Social Security

Dear Madame L,

I hear so many contrary arguments about Social Security lately, from Texas Gov. Rick Perry (R) and others calling it a Ponzi scheme to people saying it's necessary for the continued welfare of our older citizens, that I'm really confused.

Can you please tell me the truth about Social Security?

Thanks,

Getting Older Myself

Dear Getting Older,

Madame L truly sympathizes with you, as she is also getting older, and personally knows no one who is not getting older (except those who have taken the other, not-getting-older alternative, not an option most of us choose on purpose).

Yet Madame L also has difficulty understanding all the arguments. Madame L gets reports from the Social Security Administration (SSA) every year telling her how many years she still must work in order to receive whatever future dollars in benefits, so she trusts that the system will continue through the next 40 or 50 years or so (which is how long Madame L plans to continue taking the "Yes, I'll keep living, thank you very much" option).

Here are a few recent arguments Madame L has read on the subject:

First, Social Security is not really a Ponzi scheme, as Perry claims, because, unlike in a Ponzi scheme, people who have paid into Social Security will eventually collect their money; and because (if the federal government hadn't started cutting into Social Security funds years ago) it should keep paying for itself.

Social Security is really more like an insurance program: You pay into it and if you live long enough to collect, you collect. Madame L is not aware of anyone claiming to be angry because they've paid so much into their house fire insurance for so many years but their house hasn't burned down, so they haven't gotten their money back.

Madame L has read still another way of looking at it: If you pay $5,000 per year into Social Security, with your employer matching that, you're putting $10,000 per year into the program. If you work for 30 years, with this $10,000 per year compounded at 8%, all this money tax sheltered, and you retire at age 65, you have $1.3 million in your fund. The government gives this back to you at a rate of $3,000 per month, so it takes 37 years to run out, and at that time, if you're still alive, you're 102 years old. (This scenario doesn't even account for the continuing 8% interest on the capital left.)

(This $10,000 is more than most people can or would put into their own retirement program, and it's not taxable.)

So, what would happen if Social Security were abolished (a la Rick Perry, Ron Paul, et al.)? Poverty among retirees would surge; short-term economic effects would be disastrous as those retirees would no longer be paying for such frivolities as rent, food, clothing, and medicine; and many retirees would have to move in with their children, many of whom are already suffering in our wretched economy and would have difficulty supporting their aged parents.

The United States would become a third-world country, and under Rick Perry, Ron Paul, and all the other current Republican presidential candidates, this would get even worse, as government employees would continue to be fired in the name of getting government out of our lives. These would include firefighters, police officers, teachers, public health doctors and nurses, social workers, and researchers. People who couldn't pay their local fire tax would have to stand by watching as their homes burned down. Parents couldn't afford vaccines for their children. And so on.

After all the arguments are done and over with, Madame L suggests you do as she has done and (1) read that notice the SSA sends to you every year, and (2) go to the SSA's web page where you can estimate your own retirement income. 

You can also read the SSA's page, with links to each subject, of frequently asked questions.

In addition, you can go to your local SSA office to talk to someone there. In the past, Madame L wouldn't have suggested that, but she recently had occasion to replace her lost Social Security card, and found that all the people she dealt with at that office were friendly and helpful.

Best of luck,

Madame L