Social Security Myths

Posted:
in General Discussion edited January 2014
Had the Apple home page come up as served by Netscape and saw this very interesting article today. I figured it might provoke a little discussion around here.



The first two points were the most interesting to me and are often not understood in many of the discussions around here.







Quote:

Myth 1: Social Security is a savings account

Don't confuse Social Security with a 401(k), IRA, or any other type of retirement account. The money in your 401(k) or IRA is yours -- Uncle Sam can't take it (though he can certainly tax it).



Social Security, however, is not a savings account. You do not have an envelope at the Social Security Administration in which your taxes are deposited. The taxes taken out of your paycheck today become a retiree's benefit check tomorrow. For now, the government is collecting more money than it is paying out, so a trust fund was established for the extra payments.



However, in 15 years the flow will reverse, with more money going out than coming in. At that point, the government will need to dip into that trust fund. The SSA estimates that by 2042, the trust fund will be depleted.



Myth 2: These trust funds have money

Instead of leaving the excess Social Security taxes alone -- putting it in a so-called lockbox -- the federal government "borrows" the money to spend however it wishes. Ask yourself this question: What kind of nest egg would you have if you kept borrowing from your 401(k) to pay the mortgage?



So when Uncle Sam slips his debit card into the trust fund ATM in 15 years, he'll just receive an IOU -- from himself. In other words, instead of billions of dollars' worth of reserves, the trust fund represents billions of dollars' worth of debt. How will the government be able to pay this debt, i.e., pay the Social Security benefits that won't be funded by tax receipts? By borrowing more money! (Perhaps Uncle Sam needs to visit our Credit Center and shop for a low-interest-rate credit card.)



Taken from here.



I'm wondering why so many support Social Security. It is profoundly regressive. It hurts the poor far more than the rich.



It caps out the contribution at $87k of income a year and everything above that is essentually taxed at a 13% lower rate. It takes and give no guaranteed true benefit back. You get a promise on paper, but that promise might not be worth the paper it is written on if the government cannot pay itself back.



Consider how evil and wrong Social Security would be considered if it were done by an ?evil? corporation instead of the government. Suppose Enron/Haliburton/Martha Stewart (haha) convinced poor and middle class people to give them 13% of all their income. They then took that money and loaned it to a wholly owned subsidiary company. The subsidiary spends the money and gives Haliburton an IOU for the amount borrowed. It is claimed in the future that the subsidiary will fully repay the loan somehow even though they have already spent all the money. Would this be considered anything else but world class fraud? Even if the subsidiary issued a paper of claimed future returns, they can just dissolve the company, write off the debts, change the rules, whatever. So can the government.



Just so we are clear this has been done by Republicans, Democrats you name it. All have robbed this cash pile. Why should we support this in any fashion in the future?



Nick
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Comments

  • Reply 1 of 116
    When I was in high school, years ago, my economics teacher constantly told us to save 10% of each paycheque. That was advice that stuck with me and I am actually saving well above and beyond that.



    I trust myself more than the government to make decisions about my finances. My savings/investments are diversified enough that I believe I will do just fine by myself.



    That being said, I do expect to receive some sort of government pension, based on the ridiculous amount of taxes I pay. I just have no expectations of the value of them. All the indicators point to a much lower amount than one had been led to believe.
  • Reply 2 of 116
    haraldharald Posts: 2,152member
    I see the problem with spending the social security overflow.



    Not with social security itself.
  • Reply 3 of 116
    kickahakickaha Posts: 8,760member
    SocSec was offered up at a time when most Americans were scared to death of poverty, and were struggling with it en masse. It seemed like a great idea at the time... to the masses. I mean think about it - no having to worry about how *much* to save, no having to perform acts of self-restraint not to dip into the savings for fun purchases, no having to *think*... hey, it's appealing to most sheep. Uh, I mean voters.



    And of course the government saw a huge cash windfall that they're now addicted to and unable to give up, no matter how screwed up the system is.



    I say opt out of SocSec. You aren't going to get anything out of it anyway.



    And to those who believe that it's a good way to fund the government in general... that's what general taxes are for. *This* fund was for a specific contractual purpose, and that contract has been broken. If you want to pay that amount to support government programs, you are free to add it to your income taxes. *This* program is a bust.
  • Reply 4 of 116
    giantgiant Posts: 6,041member
    Social security isn't just retirement. Massive chunks of it go to disabled workers and their childeren, as well as the families of deceased workers.
  • Reply 5 of 116
    Quote:

    Originally posted by giant

    Social security isn't just retirement. Massive chunks of it go to disabled workers and their childeren, as well as the families of deceased workers.



    Life insurance should be covering families of deceased workers, not social security.



    Too many people let the government do their thinking/planning for them.
  • Reply 6 of 116
    kickahakickaha Posts: 8,760member
    Right. Those unforeseen events that normally one would save up for, 'just in case'. SocSec takes that responsibility/burden off the taxpayer, for better or for worse.



    Fact is, most people can't save for a rainy day to save their lives. Sometimes literally. I really don't have a problem with that... it's their life, they can screw it up however they wish.





    If SocSec weren't sold as a 'we'll take care of you later, we *promise*' pile of malarky, but instead outright said to be what it *is*, which is (nominally) a social programs tax above and beyond income tax, with no real promise at the end of the tunnel, I'd be happier about it.



    Not happy, but happier.



    Right now the way most people see it, and the way it's been sold to the public, is just a pile of horsecrap.





    And then you get into the whole issue of using that fund as an open purse for other programs, which is, as has been pointed out, financial underhandedness...



    It's a mess.



    Scrap it, start over, is my opinion.
  • Reply 7 of 116
    thttht Posts: 3,932member
    We generally support social security because, as a society, we have decided to take care of those who cannot take care of themselves or those who were not able to prepare for their post-retirement lives. Perhaps it is a bad idea since it allows many elderly to live apart from their children and grandchildren, and therefore not very good for a strong family culture. Perhaps in the aftermath of the Depression and WW2, there were way too many parents without children to rely on, and social security was necessary. In any case, I can buy into it because I see it as a program that helps those who can't help themselves. The problems it has should then be fixed to reflect what it is. The simple fix is to raise the eligibility ages at a commensurate rate with life expectency and elderly population.



    I've never understood social security to be a person's "retirement" fund as one of the myths allude to. It was only during the late 90s where I became aware that people thought it was. I just figured it was some political talking point for privatizing social security. It was always a social program like welfare to me, albiet one where a person is proportionately rewarded for what they put in.



    The 2nd myth is political grandstanding and obfuscation of the issues.
  • Reply 8 of 116
    giantgiant Posts: 6,041member
    Quote:

    Originally posted by Kickaha

    Right. Those unforeseen events that normally one would save up for, 'just in case'.



    That's great in theory, but some people can't save because they aren't in a position to. We can sit there and harp about how less responsible people aren't saving and investing money, but that doesn't solve the problem. Telling disabled workers that they should have saved doesn't solve the problem.



    I have a range of investments, and I know that it is not an easy or simple thing to get into. Many people don't even know where to start. Add to that the people who simply don't have the time or resources to learn or even be concerned with it.



    Or what happens if you lose your job and end up in low-paying jobs for a long stretch while trying to support a family? What happens if you become disabled during that time?



    Anyway, I do completely agree with everything you've said.



    Sure SS is a mess. Sure people and the government totally abuse it in their own ways. But we can't just scrap the whole program and replace it with personal responsibility.
  • Reply 9 of 116
    toweltowel Posts: 1,479member
    The "dirty little secret" is that, thanks to the Greenspan-Reagan (!!) reforms of the 1980s, SS is in pretty good financial shape. It's the rest of the government that's falling over a cliff of massive insolvency.



    Do people even realize the magnitude of the budget problem? SS is still running sizable surpluses: $155B in 2003. The non-SS part of the budget in 2003 ran a $530B deficit on only $1500B in spending - only half of which is discretionary, anyway. In 2002, we would have had to eliminate either the entire DoD, or all other domestic discretionary spending (NASA, NIH, CIA, DoT, DoE, etc.) to balance the budget. In 2003, we'd have to eliminate all of one and half of the other. In 2004....?



    Put another way, all personal income tax recipts totaled just under $800B in 2003. Our on-budget deficit is rapidly approaching the sum total of personal income tax receipts. Overall government revenue, as a percentage of GDP is at its lowest point since...since...well, the CBO's info doesn't go back far enough (only 1965), but I'll take the punditry's word for it and go with 1945.



    Do people even realize that we spent only about the same amount of money on SS as we did on Defense/War last year? About $470B. That's not chump change, but it's still only a bit over 4% of GDP. 4% of GDP, by coincidence, is about how much government revenues have fallen since 2000 (20.9% to 16.5%).



    There is no SS train wreck coming. Just a general budget train wreck that's already started in not-so-slow-motion, which could well take SS with it.



    [All stats from the CBO's historical budget data tables.]
  • Reply 10 of 116
    bungebunge Posts: 7,329member
    Quote:

    Originally posted by trumptman

    Just so we are clear this has been done by Republicans, Democrats you name it. All have robbed this cash pile. Why should we support this in any fashion in the future?



    Supporting Social Security doesn't mean you support this practice, or that of capping the tax at $87,000.
  • Reply 11 of 116
    jubelumjubelum Posts: 4,490member
    Social Security was a bad idea from the start.



    The government warns us on it's own website at the SEC about schemes like SS.



    Do we need protection for the elderly poor? Yes. But this scheme is just a fiscal disaster waiting to happen.



    By the time I retire, SS will be within a decade or so of collapse, all so politicians can buy votes with the Govt's SS income.



    Eventually the tax eaters are going to outnumber the tax producers. Then that is it. We are no longer the best and most powerful nation on Earth. Thanks, FDR.
  • Reply 12 of 116
    sdw2001sdw2001 Posts: 17,437member
    Quote:

    Originally posted by Towel

    The "dirty little secret" is that, thanks to the Greenspan-Reagan (!!) reforms of the 1980s, SS is in pretty good financial shape. It's the rest of the government that's falling over a cliff of massive insolvency.



    Do people even realize the magnitude of the budget problem? SS is still running sizable surpluses: $155B in 2003. The non-SS part of the budget in 2003 ran a $530B deficit on only $1500B in spending - only half of which is discretionary, anyway. In 2002, we would have had to eliminate either the entire DoD, or all other domestic discretionary spending (NASA, NIH, CIA, DoT, DoE, etc.) to balance the budget. In 2003, we'd have to eliminate all of one and half of the other. In 2004....?



    Put another way, all personal income tax recipts totaled just under $800B in 2003. Our on-budget deficit is rapidly approaching the sum total of personal income tax receipts. Overall government revenue, as a percentage of GDP is at its lowest point since...since...well, the CBO's info doesn't go back far enough (only 1965), but I'll take the punditry's word for it and go with 1945.



    Do people even realize that we spent only about the same amount of money on SS as we did on Defense/War last year? About $470B. That's not chump change, but it's still only a bit over 4% of GDP. 4% of GDP, by coincidence, is about how much government revenues have fallen since 2000 (20.9% to 16.5%).



    There is no SS train wreck coming. Just a general budget train wreck that's already started in not-so-slow-motion, which could well take SS with it.



    [All stats from the CBO's historical budget data tables.]




    Well, it's in good shape for now. It won't be though, unless it's fixed or radically reformed. As for the deficit, that's a separate issue. I agree we need to get spending under control. Though, it should be pointed out that the deficit and even national debt is not the problem it;s been made out to be. The deficit is still smaller as a percentage of GDP than it was during the 1980's, and the interest on the gargantuan national debt is manageable.



    giant:



    Believe it or not, I actually agree with you. There are people in this country that literally CANNOT take care of themsevles for a reason involving physical or mental disability. I've always supported our *duty* to take care of these people. What I do not support is a mandatory retirement program. This branches out to other areas, like welfare programs. It seems to me these programs should be based on one's ability to provide for himself...not how much money he makes.



    All this being said, we're never going to see the end of retirement benefit. We may see limited privitization, but not completely. At this point we need to fund the program differently. I've repeated the suggestion (not mine) of a national sales tax that replaces the payroll tax.
  • Reply 13 of 116
    bungebunge Posts: 7,329member
    Quote:

    Originally posted by Jubelum

    Eventually the tax eaters are going to outnumber the tax producers. Then that is it. We are no longer the best and most powerful nation on Earth. Thanks, FDR.



    Don't be shortsighted and foolish. Without social security this country would probably be a huge shithole right now. Even if it's lost its usefulness, it isn't FDR's fault that we're still using it. Roll your eyes at Bush for screwing it.
  • Reply 14 of 116
    toweltowel Posts: 1,479member
    Quote:

    Originally posted by SDW2001

    Well, it's in good shape for now. It won't be though, unless it's fixed or radically reformed.



    It's in good shape for the next forty years. Can you think of any other fund or organization that can proceed on autopilot for the next 40 years? We've scarcely a clue what the economy will be like 40 years from now, or even what our demographics will look like. When our government (sanely, IMO) won't even make budget predictions out past five years anymore, 40 years seems safe enough for me, for now.



    Unless you assume (as you probably do, SDW) that the governement will default on the SS trust fund. The likelihood of that is directly and inextricably related to general solvency of the federal budget. (Putting aside that such a default would be the greatest economic bait-and-switch in the history of mankind, amounting to a multi-trillion dollar redistribution of income from the working class to the super-rich.)



    The much greater long-term problem is health care in general, and Medicare in particular. Solving that will require major structural changes in how we administer and pay for health care and how we develop and market pharmaceuticals. But that's a whole 'nother debate.
  • Reply 15 of 116
    jubelumjubelum Posts: 4,490member
    I could go for the "let it ride" for another 4 decades... My kids would appreciate that, I'm sure. The stakes are much too high to let it ride. A small change now means avoiding a catastrophe later. Wait until 10 years out, and there will be no avoiding it.



  • Reply 16 of 116
    Quote:

    Originally posted by Kickaha



    I say opt out of SocSec. You aren't going to get anything out of it anyway.









    If only that were possible ... having paid in the max for several years now, I'd still be willing to give up ALL future benefit, if they'd just quit taking the $$ from me ... let me take care of my own retirement.

    -

    The federal gov has declared that "Ponzi Scheme"s are illegal ... the SocSec program is EXACTLY what is defined as a "Ponzi Scheme"

    -

    Side note ... the Federal Government FORCES me to retire at age 60. (Federal regulations prevent me from working past that age.) Yet I still cannot collect "My" SS Benefits until age 62.5. .... WTF ?!
  • Reply 17 of 116
    bungebunge Posts: 7,329member
    Quote:

    Originally posted by KingOfSomewhereHot

    Side note ... the Federal Government FORCES me to retire at age 60. (Federal regulations prevent me from working past that age.) Yet I still cannot collect "My" SS Benefits until age 62.5. .... WTF ?!



    Well make up your mind...do you want to take care of your own retirement or not?



    That was sarcasm.
  • Reply 18 of 116
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by giant

    Social security isn't just retirement. Massive chunks of it go to disabled workers and their childeren, as well as the families of deceased workers.



    So support a massive lie because they tacked on a smaller lie (Social Security Disability) that helps some people.



    Got it.



    Nick
  • Reply 19 of 116
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by bunge

    Supporting Social Security doesn't mean you support this practice, or that of capping the tax at $87,000.



    Or that you support legalized pyramid schemes, even when they are run by the government.



    Nick
  • Reply 20 of 116
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by Towel

    It's in good shape for the next forty years. Can you think of any other fund or organization that can proceed on autopilot for the next 40 years? We've scarcely a clue what the economy will be like 40 years from now, or even what our demographics will look like. When our government (sanely, IMO) won't even make budget predictions out past five years anymore, 40 years seems safe enough for me, for now.



    Unless you assume (as you probably do, SDW) that the governement will default on the SS trust fund. The likelihood of that is directly and inextricably related to general solvency of the federal budget. (Putting aside that such a default would be the greatest economic bait-and-switch in the history of mankind, amounting to a multi-trillion dollar redistribution of income from the working class to the super-rich.)



    The much greater long-term problem is health care in general, and Medicare in particular. Solving that will require major structural changes in how we administer and pay for health care and how we develop and market pharmaceuticals. But that's a whole 'nother debate.




    Actually Social Security is in trouble when it begins dipping into the trust fund, which is just in a few years. Now the government must begin paying back those massive IOU's and also somehow stop spending the surplus it has been spending year after year.



    That becomes about a 500 billion+ turn around and that is just for year one.



    Understand that even when Clinton "balanced" the budget, even with the biggest stock market run up in history, he only did it two years while actually not counting social security excess funds. The other two years, they took the social security excess and called it balancing the budget.



    So we have two years out of his 8, mostly attributable to luck, and no one else Democratic or Republican has done this before or since then.



    Now we assume that in a few years, everyone, Democratic or Republican is going to do it for the next 40+ years.



    I call that a stupid assumption to make.



    Remember when the government doesn't like the rules, they change them.



    Nick
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