Diary

People Now Retiring at Age 66 Paid for the Benefits They were Promised

I see an old shibboleth being recirculated, either directly or by implication:  that people who are now retiring or will be retiring in the future will receive much more in benefits than they have paid in.  This is a complicated question, but people my age, (67) who were high earners most of their working lives and paid social security most of their working lives are probably being shortchanged.  Don’t take my word for it, read this Cato report.  So why are we facing bankruptcy?  Because people who are older than me, and people who have had shorter work histories and lower wages have been collecting a lot more than they paid in.

First we need to look at what was “paid in”.  Most people think of the 6.25% deducted from their paychecks, and they would be wrong.  The money your employer “pays” as a tax is really money you would get if  your employer didn’t have to pay it in taxes.  Its a tax on you that is hidden by the way it is structured.  Ask anyone who is self-employed and pays it all.  It’s our one flat tax.

Next we have to look at relative rates of return.  Yeah.  Compare it to an investment.  That’s what Cato does and guess what, younger people, even including me, are getting kind of screwed.  We would have made more money, even with stock market reverses, if we put the money in a mutual fund.  According to this calculator, my average rate of return is somewhere between 1.9 and 2.4 percent.

So whay is social security going broke?  Because the money that I and my other highly paid contemporaries were paying in was used to pay benefits who spent most of their work lives paying less than a combined 7 percent in payroll tax.  And their contributions, in turn, funded the retirements of people who were around when social security was instituted and who, if they paid any FICA tax, did so at a rate less than 4%.

And, of course, there is no trust fund and the money is not invested in anything but the equivalent of U. S. Treasuries.

Some commentators acknowledge all of these facts and say to people like me.  Tough.  You got screwed by the Bernie Madoff’s of both parties who took your money and used it  to fund their lavish programs instead of investing it.

I hope whoever is the Republican nominee has a different answer.  At least show some sympathy to people who paid FICA taxes for 40 or 50 years, the last 20 at a fairly high rate (12.5% on most of their income in addition to any income taxes), only to be talked to by some politicians like they are some kind of welfare deadbeat.

(My apologies if I have offended any welfare deadbeats).    No we have to come face to face with the fact that money was paid to people in sums far in excess of what they contributed (people who would be over 75 or 85 today) and now those deficits are coming home to roost.  I didn’t vote for the giveaways.  I voted for Reagan.  I saw what was happening as people, essentially, voted to take my retirement money so they wouldn’t have to deal with people who expected benefits they didn’t pay for.  Let’s at least be honest with people.  Like the people who invested in Madoff’s Ponzi scheme, their money is gone and there isn’t much to be done to get it back.  So now we have to figure out what we will do with the mess that is left.  But don’t tell us we didn’t pay for our benefits.