Kent Treiber: Your need and the facts about social security
Social security is not just an issue for old people. If you’re in your 20s, 30s, or 40s, you’ve probably said, “social security won’t be there for me.”
That will only happen if you let it happen. I submit that your generations will need Social Security even more than mine because of the massive decline in traditional pension coverage for nongovernment workers (from 35 percent down to 18 percent in the 20 years up to 2013). It’s in your best interest to ensure that social security is healthy.
The bottom-line question is: how do you and others in your generation avoid living in poverty when you’re old? One widely accepted approach is to utilize 401(k) and IRA plans. However, this approach isn’t working well: a 2015 Government Accountability Office analysis found that the median household aged 55 to 64 had $104,000 in retirement accounts. That $104,000 would generate a retirement income of less than $500/month for you and your spouse. Who can live on that? Yes, people should save more but the unfortunate reality is that it often doesn’t happen.
Can social security retirement program minimize senior poverty? Yes. Back in 1949 when social security paid very little, senior poverty rates were close to 70 percent. From 1950 to 1975 payments went up significantly. Several studies show that this increase drove senior poverty rate down into the teens. Currently it’s about 9 percent. Today’s social security pays a retired worker $1,360 per month — on the average, about 135 percent of the federal poverty level for an individual.
Social security becomes even more critical if you factor in inflation. If the next 20 years of inflation are as benign as the last 20, that $500 retirement income I mentioned would have the purchasing power of $315 after 20 years. In contrast, social security payments go up with inflation.
What if you’re an excellent saver who also manages to keep a traditional pension, save throughout the next 30 years and avoid financial catastrophe? You don’t need social security but it’s still nice to have the income. The more you pay into the system the more you get back, up to a point. Having a large percentage of your generation living in poverty would have a major impact on your life. What would it be like seeing a bunch of old people (your peers) on the street? What does that do to the economy that you live in?
I think I’ve established a big need for social security. I’d like you to understand the basic financial structure of social security because the media and politicians frequently don’t understand the facts or deliberately ignore them.
1. Social security payments do not use a single dollar of general tax money; rather, benefits are paid from the payroll tax. Social security cannot borrow money.
2. As a result of 1983 changes to the social security law, more payroll tax was collected than needed to pay current benefits from 1984 through 2011, The surplus, intended to ease the social security issues caused by baby boomer retirements, was required by law to be invested in Treasury debt securities. So beginning in 1984, the budgeted part of the U.S. government began borrowing from social security (and, of course, spending what they borrowed). If social security hadn’t been around to borrow from, the government would have borrowed from Wall Street, China, etc. by issuing more Treasury bonds.
3. By 2020, social security will need to start redeeming Treasury debt securities in order to pay benefits. To pay for social security redemptions, the government will do the same thing they do when Treasury bonds are redeemed: issue new Treasury bonds.
4. There are some who complain that this social security-related borrowing/redemption activity creates a government deficit problem. I suspect there has been some creative accounting which is being used to justify such claims. The government deficit is caused by the government borrowing, not by the people or entities (like social security) that loan the government money.
Besides insisting that our politicians treat the social security system properly, you young folks can have more kids and raise them well. They’ll form a large working population that will help pay for your social security.
Discussion about attacks on social security and how the system can be fixed are topics for my next column.
Kent Treiber lives in Penn Valley. This is the first of two columns on Social Security. The next installment will be published in The Union next month.
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User Legend: Moderator Trusted User
Before I tell you about my Darling, I want to follow up on my column from two weeks ago.