Social Security SOS

, Matt Hadro, Leave a comment

The Social Security Trust fund is steamrolling towards bankruptcy, yet the majority of Americans do not fully comprehend the future crisis of today’s working generation. Efforts of associations such as the AARP, which go so far as to advocate further tax increases to solve the problem of diminishing Trust funds by using scare tactics, simply aggravate the financial hangover.

“The old fix of just raising taxes, some 51 times in 62 years, cannot continue,” James L. Martin of the 60 Plus association said at a conference on social security reform sponsored by the Independent Women’s Forum. Martin, himself a septuagenarian, heads, 60-Plus, whose members tend to be conservative senior citizen.

Organizations such as the Independent Women’s Forum and “60 Plus” have fought to educate the public about the present state of the Social Security “Trust” Fund, and what Congress is really doing to solve the coming bankruptcy.

An IWF study shows that in exactly ten years, the Social Security fund will owe more money than it takes in every year. When the fund first began back in 1940, for each retiree that was financially supported, forty workers contributed to the fund. Today, the ratio of workers to retirees is 3.3 to 1, soon to decrease to 2 to 1 by 2050. Simple demographics explain part of the problem, as modern scientific advancements have brought a longer life-span for the “baby-boomer” generation while birth rates decrease.

Additionally, Congress has consistently funneled surplus funds from the system into other government programs. A speaker for 60 Plus explained that, in short, Congress is writing “I-Owe-You” notes to the fund, a spending spree which may well be the chief catalyst of the predicted 2017 fallout. Two Democratic senators once called the government handling of the Trust fund “embezzlement.”
In the years this present generation will be retiring, the system will be able to provide only 74% of the benefits promised to the retirees, or precisely 74 cents for each dollar paid in. The pay-as-you-go system maintains the principle of today’s money supporting today’s retirees. Thus, this commonly termed “investment fund” has really become a financial system at the mercy of demographic changes, as it is today.
In its report, Social Insecurity, the IWF makes calculations to predict the financial future of, say:

• A 22 year-old male liberal arts major, who would probably earn the average $30,337 for his starting salary. Through his working years, he will yield a negative 1.85% annual rate of return in the current Trust fund system;

• A 21 year-old female marketing major will yield a .25% rate of return; and

• A 23 year-old computer science major would take in a negative return rate of -2%.

The report states, “You don’t need to know much about economics to see that the two options for bringing the system into balance- cutting benefits or raising taxes- are about equally undesirable.” So what is the solution, the IWF asks?

The IWF then provided financial estimations for the future retirees with Personal Retirement Accounts. For example, that liberal arts major above who would have gained an -1.85% annual rate of return on Social Security deposits would receive an estimated 4.89% rate with a PRA.

In a mutual fund yielding a 5% annual return, an investment of $10,000 today would balloon to $114,674 in fifty years. The same $10,000, with the -1.85% return rate of the current Social Security system, would yield a paltry $3,931.11 in the same period of time.

Privatization can work effectively, as exemplified by more than two dozen countries around the globe who adopted a Chilean system of privatization. Within 15 years, Chile’s privatized system sprouted to full growth, as it became a model of Social Security for the world in the late 1990s.

Meanwhile, Congress has lent a deaf ear to the problem. When Bush announced that Congress was unable to pass Social Security Reform at his 2006 State of the Union address, Democrats in the audience provided him with a standing ovation.

Matt Hadro is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.