Social Security; Part 1: Today the Problem, Tomorrow the Solution

Today I address the issues, in a day or two I'll post some initial suggested modifications.

The so-called 'retirement age' is nominally thought to be 65 years old, but to get your full Social Security benefit the age is inching up each couple of months to 67, for those born in 1960 or later. And who knows where it will go from there? Or what will become of it.

Ya know... the whole idea of a 'retirement' is a new thing, a twentieth century idea... From the ancientest of times, from the time the Hebrews were in Egypt, from the time when Jesus walked this earth, from the time of the Magna Carta, and all else until 1935, the rich never worked and the rest never stopped. They worked until they died or became disabled. If one was unlucky enough to become disabled, and if not summarely executed, he became the responsibility of his family, tribe, or clan. That was it.

So in America, the idea to enjoy a few years without working, a so-called 'retirement,' was invented in 1935, by FDR's New Deal, and called Social Security. The idea was to create a pension system backed and administered by the U.S. government. The 'retirement' age was set at 65! Working people would contribute a portion of their wages to the plan and their employer would match that amount to double the contribution to that person's future pension. But -- the average life expectancy then was only in the late fifties for men.

Did FDR just expect to collect a bunch of money, contributions, and not have to pay much out? Maybe! But the pension plan also covered workers who were already close to -- or over -- age 65, and who had only paid in little, if anything, to the plan. The plan created the hope for the ordinary working person to have a few years of a less taxing life as they awaited redemption. Very quickly money was needed from the current workers to pay for the retired workers, although there was a big, huge surplus of paid in 'premiums' annually, year after year. With the favorable demographics, the system appeared to be a roaring success, decade after decade.

But now almost 80 years later, with improved working conditions, a change in the types of work we do, advancements in medical and dietary science, more of us live much longer and the retirement age has been changed very little.

During the time of the Great Depression and later WWII, the federal government ran budgetary deficits. The administration looked and said, "Hey! Look at that huge mountain of cash in the Social Security System; why not sell them our bonds, our IOUs? We can pay them interest and pay them back from future budgetary surpluses! After all, we have the strongest credit worthiness in the world and plenty of taxing power!"

As the population expanded from the birthrate and new immigrants, many more payers came into the system even as some more retired. Year after year the surplus in SS grew and grew.

But then something happened. The years and people mounted up. Benefits other than retirement were added to the plan, causing more money to be paid out without more money being paid in. That couldn't last long, so the worker's 'premiums' were increased to a higher percentages of their wages, with the employers portion also raised -- and also applied to a higher plateau of earnings -- again and again. The people absorbed these seemingly little hits every few years without bellowing. And the system went along swimmingly.

BUT WAIT! The government began to seldom have budget surpluses and had to sell new bonds, borrowing more and more from the public, and eventually borrowing all of the surplus of the Social Security system too. None of the designers at the outset thought about inflation! There became many years when labor and commodity price inflation was greater than the financial interest paid on the bonds. The retirement benefit wasn't raised. So the retirement check received by the retiree could no longer buy the same amount of food, pay the mortgage or the rent, or buy all the gas needed for the car, et. et.

As the 20th century waned and the 21st century arrived, some economists and mathematicians analyzed the system -- projected years, decades, into the future with data supplied by the census, estimates of possible inflation, the numbers of workers to be retired and the numbers who would be working and when. Whoa! They discovered a year would come when the system would no longer have an annual surplus and the Treasury would have to begin paying back the loans.

"But where would they get the money? The deficits were only getting bigger."

They began estimating when the vaunted Social Security system would collapse, would run out of money, maybe go bankrupt. The annual surplus went negative in 2013, and as of now, most experts agree that the retirement system will be out of money by about 2033, and for Medicare that will happen sometime in the early 2020s. This is only true provided the federal government can tax the people sufficiently or sell enough bonds to fund their operations and repay the SS system the money it's owed.

Sure... tell me this is too simplistic, that there are more factors that have led to this coming debacle. I agree! But this simplistic explanation, I think covers the main points of the problem we have today. Think about this for a few days and I'll write my analysis and partial suggested modifications in this place in a day or two. Stick with me on this...

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