The Social Security Conundrum

The battle is on. From one side of the aisle, you get, “Social Security is broken and it must be fixed.” From the other side, you get, “Social Security is the most successful government program ever and just needs some tweaking.”

Who’s right? Actually both of them are right.

Social security has lifted millions and millions of our elderly out of poverty. Prior to its inception, 70% of all seniors lived in poverty. From 1960 on, poverty levels for the elderly has fallen from 34% to 10.5%. Now, most seniors live a comfortable existence. That’s what I call success. And it didn’t put a major drag on the economy while it did it.

But things have changed. In 1960, there were 5 workers for every social security beneficiary. By 1995, that figures was down to 3 to 1. By 2030, it will be two workers supporting each individual recipient.

Many factors have narrowed this ratio. Longer life spans are the biggest contributor. These longer life spans stretch the system, increasing the amount of years social security has to provide benefits.

Placing the responsibility on the 3-to-1 and, then in the future, the 2-to-1 ratio will put an unfair and unmanageable burden on younger workers in the future. This imbalance will force increases in pay roll taxes and also will take government resources from programs directed at our young. Today, seniors receive $11 in federal benefits compared a $1 for children. If you also include the ever increasing costs of providing health care for our nation’s elderly via Mediacare and you have a looming economic burden that will dominate the U.S. government so much that there will be very little dollars for anything else.

Also, one of the by-products of social security has been the way it has decreases self reliance and increased a reliance on the government to provide comfortable and humane existences for our elderly.

To illustrate this point, nearly 33% of our country’s elderly population relies on social security for 90-100% of their income. 65% rely on it for 50% or more of the retirement income.

From my standpoint, that’s too much reliance on the government to take care of us. There is little incentive to plan and provide for your retirement when the government will do it.

From a cultural perspective, American savings rates have fallen precipitously in the last half decade. We have gone from a nation of savers to a nation of debtors. Too much dependency has been placed on the government to supply a basic standard of living, leaving the individual less and less need for self sufficiency.

A famous philosopher stated that the moral standing of a society is judged on the world it leaves its children.

So, private accounts – I’m all for them. Fixing social security – I’m all for it.

Am I supporting the diversion of money from social security into private accounts? No. But I think that it should be a responsibility of every citizen to plan for their retirement outside of social security and to find a way to more self sufficient and becoming less reliant on the government. Moving from a debtor society to a saving society should be an important benchmark for every American and in so doing this, they could relieve some of the responsibility on the government to provide for them in retirement and enable the government to enrich the lives of our children.

As for fixing social security, there have been several sensible ideas placed on the table. One smart one is to change the way social security is linked to wages and instead index it to inflation. Inflation generally increases less than wages and thus decreases the long term burden on social security.

Reducing cost of living adjustments by a small percentage is another way to pare down the cost of social security. Another possible idea is increasing the salary cap on how much someone could contribute from their wages into security. Currently the cap is at $90,000. If that cap were doubled, these high-end wage earners could contribute more and this spread around the increased contribution.

These are just a few of the ideas out there that I feel balance out solutions for addressing the real concern for the future of social security and still allow a way to nurture a culture in which the individual is just as responsible as the society as a whole to providing for retirement.

My parting point is that while social security dominates the political landscape today, health care will dwarf its importance in our lives as a society and as individuals. It’s my take on the situation that everyone can and should be able to plan for their financial future, but with the astronomic rise in health care costs in the past 30 years, I would prefer to see the government find a way to either curb costs or to provide quality health care (and both would be nice).