It’s Not Nice to Scare the Elderly

Every time that someone floats the idea of a private investment alternative to the Social Security System (SSS) the politicians – particularly the liberal/progressive politicians – go nuts. And I mean nuts – as in bonkers, ludicrous, deranged, balmy, daft, insane etc. I know that there are literally hundreds of synonyms for irrationality and the responses of politicians hit all of them. Really! If there is any one issue to spark foaming at the mouth it is the issue of the Social Security System. It is one of the best methods that the Democrats have for inducing fear – once more – into campaign rhetoric. It’s the moral equivalent of yelling “FIRE” in a theater. And they are at it again today in ad after ad telling the elderly that electing Republicans, conservative, Libertarians or anyone departing from the liberal/progressive orthodoxy that “they” are coming to take away your social security. They use television actors to portray anxious, fearful senior citizens wringing their hands about what will happen.

Well, let me tell you what would happen – nothing. There is not a single, rational proposal to eliminate the existing SSS. I say that mindful that there can always be some dummy out there who can’t think to the full consequences of a proposal before running his/her mouth. Usually those kind of dummies are found in the far left corridors of liberal/progressive minds – like Reps. Alexandria Ocasio-Cortez (D-NY) and Henry Johnson (D-GA), but then neither individual Republicans nor Libertarians are immune from such nonsense. What is out there is a multitude of proposals backed by sound research and careful thought to provide alternatives to those wishing to use them, or remain in the existing SSS if they choose.

But before you get your panties in a wad, let’s know a little bit more about the SSS and the social security retirement fund:

1. The SSS was founded on a con. Eligibility to receive retirement funds was set based on then current mortality tables such that very few people would live to see any payments. That means there was a lot of money coming in and a very small amount going out. It created an “orchard of money” just waiting to be picked.

2. There is no “social security fund.” All that money at the governments whim and caprice turned out to be irresistible. Congress, in the 60’s under then President Lyndon B. Johnson (D) eliminated any pretext as to a “social security fund” and spent the money as it did any other tax revenue. Contributions to SSS do not go into “fund” which could earn a rate of return through dividends, interest or any other device. All the contributions are spent annually as part of the “fungible” revenues garnered by the government. So when you see an elderly couple in a Democrat ad wringing their hands and talking about how they have paid into the fund, they have been duped. There is no fund, they have just paid taxes in another form.

3. And there is not sufficient money to pay the benefits. The SSS is not actuarially sound. There is more money being paid out today to current beneficiaries than is being received from future beneficiaries.

4. Well, from where do the monthly payments by SSS to beneficiaries come? From annual congressional appropriations. Those payments compete with other congressional programs for funding. And if Congress decides that it is more important to fund, say green energy or a war in the Ukraine than make payments to the elderly, it is within their power to do so.

Now, let’s deal with another “social security myth.” It is simply a lie to suggest that individual beneficiaries of SSS are better off than if they were allowed to invest those “retirement funds” elsewise instead of giving them to the government on a vague promise to provide “old age assistance.”

Over seventeen years ago on about May 9, 2005 I wrote a column for the Medford Mail Tribune entitled “OH THAT I WERE TWENTY-FIVE AGAIN” in which I detailed a study I did on social security payments and benefits. Following is what it said in pertinent part:

Using these pieces of information* I built a spreadsheet that calculated the Social Security taxes paid each year (earnings subject to tax times tax rate for the applicable year). Then I calculated the amount I would have earned on those taxes if I had invested them instead of paying them into the Social Security System. I used three different rates of return in doing the calculations. First I used four percent and five percent which are reasonable substitutes for Treasury bills. Then, as a proxy for investment in the stock market, I used the growth in the Standard & Poor’s Index from the year in which the tax was paid until the close of 2004 as a proxy for investment in the stock market.

The reason I used those factors is that Treasury bills represent the safest investment available – they are backed by the United States government. I used the S&P 500 Index because it represents investment across a broad range of stocks which does not subject an investor to the risk of picking individual stocks. (By the way, these calculations include the effects of the market downturn post 9-11.) So, how did they do?

Well, using the Treasury bills, my investment would have grown to between $323,967 (four percent) and $379,339 (five percent) at the end of 2004. Had I invested that money in an S&P 500 mutual fund, the amount would have grown to $519,941. Not bad for a $183,650 investment spread over 45 years. But the real comparison is the monthly benefit that I could expect under the various options:

  • Actual Social Security Payment per Statement $1415/mo
  • Based upon 4% Treasury Bills $2106/mo
  • Based upon 5% Treasury Bills $2667/mo
  • Based upon S&P 500 performance $4549/mo

And finally, I just can’t resist. If we were all treated as well as Oregon’s public employees (who are guaranteed a minimum eight percent return annually), that same investment of Social Security withholding plus employer contributions would have grown to a whopping $633,669 and we would getting $5544 per month instead of the meager Social Security payment of $1415. Go figure.”

Now, let’s go onto what is actually being considered rather than the biennial campaign rhetoric of the Democrats. In most instances it is about choice. For future beneficiaries (usually under the age of 50) they would be given a choice as to whether to withdraw from paying the social security tax and invest it in private plans, or remain under the existing structure. Some mechanism would be employed to provide credit for the social security taxes already paid prior to their election and in most instances provisions are made to “buy back” into the SSS during “open enrollment periods.” That’s it. A choice. A choice between slightly more risk and a greater return and government certainty with a low return.

So there isn’t any pushing Grandma off a cliff in her wheelchair (former President Barack Obama’s characterization of social security reform) or a hand wringing elderly couple sitting on their chenille spread as the light fades on their hopes of a retirement. It’s, as always, about a choice that the government – particularly the Democrats – do not think you are capable of making. It’s also about billions of dollars in social security tax revenue that the government will no longer have to waste on programs unrelated to insuring that the elderly will have a safety net in retirement.

So the next time you see President Joe Biden or his spokesmen rekindle the fear in the elderly with claims about the end of SSS, please just yell “Bat Guano!’