Over 7 decades ago President Franklin Roosevelt signed the Social Security Act into law as a part of the New Deal.  While Social Security does provide other benefits, most notable for disability, we’re going to focus on the retirement aspect.

So what does Social Security do for you?  Basically, money is taken out of your paycheck in the Social Security Tax.  Your employer must also pay some of your tax.  The Social Security Administration gets the money and puts it in their fund.  You do this all your life until you reach retirement age.  Based on how much you contributed (they keep track with some thing called a Social Security Number) and when you decide to take your distributions they calculate how much you are going to get.  What you get is income for life, adjusted for inflation annually.

Sounds like a sweet deal.  But let’s say you work your entire life and drop dead right before you plan to take distributions.  Your benefactor should get it right?  Nope.  Your survivors get something, but I’m talking single digit percentages of what you would get.  Practically speaking, they get nothing.

As with all governmental programs, its not always so simple.  For those of us (and by us, I mean NOT me) that make more than $90,000 a year, you only pay the tax on the first $90,000 $102,000 you make.  This is great fir the high income earners but also keeps the administration for having to pay for Bill Gates’ retirement.

The fun part of Social Security is the Trust Fund.  The famous fund that hold trillions of dollars.  You know, since you’re paying hundreds or thousands every month to the fund, there must be silos of cash or maybe a really big bank account just sitting around.  Well crack open a safe and you’ll only find ledger of your contributions and a bunch of notes that says “IOU” - Nixon, “IOU” - Carter, “IOU” - G.I. Joe (Heh heh j/k its just me, Georgie!).  I’m not saying those 2 1/2 presidents borrowed all the money, its the government in general.

You see a surplus developed in the 50s and 60s and continues today.  The administration operates like a factory.  Send the money in and then send it right back out.  Whatever we don’t need we’ll put in storage (read trust fund)  When needed the government will borrow from the surplus to help with the budget.  We’re on track to start needing that surplus soon, as the Baby Boomers who created the surplus are retiring.  We need to borrowing to stop or else comprehensive reform is necessary.

Though Social Security distributions used to be tax-free, the big boys in DC decided in the 80s to tax the income.  Congress justified it in typical fashion “the corporations get a deduction for their contributions so we need to recapture that income by taxing the recipients”.  These are the types of policies that make the public perceive politicians of favoring the rich.  Good move guys.  In Congress’s never ending quest to reduce spending and taxation, they raised the Social Security tax in the early 90s.  Granted these taxes do go back to the administration, but I lose faith in a government agency that must tax their own distribution to replenish the fund for more distribution.

Social Security is a mixed bag.  While its been successful since its inception at supplementing the retirement of US Americans, it would appear that a problem for those of us not yet retired is developing.  There are many suggestions for reform.  Most of them are logical, and almost all of them leave you with less money.  The truth is, Social Security as a benefit to citizens will end with the Baby Boomers.  Those of us coming later will be faced with different options to keep Social Security afloat.  One of the most reasonable options is to delay the earliest time you can take distributions.  If you were going to take Social Security at 65 but wait until 67 with the same monthly payout, that puts less strain on the administration (and less money in your pocket).  Another option is to increase the taxes you pay in without and increase in the payout.  Again, less money in your pocket.  What will likely occur because its the easiest to implement is a reduction in the payout.  So the age you can start drawing stays the same and your contribution doesn’t change, just what you get does.  Again less in your pocket.  We could see a combination of the three, which of course would be typical of a government program.

Regardless of what happens to Social Security, there is not plan to eliminate the fund.  If give the option to cut out now and just lose my contributions so far, I would gladly do so.  I don’t believe in the system and am quite sure I’d be better off investing it myself.  Of course, most people would probably be exploited in a private fund, so we’re stuck with it.  

Related posts:

  1. 5 Problems With Social Security
  2. Social Security, I can borrows dollars ya? K Thanks bai!
  3. Social Banking
  4. Weakon 217: FDIC Insurance
  5. Weakon 117: Intro to Government Spending

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