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Source link: http://archive.mises.org/13555/social-insecurity/

Social Insecurity

August 13, 2010 by

You may think that Social Security is a bad deal for me, and it is, but it is going to be much worse for those who are younger than I. At least I still get a positive rate of return. FULL ARTICLE by Paul Cwik


Hugh O'Brien August 13, 2010 at 8:43 am

As a person born in 1988, (though not a US citizen), I would feel less insulted if it were simply termed a tax, and not a Ponzi system I’m compelled to enter ‘for my own good’.

GK August 13, 2010 at 8:51 am

Shame, I was also born in ’88. I just turned 22 yesterday. It’s amazing to see how much I’m paying in now, as I make 25K/year.This year seems to be the official year SSA is running in the red. So for someone of our age, there is no longer any justification for us paying into this system. If I had it my way, there would have been no such thing as SSA.I will go over my pay stubs and do some math, and maybe post some results as to what I expect to lose out of this mess.

J. Murray August 13, 2010 at 12:19 pm

The problem is that we have a large segment of the population that believes they’re owed something. Where we run into the issue is that this part of the population doesn’t quite grasp that, to avoid them getting screwed over, we must be screwed over. I’m older than you and have paid in quite a bit more (more years + higher salary), but I’m willing to simply call it quits and drop all claim on the system in exchange for the removal of the taxes. I’m not foolish enough to believe I can ever be paid back because any return of the principle that many call for will ultimately have to come out of some other source, meaning taxed out of one pocket to “repay” the other one, with deadweight bureaucratic loss to manage this exchange.

Social Security is not a clean thing we can cut. Eliminate the taxes today and the large population of the elderly, including those who don’t agree with Social Security, will raise bloody Hell, because that means cutting their benefits. Leave it as is, the population that gets the shaft only shifts to younger generations. Basically, anyone in their mid-40s and younger falls into this category.

I’ve always held that our aged population needs to take responsibility for their irresponsibility and give up their Social Security and Medicare immediately. Our generations, in the more colloquial term, me being GenX (the very tail end of it) and you being GenY, as well as a few others, are still stuck with paying back the massive debt and cleaning up the mess from the long-reaching regulatory society thrust on us long before our biths. Unfortunately, even among the self-labeled libertarians, this is some unreasonable demand.

I’ve always suspected that Roosevelt knew this would happen when he promoted the passage of the program. Social Security is designed in such a way that it will fail and it will create severe inter-generational strife within the country. The only hope was it wouldn’t happen in their lifetimes, thus being able to wash their hands of any responsibility when it did all go south.

Gil August 14, 2010 at 6:30 am

What? They’ll gum the young people to death?

Seattle August 13, 2010 at 8:51 am

But Mr. Cwik! If we let people keep their money, they’ll blow it on sex and drugs and then they’ll never be able to retire! And EVERYONE has the right to a retirement!

miami August 15, 2010 at 8:29 pm

At least they’ll have enjoyed life.

Tim Kern August 13, 2010 at 9:08 am

…and remember that you must live to your full life expectancy, to collect even those amounts. With a private investment, your surviving heirs would get the full amount (less taxes, again, of course). With SS, if you die ahead of schedule, they get just about nothing.

With socialist health care, though, you should expect to live well past that current projected lifespan, and collect bundles more than your projections. Don’t worry — be happy, and vote for the socialist candidate of your choice.

Richie August 13, 2010 at 9:19 am

“michael” time!

Shay August 13, 2010 at 9:36 am

You and others are almost as bad as him, posting these stupid messages just taunting him, and adding no value to the discussion.

tlpalmer August 13, 2010 at 10:40 am


Thank you for pointing this out, it is annoying.

Jon Leckie August 13, 2010 at 10:46 am

I will cease. Apologies. He is a very frustrating person but I do not wish to take away from others’ enjoyment of this site.

Sandre August 13, 2010 at 10:53 am

So true. Michael can be annoying. But I don’t think he uses foul language or name calling. His belief/value system is different from ours. I think he adds to the debate.

Templar August 13, 2010 at 11:55 am

“His belief/value system is different from ours.”

And if anyone dares question Rothbard, hen it’s already personal. One need not look farl; just look at Beefcake’s past behaviour over at the Coordination Problem blog.

Russ the Apostate August 13, 2010 at 1:54 pm

I don’t know that he actually adds anything worthwhile to the debate, but he does enable a debate. He serves as a Devil’s advocate, which gives people here the excuse to present basic arguments for the free market. If he weren’t here, a lot of the basic stuff would never be aired, because people would assume that everybody else already knows it.

Saying that his belief/value system is different from ours is a bit too politically correct for my taste. Rather, let’s say his belief/value system is just plain wrong, if not outright immoral, as long as we can say that in a more-or-less civil manner.

michael August 14, 2010 at 10:02 am

I thank you all for including me in this debate, both those who offer kind words and those who come with brickbats. I would not presume to tread into such a touchy subject without your express invitation.

But since you have, I’ll just treat the issue as being one of personal decision. Early on I took the view that I would sign on to the scheme, as it offered me income insurance for my old age, paid by premiums deducted from my income in my working years. So I chose to join the program by staying in this country, and following its customs. I could instead have moved to Mexico, where I would have led a much more exciting (but less insured) life.

I listened to the argument that the dues I paid in were not the same money I would eventually be taking out. But then I reflected that that is the case with ALL insurance policies. One paid his premiums, and had no claim to that money once the check was cashed. When a claim occurred, he was paid from the insurance fund.

I felt it would be inconsistent of me to reject the premise of retirement insurance, and perhaps of taxation itself, but still continue to live in the country and enjoy its fruits while flouting its laws. I’m sure most of you feel very differently. And that’s your right, to freely express your opinions here.

Just plain wrong of me? Outright immoral? That’s your call.

Michael McLees August 14, 2010 at 11:28 am

You joined the program by staying in the country? That’s a strange way of looking at it. What would you say if I started my own cell phone battery insurance fund and automatically included you in it, deducting from your paycheck $100 per month for premiums? Would you protest such a tax or simply move away to an area where the tax isn’t levied?

And if you protest on the ground that I should not be able to force you into an insurance program simply by living in an area where such a program exists, why is it then OK for the government to do the same?

Russ the Apostate August 14, 2010 at 11:57 am

“I listened to the argument that the dues I paid in were not the same money I would eventually be taking out. But then I reflected that that is the case with ALL insurance policies.”

Yes, but SS was originally sold as a trust fund. And since every real insurance program takes into account moral hazzard, they aren’t Ponzi schemes like SS is.

michael August 14, 2010 at 12:10 pm

The Old Age and Survivors’ Trust Fund is indeed just that. It’s a sum of money held in trust, to be used for a very specific purpose. It is a collectively owned trust fund. It is similar to a fund held in trust for a named family, for instance. That is, one intended for the benefit of a specific group of people.

If the Jones family has a trust funded by the patriarch, Bill Jones, and he then dies, the remaining family members have a co-equal claim on it, subject to the terms and conditions contained in the founding documents.

The founding document of the Old Age and Survivors’ Trust Fund is available on the web.

michael August 14, 2010 at 12:21 pm

“You joined the program by staying in the country? That’s a strange way of looking at it. What would you say if I started my own cell phone battery insurance fund and automatically included you in it, deducting from your paycheck $100 per month for premiums?” etc.

It’s hardly without precedent. Every nation that has its affairs organized in any formal way has a government. And the rules laid down by every government all take the same form: “You live under my roof, you play by my rules.” That’s why you followed your dad’s rules (if you were smart) until you were able enough to go out on your own; then you made your own rules, and in time told your children the same thing.

I grew up with the understanding that if I wasn’t okay with Rome’s rules I could always exercise my freedom by exercising my feet. That, in fact, is how nearly all of our forefathers came to live here: they preferred it to whatever was next best.

And I had my chance to move anywhere I felt like moving. In fact I spent some time beyond the control of any government. In such places you lived where close family lived. You kept a gun. And you kept the door barred after dark. Because there was no law. Anything of value you owned, you held at risk.

My verdict? Exhilarating… but in time, just too much trouble. So I came back to what we thought of as the Big Baby Carriage, where everything was safe and sound.

Michael McLees August 14, 2010 at 2:48 pm

You didn’t at all answer my question. Instead you seemed to say that whatever governments do is fine because it’s the government doing it. You don’t really believe that do you?

michael August 14, 2010 at 4:58 pm

Mr McLees: This is about the twelfth time I’ve heard someone say I haven’t answered their question. It would seem that you and others here just don’t recognize the thinking processes that go into my answers.

I don’t ask whether the government is “wrong” or “right”. It IS. Just like a ton of bricks “is”. With your ton of bricks, you avoid walking underneath it if the supports seem wobbly. And with your government, you don’t make too much trouble for yourself. Or if that’s too much of a burden, you emigrate.

“Instead you seemed to say that whatever governments do is fine because it’s the government doing it.”

I did not say or imply that in any way… and I wonder how you can imagine I did. Government does good for us and bad for us. It needs constant attention from an informed electorate even to begin to work. And it is not working well now.

The point of my little homily I thought was apparent without further explanation. I used to live in a place that was beyond government control. I could have remained there… it was a good place to live in a lot of ways. Yet I had a few reasons why I came back here, where a sometimes obnoxious government takes care of basic necessities like keeping bandits from slaughtering one in one’s bed.

That kind of thing is a big nuisance. By comparison, paying taxes toward the upkeep of a stable and productive society is a very small nuisance.

Michael McLees August 15, 2010 at 8:43 am

If your responses to the other 11 people were similar to the response you gave me, it’s no wonder people are accusing you of not answering their questions. I can understand leaving a country that fails to prevent murder by bandits for on that does. But surely you can understand that no one is debating whether or not such is the proper role of government, which is to prevent violence and property rights.

And you still aren’t putting any limits on what I or the government may do to you, and what your recourse is. If I forcefully took your money for cell phone batter insurance premiums, I can only assume (because you in fact never answered this) that you’d fight such a tax. If the government did the same, based on your answer, you’d find it to be a legitimate program, needing only ” constant attention from an informed electorate”. You claim that I’ve ignored the thinking behind your answer, but you’re clearly ignoring the thinking behind my question, which less ambiguously implied.

What is the proper role of government? Does that role extend to providing cell phone batter insurance through a program of coercion? If so, is there no role that is forbidden from the government (which is why I replied, “…seemed to say that whatever governments do is fine because it’s the government doing it.”)?

michael August 15, 2010 at 11:07 am

Okay, McLees, I will take another bite from your apple.

You pose two questions. Here is the first:

“What would you say if I started my own cell phone battery insurance fund and automatically included you in it, deducting from your paycheck $100 per month for premiums? Would you protest such a tax or simply move away to an area where the tax isn’t levied?”

I would answer that it was a dumb question. Not something that’s going to happen.

And here is the second:

“And if you protest on the ground that I should not be able to force you into an insurance program simply by living in an area where such a program exists, why is it then OK for the government to do the same?”

The query is posed on a dumb predicate. Likewise, no intelligent answer is possible.

If you want to pose a series of questions in such a way as to neatly lead the unwary into a pre-laid trap, you should first make certain your hypothesis is a credible one.

Wherever you live, it is possible to leave if you don’t like the prevailing government policies. Some are difficult, like the DPRK, Sri Lanka or Myanmar. But the USA is very easy to leave. So you do have a ready option. Another is to work here to effect change. But note that this presumes your intent is to change the government, not to bring it down. Even though the Smith Act is now largely a dead letter, I would assume that if you want to destroy the established government by some active means they will find some charge or another to lay at your door.

I note that many people here think I’m trying to force them out. Not at all. I’m merely advising you of your options, as I don’t see the US collapsing any time soon. Choose a constructive course of action. Then take it.

You don’t have to love it and you don’t have to leave it. But the superior person at least strives first to make himself happy.

Michael McLees August 15, 2010 at 12:04 pm

OK. You say you’re going to take another bite at the apple, but again you fail to answer the questions. It’s like you’re buying a ticket at a carnival to bob for apples, riding the Zipper instead, and then asking the applebob carney for a prize. I think you’re doing it on purpose because you don’t like where your answers will lead you.

Your only real response has again been to simply say, “If you don’t like it… leave” which is not only non-answer to my question of what the role of government is, it’s insulting to think that you’re plucking away at your keyboard, intentionally evading legitimate questions, thinking I’ll somehow be fooled into believing you’re simultaneously dismissing the question (because of an allegedly faulty premise) and answering it (taking “another bite at the apple” by way of a non-sequitor).

michael August 17, 2010 at 9:31 am

Mr McLees:

I’m not giving you the answers you want because you’re trying to paint me into a dumb hypothetical corner.

If you were able to perfect some scam by which you could make automatic deductions from an account of mine without my express permission I would close that account, track you down and have you indicted for wire fraud.

A better answer?

michael (not the dumb one) August 13, 2010 at 1:16 pm

While I agree on the annoying factor, I will not say it adds no value.

People of michael’s stripe should be ridiculed everywhere and always. We need to start using the Alinsky tactics on the Alinskyites.

Richie August 13, 2010 at 11:02 am

Oh jesus. You people take yourselves way too seriously.

Michael McLees August 14, 2010 at 10:00 am

I know I’m not popular here… Are you guys talking about me?

michael August 14, 2010 at 12:39 pm

No, there are lots of Michaels in the forum. But only one– Bad Michael– spells his name with a small m.

For clarity I should probably change it. Perhaps to Racon, son of Racter, as so many here consider me to be a malign and disembodied computer program, sent to plague them like the Hounds of Hades.


Racon (short for Raconteur) was a big improvement over Racter. Instead of just employing stock repartee, it could lead you into the thicket. If you asked it “What ARE you?” it would give answers like “I am not a vegetable. But in my time I have caused the doom of many vegetables. Are you a vegetable?” You know, quasi-intelligible stuff. Racon was a lot of fun, sadly now all but forgotten.

Bill August 13, 2010 at 10:00 am

where can one net a safe return of 5% today?

Magnus August 13, 2010 at 10:38 am

Government contractor.

Dave Albin August 13, 2010 at 1:47 pm

Yeah, when I got my first passbook savings account as a kid in the 80′s, I could earn 5%. Now, I earn 0.75%. No wonder no one saves money.

J. Murray August 13, 2010 at 10:43 am

I’m 29 and even I’m underwater when it comes to Social “Security”. With just my actual rate of return I’ve enjoyed since I started my savings at 16, I’m already out, today, some $115k. The system is completely unreasonable for just about anyone.

Further, this is even assuming I’ll see a “benefit” check. I’m planning on a future where Social Security is bankrupt and paying out nothing to anyone who bothered to set anything aside for themselves.

Statureman August 13, 2010 at 11:02 am

Also 29. I never at any point in my life thought I would get anything out of SS. Thanks to my Father, I always knew it was a scam and a tax. Theft by any other name is still theft.

Bode August 13, 2010 at 11:11 am

I have a small nit to pick with the last couple paragraphs of this piece. Calculations are based on combined SS and Medicare taxes. For purposes of illustrating the raw deal the hypothetical person is getting by being forced to pay into a system that returns a small pension, it would be better to focus on just the SS part of the taxes, i.e., 12.4%, since the Medicare tax is presumably associated with future health care benefits. This would change the wording to “Social Security taxes are 12.4% of his income. If he invested that 12.4% of his income instead, he would be investing $3,720. Supposing that this annual contribution was invested each year for the next 48 years and the principal was collecting 5% interest, instead of the Social Security value of $212,938.88, he would have $699,454! That’s more than three times the return that Social Security is “promising.”

With this change, the SS return for the 21-year-old is no longer negative, but it is very low, i.e., the “buried-in-the dirt-value” is $178,560 vs. the “Social Security value of $212,938.88.”

Bode August 13, 2010 at 11:38 am

Rather than settle for my conclusion “… the SS return for the 21-year-old is no longer negative, but is very low…”, I decided to do the calculation. If investing $3,720 annually for 48 years accumulates to a value of $212,938.88 at the end of that time, the compound annual rate of return is about 0.73%.

J. Murray August 13, 2010 at 12:01 pm

Sounds like Federal Reserve target rates.

michael August 14, 2010 at 10:27 am

Let me offer an interpretation you might possibly agree with. In 48 years, the $212,938.88 he will have invested in the Fund should be the approximate equivalent, in purchasing power, of the accumulating $3,720/year he started contributing into the fund 48 years earlier. That is, it’s designed to be inflation-protected. It’s more of a COLA increase rather than a return on investment. It’s not an investment promising any increase. The plan is for it to be a safe store of savings.

The pluses of the plan are that annual increases in monthly payouts are based on the CPI increase of the preceding 12 months… and that the administrative cost of the plan is slightly under one percent, whereas the actual carrying costs of many privately run investment accounts (the amount of earnings your broker retains) are closer to the 4-5% range.

The negative is that every generation or so the overall plan has to be recalibrated. And the last time that was done was back in 1982-83. So the time has come again to readdress the structure in light of current economic conditions.

Beth August 14, 2010 at 3:21 pm

If the compound annual percentage increase over the 48 year period is 0.73%, how likely is it that purchasing power will have been protected?

michael August 14, 2010 at 5:10 pm

I don’t know that the compound annual percentage increase over the 48 year period has been 0.73%. If I were to do the calculation and found that to be the case, I’d say that the system was unsustainable without a fix.

Probably a preponderance of opinion now is that it is time for a fix. And the last one we made has been working pretty well. It was almost thirty years ago (1982-83), and the flaws are just starting to show up now. That, to me, is amazing.

Let’s compare health care. HC costs have been going up a minimum of 10-16% a year in recent years, well ahead of any other form of inflation. If they continue in that direction, how healthy do you think our HC system will be in another 30 years? My calculator tells me costs will have gone up approx. 3,911%.

I think by comparison Social Security’s been performing pretty well for us.

Beth August 14, 2010 at 9:13 pm

I was playing the hand you dealt me with your, “In 48 years, the $212,938.88 he will have invested in the Fund should be the approximate equivalent, in purchasing power, of the accumulating $3,720/year he started contributing into the fund 48 years earlier. That is, it’s designed to be inflation-protected. It’s more of a COLA increase rather than a return on investment….”

Eugenia Kaneshige August 13, 2010 at 11:13 am

When SS began, it was perceived as a supplement or safety net for people who wound up destitute in old age with no personal savings. When I was young, my Mother (who never went to college) had a small metal owl bank with a slit at the top. She started married life saving pennies. She never made more than a secretary’s salary, never owned a car or her own home, and several times, her entire life savings were wiped out–once by an unscrulous “investment advisor.”As children, my sister and I never received an allowance, and I was seldom allowed to spend any money we received from friends and relatives for birthdays and Christmas. It went into a savings account, and when I was in my twenties, my Mother gave me that money to start my first business. I should add that I never felt like I had a deprived childhood.

Today, my Mom is 86, retired and living in Hawaii and will probably leave money to her far better educated children. What she always said to me was, “It’s not how much money you earn that counts; it’s how much you save.” The reason I tell this story is that the national savings rate is somewhere between 2 and 3%. A lot of people will say that people can’t afford to save more. My family’s history shows that it isn’t true. It requires sacrificing something today for a better tomorrow, and no one likes to do that. Personally, I don’t believe in a nanny state, but if SS and medicare were abolished, who in this country would take 15% of their income and save it?We need to return to the mental attitudes of our parents’ generation, but I can’t see how that is going to happen. Too many people believe that it is the government’s responsibility to take care of everyone from cradle to grave. I believe it was Tocqueville who said that democracy would work until politicians realized they could bribe people with their own money.

J. Murray August 13, 2010 at 11:22 am

Right on. When people claim they can’t afford to save anything in our country it was (up until the last few years anyway) because they were unwilling to give up the luxuries in life. It’s next to impossible to find someone in this country that is so legitimately poor that they can’t find a way to clear out $2,000 in expenses a year. Even the poor in this country own multiple vehicles, computers, internet service, cable television service, and are more likely to spend on expensive habits like smoking and drinking than the wealthier members of society.

The thing is we will turn back to the attitude of saving for later. It’s inevitable because Social Security will collapse in on itself and our government is so indebted that even they’ll eventually realize that the US Government doesn’t have unlimited funds and will have to tell people, “We simply don’t have any more money.” It’ll be a shock treatment when SS fails.

Besides, when was it established that living out the last 15-20 years of your life without working is a natural right? My grandfather, who died at either 94 or 96 years of age (his birth certificate went up in a fire in North Dakota back in the 1920s with the new certificate showing 94 years of age but an old picture we found of him at 1 year old a year before birth at 96) still actively worked for a living, despite having cancer, a colostomy bag, heart disease, and diabetes. If someone like that can trudge out of bed every morning, go into work, and be awarded recognition for the oldest practicing CPA in California history, then it’s pretty much a done deal that retirement is only for those who bothered to save up for it.

J. Murray August 13, 2010 at 11:24 am

There was a comment I was replying to, I promise.

Wuggles August 13, 2010 at 4:04 pm

Well said!

Jason August 13, 2010 at 5:46 pm

“It’s next to impossible to find someone in this country that is so legitimately poor that they can’t find a way to clear out $2,000 in expenses a year. Even the poor in this country own multiple vehicles, computers, internet service, cable television service,”

This is so completely misguided and out of touch with reality that it’s scary. You’re living on the same planet I am right? And the fact that you think this, when the unemployment rate is almost 10%, is baffling.

J. Murray August 13, 2010 at 7:26 pm

Congratulations! You’ve committed a lie of omission by failing to read the second sentence and immediately pull a quote out of context! Please pick up your prize at the claims department!

Matthew Swaringen August 14, 2010 at 2:47 am

I don’t think he’s out of touch at all. This mirrors my experience with my family, which is hardly one that’s on the top end of the spectrum, given my mother was a beneficiary of EIC/etc, and a single parent working 2 jobs/etc.

Certainly there are people unemployed now having a lot of difficulty who can’t cut 2000$ in expenses, but he’s not talking about unemployed people, he’s talking about working people who don’t save and so are totally unprepared for what comes their way.

I also have to say I think more people should be living closer with their families if they are having financial difficulties. Having multiple incomes in a household makes a lot of difference. I’m doing this now. This is a benefit to my mother who is currently unemployed, for example. And when that’s not the case it creates a significantly more stable situation.

Unfortunately kids/teens that could be working are tossed out of the workforce by child labor laws, and minimum wage destroys other employment that could be sought as well. This certainly isn’t something that serves the poor.

Bill August 13, 2010 at 8:18 pm

Nothing wrong with people working for as long as they are physically and mentally able to (dementia, alzheimers), but the fact is age descrimination is a serious problem in corporate america, and until that’s adressed, the old folks need something to fall back on. You all are too young to remember what it was like for the elderly in the early 1900s. Read some books on it. We shouldn’t go back to that time.

D. Force August 13, 2010 at 12:15 pm

I was left with a couple of initial concerns about the article. First, the basis for chosing 5% in the calculations rather than say 3% or say 7% was not explained. Obviously, the percent chosen substantially inpacts the results of the calculations over the time horizon being used. Second, in the second to the last paragraph of the article, the author includes medicare tax payments in his calculations. But I do not see where he considers the value of the “typical” financial benefits that may be received from medicare during the lifetime of the taxpayer. It seems that is necessary to make a useful point about the expected return on investment.

Bode August 13, 2010 at 3:17 pm

I agree with your last point. See my earlier comment.

Bill August 13, 2010 at 8:06 pm

Like most of the stuff from the austrians, it’s voodoo economics wraped up in propaganda.

michael August 14, 2010 at 10:31 am

Hush yo mouf, child.

Ned Netterville August 13, 2010 at 12:40 pm

Professor Cwik’s article fails to address the most important negative feature of Social Security. Whatever “dollar value” of the “benefits” you receive turn out to be, those “benefits” will be much greater in their “dollar value” than you ever “paid in.” That is because you never “paid in” a dime. The money was taken from you as a tax, collected by force or coercion. That is not paying, that is being mulcted. And any “benefits” you have the dishonor to accept will be mulcted from others. Upon your acceptance thereof, you will have become a government dependent

(Whaaa, whaaa whaa–dependent baby crying.)

To understand what I am talking about, I implore you younguns (anything under 70 is young in my eyes) to read Carl Watner’s introduction to Ron Neff’s classic article, “I’m Spartacus,” and then read Neff’s article. Watner’s intro is here: http://www.thornwalker.com/ditch/watner.htm, and it has a link to Ron’s article, which is here: http://www.thornwalker.com/ditch/spartacus.htm. There you will learn how you can get at least part way out of SS. In case your wondering, I’m Spartacus, and richer by far because I am.

Eric Bischoff August 13, 2010 at 1:03 pm

What’s the point?
Some of you seem to assume that SS is your retirement. It is merely supposed to be a safety net. You should be more upset at the fact that we’ve allowed Corporations, who are making greater and greater profits off of your more and more productive labor, to get away with no longer providing pensions. Remember the good old days when a family consisted of one parent as the provider and the other raised the children? It seems we had a healthier society then. That provider also had a pension then. But then some greedy bastard came up with a way to release the corporations from that responsibility and they instituted 401Ks instead. Well it turns out that this may not have been such a great idea. So not only does it now take 2 people working to support the family, they also don’t have pensions and recently their new 401k retirement has taken a bath and now they are not quite sure if and when they can retire. But the greedy bastards are not done. Now they want to get their hands on SS and they will make sure that they use every trick in the book and spew out all of the lies and propaganda to insure that you are consumed with fear about SS and then you will let them have their way with it. I am sorry but I don’t see that as progress or something that we can trust them with. So far when it comes to taking care of us, the working class, they are striking out and they are laughing all of the way to the bank. I am sorry but those that can most afford it should pay more into the system to insure that no one is left out in the cold homeless and hungry. What we need is a new system, one that is modeled after the Mondragon model. Worker owned cooperative corporations tied to the community that insure that their workers have healthcare, education and retirement. Putting people before profits. They have proven that it can be done and that it works even in this bad economy. That is the least we should expect from a lifetime of work. And until that system is in place let’s not make the mistake of destroying the only poverty safety net we have left.

J. Murray August 13, 2010 at 1:10 pm

Why do you think a company owes you payments without corresponding labor? That’s all a pension is, you, the employee, extorting the company and existing workers for resources without actually providing any sort of benefit in return.

The true reality of safety nets is it will always move the line up the ladder indefinitely. Create a safety net for a certain income level and below, and those just above that income level are now suddenly burdened through various impacts on the economy (lower wages, paying the taxes, fewer job opportunities, etc) and are now living a lower quality of life than those receiving the benefits. It’s impossible to design a social safety net of any sort without creating this new underclass. Basically, there will always be someone down on the bottom of the pile. It’s an inevitable fact of life. It’s best those who produce the least, not those who produce more than them, to be at the bottom.

Gil August 14, 2010 at 6:45 am

Haven’t the young always taken care of the eldery? What of the retirement plan of traditional people – have many children who will support you in old age? Sounds pretty much the same to me.

Jon Leckie August 14, 2010 at 7:21 am

Sure Gil, I think that’s correct and I will take care of my parents, I think it’s part of being an ethical being. I will also try to save enough to look after myself in old age.

I think the real objection lies in one generation “borrowing from the future” as the term goes, promising and accepting benefits that are not really theirs to give, and that – if such benefits are to be honoured – will result in an unfair and unjustified transfer of wealth between generations. We must all live within our means, I think this is the key point, and for one generation to take wealth form another – as yet unborn! is quite on the nose.

Matthew Swaringen August 13, 2010 at 1:22 pm

Likelihood that government mandated “safety-net” made corporations offload pensions? Reasonably high. Or what about the only reason you want a pension or a 401k, that the Fed constantly dwindles the value of your money to nothing so you can’t live off savings?

Possibility that future government interventions make retirement possibilities better? Zero.

Bob August 13, 2010 at 1:27 pm

But aside from skinning all elected reps don’t expect much.
ANYBODY aware of the activity in Social “Security” since its inception has been aware that it is a redistribution system from those that either HAVE a little OR HAVE NOT A BRAIN IN THEIR HEAD (and very bad luck to go with it.
Based on the original calculations, NOBODY was supposed to get a payout.

M.A. August 13, 2010 at 1:34 pm

I’m so glad we decided that our government has done such a wonderful job with our social security system that they deserved to take care of our health insurance, too. I can’t wait to see that go down in flames in a few decades.

Peter J. Kraus August 13, 2010 at 4:52 pm

This guy is an economics professor? And shows you the accrued value needed to yield a certain retirement sum? And in his text, hides the small but important fact that the 15.3% you pay INCLUDES the Medicare premium, which has nothing at all to do with the monthly retirement payment, but everything with the medical insurance you will NOT have to be paying in your retirement?

He’s a scammer.

mr taco August 14, 2010 at 9:24 pm

medicare is inefficient
it account for 60% of all healthcare spending

Libertarian Jerry August 13, 2010 at 4:59 pm

The U.S. Government will honor all their Socialist Security obligations well into the future. The problem is the checks will be worthless and won’t buy anything.

Bill August 13, 2010 at 7:03 pm

Seems to me that someone is going to get royally screwed in this country no matter what. I have never thought seriously about leaving the US for good until recently. My grandparents and great-grandparents left the countries that their families had been in for centuries, why can’t I do it. The idea is becoming more and more appealing. I just hope it is not already too late to start.

dev August 13, 2010 at 8:08 pm

question-if you are looking at future value of a 15% Medicare plus social security tax, why is there no value placed on Medicare expenditures over the 17 years post retirement? It looks like you only valued social security income?

D. Saul Weiner August 14, 2010 at 9:08 am

The minute that a supposed libertarian starts talking about their rate of return on SS, he has made a grievous error.

If I buy a gun for $100 and use it to rob someone of $200, have I made a 100% return?

Hey, great “investment”, no?

Byron Johnson August 14, 2010 at 9:26 am

In addition, none of this accounts for inflation. The value of the dollar is on the decline and expected to become worse. Purchasing precious metals provides far better return than 5% and is almost guaranteed. And best of all it’s tax exempt. But don’t tell the politicians that it’s tax exempt.

I too am 40 and would never depend on Social Security for retirement. Unfortunately, I am depending on it for retirement due to the cost of living. I simply can not afford to invest in FIAT currency.

David Showers August 14, 2010 at 12:46 pm

Yes, and if you look a the formula used to calculate a social security benefit, you will see that it is skewed in favor of low income earners. A high income earner does not get the full benefit of what he has contributed. In addition, if you apply for a reduced benefit before the so-called full retirement age, upto 85% of those benefits may be taxed!

greg August 14, 2010 at 12:51 pm

Reality, Social Security is not a retirement account, it is a tax. It started out that way and will always be that way.

Paying into a company or union pension is basically the same thing and if you think those pensions are going to be there for you when the peak of the baby boomers retire, you are living in a dream too.

You have to take control of your own life, plain and simple. If you do get Social Security payments or pensions, take them as a bonus.

If you want to minimize the amount of Social Security tax you pay, start your own S-Corp. You can take the minimum salary that you have to pay FICA taxes and the remaining earnings for the year, you don’t have to pay FICA. Work within the system and you can come out ahead.

Ned Netterville August 14, 2010 at 1:52 pm

“Work within the system and you can come out ahead.” Not ahead. Dead! Brain dead! Morally dead! The “system” (SS/Medicare) is corrupt. It is based on force and coercion. Sold as “old-age insurance,’ if any private insurance company ran a similar Ponzi-type scheme the principals would be imprisoned. The “benefits” it provides are derived exclusively from OPM (sounds like opium, is equally addicting, stands for Other People’s Money). Anything you were FORCED to contribute to SS went to pay someone else’s “benefits,” and is long gone. You should have kissed it goodbye. In order for you to receive “benefits’ now or later, someone younger than you will have to be mulcted as you were. Of course your being mulcted doesn’t exonerate you from mulcting others. Because of the corrupt way in which it operates, SS sucks more otherwise decent people into corruption than anything the Devil himself might have conceived.

“You have to take control of your own life, plain and simple.” When you are FORCED to do something, you are not in control, you are being controlled. When the almighty State tells you to pay taxes, “contribute” to SS/MC, drafts you into the military, mandates that you buy health-care insurance, or otherwise orders you about, you are deluded almost beyond help if you believe you are in control of your life. Your government “servants” are in fact your masters, and if because you’re a wise guy who is able to escape some of the burdens placed on the field hands, you are not in control you are simply a good house slave.

“If you do get Social Security payments…take them as a bonus.” Like every “payment” or “bonus” derived from government, SS payments have strings attached. In the case of SS payments, the string is a actually rope with a noose at the end for you to use to hang your ethics and your moral compass.

billwald August 14, 2010 at 6:18 pm

From 1776 to 1930 Americans all had private investment accounts and no Social Security. In 1930 what was the median investment fund for an age 65 person?

damocles August 14, 2010 at 6:43 pm

No offense, but since there are no SS funds presently in existence, and never will be given the US govt’s beggar position, you are seriously delusional to think that your SS contributions will yield anything whatsoever in benefits in 25-30 years.

Bode August 14, 2010 at 9:34 pm

Mario Rizzo, at his “Think Markets” blog, has some interesting observations.

readyornot August 15, 2010 at 4:30 am

Unless the Treasury has about $123 Trillion hidden in a drawer (that is probably exactly what they have in the form of an IOU) Social Security, Medic-Cade or Care, military medical coverage and retirement, and a few other programs are going to be treated the same as the current Multi Trillion $ transfer of wealth to the wealthy program. The FED always said the Government could guarantee the $ amount of any benefit, just not what that $ would buy. Government Employee Retirement is real, there is a positive value shown for some of its assets, unlike the “illiquid, questionable value” of the Social Security asset. Government Retirement includes medical for life, and cost of living increases, while SS payment surpluses were used to fund ongoing government expenses including Government Retirement Programs. When the Social Security surplus ends little will be done to fund deficits, benefits will probably be reduced; however, if Government Employee Retirement programs operate in a deficit taxpayers will be forced to pay for a bail out
As $ are printed to fund the Illegal, immoral, bail-out the massive wealth transfer from taxpayers to the Treasury through increased taxes, the FED’s monetization of debt program, the financial institutions uncontrolled greed and deceptive accounting practices, and out of control federal spending coupled with legislation and regulations that sound impressive but do little to reign in those responsible for creating the crisis in the first place, we should all be prepared for a bigger CRISIS PHASE II. The Bush Administration, the current administration, Congress, and the FED are, in my opinion, the perpetrators of the largest fraud ever committed. It may well make the US dollar worth about 40% of current value in 5 or less years.
As the $ Trillions are dumped on the US Citizens Debt the Treasury Department will no longer be able to hide, the annual interest alone on the Federal Debt will approach 50% of the US Government’s total Annual Budget by 2020 and may exceed 50% of Federal revenue as early as 2015. The US will not be able to hide that it is as bankrupt as the Banks, Italy, California, England, New York, and too many other states, cities and counties in the US. There will be no place to hide the huge abuses held off the balance sheet for years.
Here is an example of how well the FED has stabilized the value of our currency since 1955, the Government uses the CPI GDP deflator (information supplied by The FED) to determine payment levels for Social Security and many other social programs. The truest measure of real inflation is relative share of GDP. A 700% increase in the cost of living using the FED’s calculation is nothing compared to real cost of living increase of 3,328%, just a small FED statistical error of 475%.

In 2007, $10,000.00 from 1955 was worth:
$77,424.20 using the Consumer Price Index

$64,043.08 using the GDP deflator

$107,508.53 using the value of consumer bundle *

$103,219.70 using the unskilled wage *

$182,172.18 using the nominal GDP per capita

$332,871.26 using the relative share of GDP


Any bets on the unemployment rate (reality may be 22%), job creation numbers, how about the Federal Deficit, inflation at .2% while the real cause of inflation (increased money supply) is growing by more than 15%, better yet how about the real value of your expected social security benefit. After taking into account the significant reduction in payments to be received as a couple if both you and your spouse paid into SS vs. your individual benefits as single adults, the fact that your employer paid or currently pays an equal contribution to SS often instead of providing a fully funded retirement program, a 401K program or by increasing your pay by the amount of his contribution the SS program looks like a rip-off. Then take into account inflation and what you have is a PONZI scheme.

Ambroz August 15, 2010 at 11:41 am

Prof. Cwik’s life expectancy is 77 years and not 86. Sorry.

James August 15, 2010 at 6:49 pm

As the author surely knows, Social Security Statement benefit estimates are always made in present dollars, even though the program indexes benefits for inflation. But private investment rates of return are typically reported nominally, so it’s usually necessary to adjust one or the other value for an accurate comparison over long periods of time. Can we then assume that the 5% interest rate in the second-to-last paragraph is an after-inflation rate, i.e. that the nominal interest rate is somewhere around 8-9%? Why then does the author refer to the “future value of only $212,938.88″ in the final paragraph?

As a personal example, my printed benefit statement from the SSA estimates my retirement income at $2,250 per month in present dollars. If I go online to the socialsecurity.gov site and choose to estimate with future dollars instead, the estimate is $6,985 per month.

Ned Netterville August 19, 2010 at 1:13 pm

readyornot noted: “Unless the Treasury has about $123 Trillion hidden in a drawer” it can’t even begin to meet its various “entitlement” program “obligations” without resorting to monetary inflation (viz. dollar devaluation).

Ah, but it can meet its current obligations if it doesn’t add to them.

First, I want to point out some realities about the problem that are often overlooked: “Entitlement” is a misnomer unless it is qualified or modified somewhat. “Political” or “legislated” entitlement would be more correct, and would convey the indisputable fact that politics or legislation can change and with the change any current entitlement could vanish. Like the institutions of slavery and the military draft in the United States, entitlements are created by legislation and can be legislated away. Rather than submit to a heavy burden of taxation, future generations might choose to terminate expensive programs rather than impoverishing themselves to pay for them. They would certainly be justified in doing so.

Second, I want to note that even if the present unsustainable federal debt was miraculously wiped away today, the same problem would soon enough rear its ugly head again so long as Americans continue in their unfounded belief in the efficacy of government action as opposed to those of individuals or private organizations, the latter not to include corporations, which are created by government legislation. The root problem is religion, the religion known as Statolatry.

So, how could the federal government cover its multi-trillion dollar unfunded liabilities without defaulting or inflating? By selling off all of its assets, including in particular its real-property holdings.

Clark Smith June 13, 2011 at 11:21 am

Secure Horizons is a division of United Health Care and offers Advantage plans, Medigap policies and Part D Drug plans in the Medicare market. Secure Horizons Medicare Advantage plans are popular because of the variety of plans offered and having plans that are affordable and benefit rich.


Matt Spitsbergen August 30, 2011 at 5:12 pm

Social Security and Medicare will most likely not even be there when it is time for me to retire. Unfortunately, I am going to be responsible for my own retirement

Rob October 23, 2011 at 7:29 pm

The was a cool song about “Social Insecurity” back in the 90s by The Want. See http://www.amazon.com/Social-Insecurity/dp/B000UXSIUQ

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