On my way out the door to see my sweetie when I hear a news report about opposition to President Bush's proposal to start a privatization of the Social Security program. As I was driving I started thinking about what Social Security really meant, and so I called my dad to get his input. Here's what he told me...
The Social Security program was enacted in order to provide an income for retirees who no longer have one. During the era it was enacted the mass majority of people who worked to retirement age had little to show for their decades of hard work because of slow to moderate economic growth due to widespread lack of education on how economics works in the common public coupled with little or no investment by a large portion of the public because of said lack of education. There was one commonality, however; the mass majority of these people WORKED for decades until retirement.
These days things have changed. The Social Security system doesn't require you to work your whole life to be able to draw benefits when you're at an eligible age. In fact, if you should choose to do so, you need only fulfill the required amount of work credit to draw Social Security. Basically, if you choose to you could work hard and pay your Social Security contribution for six or so years. Then, at age 24 (assuming you started at 18), after the required amount of work credit has been met for you to draw full benefits, you could quit working for the next 42 years and instead find a way to use the multitude of government programs to survive.
That's an extreme example, but because of a lack in fundamental change in the laws governing Social Security this example is very possible, and happens more than one might think. This, among other things, is why on average, the contributions of NINE working adults are required to supply the full Social Security benefits entitled to one recipient. On top of that, the amount of money a single recipient receives on a monthly basis is, in quite a few cases, not enough for the recipient to survive. This is because, again, of a lack of economics education and understanding.
We've been brought up in recent times to expect what we want the minute we want it, or at least shortly there-after. Rarely does anyone have to wait very long for anything anymore, or at least that's how we'd all like to live. The thing is, when what you want is really worth something to you it is also worth waiting until you can afford it before you get it. Unfortunately this point is lost on most of the country it seems. I say this because credit card debt has risen in the last few years. Now, I know, interest rates have gone down due to the small recession we experienced. It's expected to see credit applications fly when you can get a credit card from Citibank with a $10k limit for 5%. Anyone would jump at the chance, and I was no different.
The major difference was the extent to which I used that credit compared to the extent the average American did. People, wanting what they want right now, have gone on spending binges; vacations, plasma TV's, computers, cars, houses... The list goes on and on. Now, with the exception of a house (which, I have to admit, I do not own; we'll get to that later) all of the rest of the items in the list are little more than luxuries, and most people could do without them.
So, when you stack up the huge amount of debt people accrue throughout their lives the numbers become staggering. So, if you own a home, what do you do? Debt consolidation! Now there's these wonderful "Interest Only" debt consolidation equity lines of credit which loan companies lure people into since it's obvious to these people they can't pay their credit card bills with their income alone. "Why not use the money in your home to pay off your debt? It's YOUR MONEY!"
Wonderful! So now you have a clean slate, right? No credit debt! Lets spend more money! Alright, go right on ahead. Please keep in mind, though... You have a house with little to no equity now that you just started over paying on for the next 30 years! Most people don't think about that until after they've gone out and dug a bigger hole for themselves than when they climbed out of the last one.
So, now, with the same (or more) debt you had as before, but now with out equity to bail you out and a 30 year mortgage to pay off, as well as your minimums, what's a soul to do? Sell out, claim bankruptcy, start over and hope you do better next time. Well, what if you don't, or what if you stick it out? Say you messed it all up at age 35 or 36, but you've made it work and managed to hold on to your home. Great, so now you're 65 at the end of your mortgage, but you're so worn out because you worked so hard for 30 years to pay it off and you need something to hold you over for the two and a half years you need to wait for Social Security to kick in.
OR, God forbid, you haven't finished paying off your mortgage by retirement age (as quite a few people have managed to do to themselves)! Now you have a mortgage payment on top of your debt on top of your living expenses to eat away at your check, and because you're too old to work now, and possibly on some sort of over-priced medication for an illness which crept up on you as your body started turning against you in old age. Do you think the $980 you might get if you qualify for full benefit at age 67.5 will cover all of that? You'd better hope so, cause there are a lot of people heading down that road.
So what the President wants to do is make the individual responsible for their own retirement instead of having the government be constantly holding it's hand out. Granted, now everyone who works legally contributes to Social Security, but the amount of benefit received compared to the amount of contribution made is disproportionate in most cases. Those who pay a little bit into the system receive more than they paid into it overall when they are eligible to receive it, and those who pay more into the system don't receive as much as they contributed overall when they are eligible to receive it. Also, those who contribute more overall typically don't need the benefit, but they are entitled to it, so they draw it, if only to offset their tax liability in their twilight years.
In an ownership society each person is responsible for their own livelihood. That's the way things should work, but they don't. In a perfect world your contributions into the system would only pay for your use of the system when you are eligible to use it. However because of the lack of reform as the system aged, and as the usage base grew, it became apparent there was not going to be enough money in the system to support everyone entitled to benefits forever. Now, as I said before, there's nine people providing for a single recipient. In President Bush's example each person will provide for themselves, and their benefits don't have to be the paltry $980 or so (advanced to keep up with inflation, but not inline with inflation) either. His proposal (still in the works, by the way) would provide for a market based interest gain because it would be invested instead of just held on to by the government. I know Social Security is invested by the government now, but those gains are not passed on to the recipients because they don't equal enough to pay for the amount of payout required by the growth in recipients. Coupled with the siphoning off of funds from the Social Security account to fund whatever Congress has decided shouldn't be paid for through general funding, and you have a system which can not support itself into my father's twilight years (he's 45), much less mine, and yet we both pay quite a bit into the system. Somehow I'm feeling a little gypped!
So, back to private accounts. Being in the military, should I stay in for 20 years (and I will), I'll get a structured pension based on my "Top 3" earning pay grades. That's wonderful, and in my opinion, and the opinion of most people, well earned. So I'll be set, but what if I want more? Well, I do, and I'm willing to work for it. I've set aside 10% of my basic pay every month (and 100% of any pay I don't already get, so I won't miss something I never had in the first place) and put it into a 401k type investment account called the Thrift Savings Plan. This is a market based investment plan for federal employees which, when conservatively managed (you're able to choose between 5 funds, one of which is zero risk) can earn between 5% and 8%, and in some years upwards of 15%. Based on these retirement options coming at me in forty years why would I need Social Security? Well, I don't think I'll NEED it, but I've been forced to pay into it with the promise that when I'm eligible for it I can have it. Well, if you follow that logic out, if that promise isn't kept shouldn't I get the money back? Well, based on my present taxable income of around $32k a year, that comes out to $87k over the next forty years. Now I know I'm not going to allow myself to not advance over the next forty years, and my taxable income is adjusted upwards at 3.5% on an annual basis, so that number is actually going to be much much higher at the end of that forty years. If things continue the way they have been, and Social Security won't have the money needed to pay me my entitlement at my retirement age I should in recompense for a promise by my government made to me in exchange for my money receive a check, tax free, for about $100k (adjusted of course, and sorely underestimated). Now how do you figure that's gonna happen if they can't project they'll have enough money to pay me at all? Get the drift?
If you are responsible for your future and the government makes sure you have SOMETHING put away for the future then there will ALWAYS be something for you because your account will be YOURS and not tapped to pay for NINE others. Those who can't see this simple fact should go back to school; a place where I think economics should be taught to our impressionable young minds from sixth grade on, every year, without fail. This way when people start to come into their voting age, having paid attention to the irresponsibility the government is guilty of concerning their tax dollars since they were old enough to pay attention to such things (sixth grade???) they won't let the financial atrocities our "Representative Government" officials wreak on us on a daily basis go unpunished.
The Social Security program was enacted in order to provide an income for retirees who no longer have one. During the era it was enacted the mass majority of people who worked to retirement age had little to show for their decades of hard work because of slow to moderate economic growth due to widespread lack of education on how economics works in the common public coupled with little or no investment by a large portion of the public because of said lack of education. There was one commonality, however; the mass majority of these people WORKED for decades until retirement.
These days things have changed. The Social Security system doesn't require you to work your whole life to be able to draw benefits when you're at an eligible age. In fact, if you should choose to do so, you need only fulfill the required amount of work credit to draw Social Security. Basically, if you choose to you could work hard and pay your Social Security contribution for six or so years. Then, at age 24 (assuming you started at 18), after the required amount of work credit has been met for you to draw full benefits, you could quit working for the next 42 years and instead find a way to use the multitude of government programs to survive.
That's an extreme example, but because of a lack in fundamental change in the laws governing Social Security this example is very possible, and happens more than one might think. This, among other things, is why on average, the contributions of NINE working adults are required to supply the full Social Security benefits entitled to one recipient. On top of that, the amount of money a single recipient receives on a monthly basis is, in quite a few cases, not enough for the recipient to survive. This is because, again, of a lack of economics education and understanding.
We've been brought up in recent times to expect what we want the minute we want it, or at least shortly there-after. Rarely does anyone have to wait very long for anything anymore, or at least that's how we'd all like to live. The thing is, when what you want is really worth something to you it is also worth waiting until you can afford it before you get it. Unfortunately this point is lost on most of the country it seems. I say this because credit card debt has risen in the last few years. Now, I know, interest rates have gone down due to the small recession we experienced. It's expected to see credit applications fly when you can get a credit card from Citibank with a $10k limit for 5%. Anyone would jump at the chance, and I was no different.
The major difference was the extent to which I used that credit compared to the extent the average American did. People, wanting what they want right now, have gone on spending binges; vacations, plasma TV's, computers, cars, houses... The list goes on and on. Now, with the exception of a house (which, I have to admit, I do not own; we'll get to that later) all of the rest of the items in the list are little more than luxuries, and most people could do without them.
So, when you stack up the huge amount of debt people accrue throughout their lives the numbers become staggering. So, if you own a home, what do you do? Debt consolidation! Now there's these wonderful "Interest Only" debt consolidation equity lines of credit which loan companies lure people into since it's obvious to these people they can't pay their credit card bills with their income alone. "Why not use the money in your home to pay off your debt? It's YOUR MONEY!"
Wonderful! So now you have a clean slate, right? No credit debt! Lets spend more money! Alright, go right on ahead. Please keep in mind, though... You have a house with little to no equity now that you just started over paying on for the next 30 years! Most people don't think about that until after they've gone out and dug a bigger hole for themselves than when they climbed out of the last one.
So, now, with the same (or more) debt you had as before, but now with out equity to bail you out and a 30 year mortgage to pay off, as well as your minimums, what's a soul to do? Sell out, claim bankruptcy, start over and hope you do better next time. Well, what if you don't, or what if you stick it out? Say you messed it all up at age 35 or 36, but you've made it work and managed to hold on to your home. Great, so now you're 65 at the end of your mortgage, but you're so worn out because you worked so hard for 30 years to pay it off and you need something to hold you over for the two and a half years you need to wait for Social Security to kick in.
OR, God forbid, you haven't finished paying off your mortgage by retirement age (as quite a few people have managed to do to themselves)! Now you have a mortgage payment on top of your debt on top of your living expenses to eat away at your check, and because you're too old to work now, and possibly on some sort of over-priced medication for an illness which crept up on you as your body started turning against you in old age. Do you think the $980 you might get if you qualify for full benefit at age 67.5 will cover all of that? You'd better hope so, cause there are a lot of people heading down that road.
So what the President wants to do is make the individual responsible for their own retirement instead of having the government be constantly holding it's hand out. Granted, now everyone who works legally contributes to Social Security, but the amount of benefit received compared to the amount of contribution made is disproportionate in most cases. Those who pay a little bit into the system receive more than they paid into it overall when they are eligible to receive it, and those who pay more into the system don't receive as much as they contributed overall when they are eligible to receive it. Also, those who contribute more overall typically don't need the benefit, but they are entitled to it, so they draw it, if only to offset their tax liability in their twilight years.
In an ownership society each person is responsible for their own livelihood. That's the way things should work, but they don't. In a perfect world your contributions into the system would only pay for your use of the system when you are eligible to use it. However because of the lack of reform as the system aged, and as the usage base grew, it became apparent there was not going to be enough money in the system to support everyone entitled to benefits forever. Now, as I said before, there's nine people providing for a single recipient. In President Bush's example each person will provide for themselves, and their benefits don't have to be the paltry $980 or so (advanced to keep up with inflation, but not inline with inflation) either. His proposal (still in the works, by the way) would provide for a market based interest gain because it would be invested instead of just held on to by the government. I know Social Security is invested by the government now, but those gains are not passed on to the recipients because they don't equal enough to pay for the amount of payout required by the growth in recipients. Coupled with the siphoning off of funds from the Social Security account to fund whatever Congress has decided shouldn't be paid for through general funding, and you have a system which can not support itself into my father's twilight years (he's 45), much less mine, and yet we both pay quite a bit into the system. Somehow I'm feeling a little gypped!
So, back to private accounts. Being in the military, should I stay in for 20 years (and I will), I'll get a structured pension based on my "Top 3" earning pay grades. That's wonderful, and in my opinion, and the opinion of most people, well earned. So I'll be set, but what if I want more? Well, I do, and I'm willing to work for it. I've set aside 10% of my basic pay every month (and 100% of any pay I don't already get, so I won't miss something I never had in the first place) and put it into a 401k type investment account called the Thrift Savings Plan. This is a market based investment plan for federal employees which, when conservatively managed (you're able to choose between 5 funds, one of which is zero risk) can earn between 5% and 8%, and in some years upwards of 15%. Based on these retirement options coming at me in forty years why would I need Social Security? Well, I don't think I'll NEED it, but I've been forced to pay into it with the promise that when I'm eligible for it I can have it. Well, if you follow that logic out, if that promise isn't kept shouldn't I get the money back? Well, based on my present taxable income of around $32k a year, that comes out to $87k over the next forty years. Now I know I'm not going to allow myself to not advance over the next forty years, and my taxable income is adjusted upwards at 3.5% on an annual basis, so that number is actually going to be much much higher at the end of that forty years. If things continue the way they have been, and Social Security won't have the money needed to pay me my entitlement at my retirement age I should in recompense for a promise by my government made to me in exchange for my money receive a check, tax free, for about $100k (adjusted of course, and sorely underestimated). Now how do you figure that's gonna happen if they can't project they'll have enough money to pay me at all? Get the drift?
If you are responsible for your future and the government makes sure you have SOMETHING put away for the future then there will ALWAYS be something for you because your account will be YOURS and not tapped to pay for NINE others. Those who can't see this simple fact should go back to school; a place where I think economics should be taught to our impressionable young minds from sixth grade on, every year, without fail. This way when people start to come into their voting age, having paid attention to the irresponsibility the government is guilty of concerning their tax dollars since they were old enough to pay attention to such things (sixth grade???) they won't let the financial atrocities our "Representative Government" officials wreak on us on a daily basis go unpunished.
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1 comment:
jesus christ that's a long posting.
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