.
They were not about to take any crap from young punks. Our expectations were clearly understood as was their job. They saw it as preparing us to be responsible adults in the real world.
It was a different time and generation. In retrospect, I am grateful because they took their jobs seriously and got a lot of us squared away.
Best regards,
Dennis Miller
I’m 67, going to work and write code forever. However my wife and I are sucking down as much SS as possible. Between the two of us we get $45k a year from SS!
It’s fucking crazy – but I’ll take it. Screw the millennials.
Dutchman, something to think about. That “$45k a year” you’re so proud of taking doesn’t come from some faceless group of millennials. The folks you’re “screwing” are your children and grandchildren. Do you really want to brag that? I know I wouldn’t.
Well there’s a few minutes I’ll never get back.
Well the government boxed themselves in on this one didnt they?
Take away from older whites with younger white children looking on.
All the while funding EBT and section 8 and in addition welcoming in refugess with fanfare by Democrats from Islamic counties.
For once, i say the Democrats out did themselves on this one.
The future of Social Security is probably quantitative easing on a much grander scale. The alternative is a full retirement age of about 72, with upwards of a 10% contribution rate (up to 20% with employer match). Some combination of all this seems to be the likely outcome.
Anyone who really doesn’t believe that social security will last just as long as the US Gubermint does — well, they must not understand American politics.
I have already made up my mind that I am working until 72 maybe even longer. I just don’t see how the Pension promises can be paid when so many are following the advice of Tim Leary.
[img
[/img]
Governments everywhere have made it easy for their constituents to do nuthin’ and get paid.
This game of chumps.
The sloths eating promise sandwiches on Wednesday.
The fool who works paying for them on Friday.
[img
[/img]
Gotta go. Off to Bank with my cheque!
I have actually followed Tim’s brother, Really Leary………………sorry.
It’ll survive.
If nothing else, private pensions will be confiscated and put into it to keep it financed.
It’s already been suggested.
In politics, they are not called suggestions, they are trial balloons.
This article is a big load of bull shit with the exception of the statement on SS. The 401k recommendations are great if you want to be part of another government controlled plan with no guarantees. On the positive side everyone should take advantage of the deferred taxes because we all know those are going to go down in the future right? There are still safe places to put your money and grow it for retirement that gives you easy access to it when needed but qualified plans are not it.
I agree Joe. They are registered so that they can be confiscated. Better to get out of debt and unplug from the matrix.
That is it in a nutshell get out of debt and try as best you can to unplug from the matrix. For anyone under 50 it is a tough call, I would seriously consider not paying it, go under ground do less on the books. I would gladly give up any future benefit from uncle if I could get back all the money I paid them for 20 plus years as a self employed plumber. I would probably look for cheap property to use as rentals so if I chose not to work I could at least have some income. If things keep on their present course I might cash out my IRA in protest, take the tax hit and move the money to a different asset class altogether.
“Anyone who really doesn’t believe that social security will last just as long as the US Gubermint does — well, they must not understand American politics.” – Bob.
Upon being told that a certain elderly Senator had protested that no such law should pass while he was alive, XXXX responded:
“Let us humor him, for after all, he does not ask us to wait long”.
(Can’t remember which Roman said this, but Bob doesn’t ask us to wait long – just as long as the USGov lasts. The destruction of SS will not take quite that long – it will fall BEFORE the USGov does, and be mightily reduced before it does).
Can Americans depend on Social Security? Gary Wright has the answer for that question
Face it 15% of every dollar I earned from 1970 to now has been forced into a Ponzi scheme by law meanwhile my defined benefit retirement package along with my heavy industry job was bankrupted and now a bunch of high paid wonks want to fuck with my social security after assuring my personal savings earned shit % and my IRA earnings we’re neutered by sucking the purchase power out from under me and you wonder why ammo sales are up !
I did a few minutes research on where the concept of the withholding tax originated, why it was instituted (God knows why it was allowed to be instituted), and how the concept was later applied to social security. I won’t go into the details-you boneheads can look it up as easily as I did-but the withholding scheme is one of the main reasons governments at all levels have gotten so completely out of control.
Two names come up as being instrumental in originating and implementing that god-awful idea: Beardsley Rumi, Chairman of the New York Federal Reserve Bank, and Milton Friedman (if you don’t know who he is, you are to ignorant to get anything out of this post anyway).
I remember Beardsley Rumi’s name from some obscure article I read about how he was being honored for what a grand guy he was for coming up with the idea. Both he and Friedman should have been strangled in their respective cribs.
xrugger, if you have trouble figuring out when to use to, too or two, maybe you are too ignorant to get anything out of this reply.
Fair enough TJF. I just noticed that myself. Thanks for the proofread.
Glad you took it in the apirit it was given.
No worries. It doesn’t pay to be too thin-skinned in this neck-of-the-woods. One never knows if Stucky might be lurking behind the next tree, though I don’t believe grammar is his strong suit.
or their, they’re. & there?
I just retired at 64. I have plenty of assets and no debt. Decided that I wouldn’t feed the beast any more and would enjoy life. I collect $27.6 per year which I can easily live on without touching my assets. If I had waited until 66 I would have received $31.8K. It will take until I’m 77 before I would be losing a higher payout due to early retirement. But those dollars received today are worth more than the dollars tomorrow due to inflation. So why not start earlier.
God help any poor bastard who believes in government retirement. Many people will, and have, benefit(ed): great. I refuse to believe my pension, and/or so called social security will exist. So let’s get to brass tacks. This is a small concrete example. I live by the $0.10 rule: if I buy a car that costs $1000, I have to drive it 10,000 miles. Pretty simple right? Go price a new truck off the lot of your favorite brand, and then decide if you will ever drive it that far. That’s just like social security: a grand price tag but zilch on deliverance. What have you paid?
In 1984 or 1985, my gradeschool teacher told us all about this thing called Social Security and how she would receive hers, but we would pay into it for our entire lives and never see a penny of it. No shit, this really happened. She was one of the good teachers…
Most of the folks here are smart enough to know that it was never meant for everyone. It was a National tithe so all of our spinster aunts, blind cousins and widowed cripples wouldn’t starve to death under a bridge somewhere and the good hearts of Americans allowed for it. That snake oil salesman FDR pushed this through in order to turn liberty minded yeoman into wage serfs and turn a profit for his greedy banker buddies while he was at it.
As for retirement, I don’t understand the concept’s appeal. I want to work until the day I die doing whatever I can do for as long as I can do it. Retirement sounds like a prison sentence or being made to take a cruise for the last twenty years of your life. It sounds inhumane to me. If I ever get to the point where I am too much of a burden where I have nothing to contribute I’d rather make other arrangements. If I’m not running at full capacity but still able to contribute I hope that the values I instilled in my children would make caring for me part of their adult responsibilities.
We’re too far off track from where we need to be to ever get back without some catastrophic inevitability, and that is, as they say, inevitable.
Hfs, agree that to retire is an alien concept. I will work at something till the day I die. Problem is the work I now love doesn’t pay worth a shit, that would be o.k. if the world resets.like the song says, ‘I don’t mind chopping wood and i don’t care if the money is no good.’ In the meantime I would like to move up the food chain a little, while there is still some time.
HSF yours are the words of the self employed who has found a vocation that is also an avocation. There are millions of slaves slogging along doing jobs they hate out of sheer necessity, and looking forward to retirement is all they’ve got. I believe they just want off the treadmill so that they can pursue more meaningful and personal work. For a lot of people making that leap is terrifying and they wait for the ride to stop and let them off rather than jumping.
That is a rhetorical question, right?
Why would any sane person be part of of a ponzi scheme? Just because some nut job who works for a criminal organization called government and writes laws doesn’t means that they apply to you and you have to obey them. My kids have no numbers apply d refuse to paticipate in a ponzi scheme that robs and steals from people to benefit others.
james the deplorable wanderer, I suspect the US Gubermint will outlast all or most of us here at TBP — in some way, shape or form.
It doesn’t appear to be a very difficult stretch for the Fed to monetize the Social Security Trust Fund over some moderate period of time. This, of course, would have a strong inflationary impact, but that might be partially be offset by whatever cost-of-living measures continue to be applied to benefits.
Possibly.
Let’s say for a discussion that Trump gets backed into a corner and turns tyrant, with a bare majority of the SCOTUS voting to keep their heads on their necks and the same for the CONgress – he gets whatever he wants, legally, because the other two branches are scared into going along by the limitless leftist rioting. Is whatever chameleon tyranny-with-consent still the U S Government? Or has it become something else?
Let’s say that Shrillary and her handlers stage a leftist coup, complete with “new” Constitutional amendments to neutralize their enemies and mandatory re-education for patriots – is that still the USGov we all know and detest?
Actually, I think there is NOTHING they can do to prevent the Crunch – and very little that will even stall it, for long. A period of widespread anarchy followed by the long drought of authoritarian order before (if ever) a restoration of republican government is what I suspect is coming, and it may last for generations. Once the USGov replaces, repeals or revises the existing Constitution I think you have to say the USGov itself has ended – and something else has replaced it. We don’t count the period of the Articles of Confederation as the same as the current Constitutional government, so I think that’s where the dividing line is. Once the Constitution is ineffective, voided or ignored, then we have a different form of government – and yes, I am aware some are saying that’s already happened.
It will be obvious, one way or another.
Hardscrabble Farmer, most of us here at TBP greatly admire you and the lifestyle you have chosen and live so well! We wish you godspeed in continuing to live as you want until the day you die!
The appeal of retirement for most of the rest of us is exactly the same: continuing to live as we want until the day we die! Unfortunately, few of us are doing that in the work-a-day world, grinding out a living. The carrot we chase is to escape the bondage of a weekly schedule, doing the same types of things month after month, dealing with a mix of people along a spectrum of likable to loathsome, and very little of it of our own choosing. Not to mention one of the primary motives, which is to no longer have a boss! Many retirements consist of a flight from the modern, advanced form of indentured servitude.
Financial independence from employment can and should lead to some degree of independent living, and the ability to make our own choices about what we do and see in the world from that point forward. The idea of being more in control of your remaining time is an irresistible siren call to the majority of people who are not currently ‘doing what they love to do’. It is the opportunity to stop working for others, and live for yourself.
For too many people, retirement is their last, best chance at having a taste of freedom. While it is quite possible to manage the opportunity poorly, retirement is the opposite of a prison sentence for any reasonably well-rounded human being. In the sense that most people mean by the term retirement, I suggest that Hardscrabble Farmer retired a long time ago. And more power to him!