Tuesday, January 22, 2013

Social Security is Far From Broken

Posted by Kim Klein

I, along with millions of other Baby Boomers, will turn 60 this year.  Retirement beckons!  For the past few years, my partner and I have made forays into planning for our retirement.   We have met with retirement planning professionals who look over all our financial documents and then tell us how much money we will have to live on depending on when we retire, how much we save between now and then,  and what kind of expenses we will have after we stop working.  These meetings are completely depressing.  Basically, if we want to maintain our current lifestyle in retirement, we can’t ever retire.  If we want a semblance of our current lifestyle (some travel, some cultural events, occasionally eating out) we must save tens of thousands of dollars every year and perhaps can retire when we are 75.  Of course, if we were to save tens of thousands of dollars every year we couldn’t have the life that we have now:  in fact it is unclear how we could have much of a life at all.   These circular discussions come down to one irrefutable but not correctable conclusion:  we should have started saving $2000 a year in our early 20’s.  Had we done so, thanks to the power of compound interest, we would be much better off.  

Of course, I didn’t have an extra $2000 a year in the 1970’s.  (Some of those years, $2000 would have been my entire income.)  But I could have saved more than I did (which was zero).  I even remember someone saying to me then, “Just put $10 a month in the bank—it adds up. “  So I can’t entirely hide behind the idea that I had no money to save.  But when I was in my 20’s, I wasn’t thinking about retirement—it was forty years away!

Fortunately for people like me, there is a forced savings plan which guarantees an income for me when I retire.  It’s called Social Security, which is the most successful program for keeping  people out of poverty ever invented in the United States.  Recently, I created an account on line through the Social Security Administration’s website which allows me to see how much I have saved and what my benefits will be depending on what age I chose to retire.  (Anyone can do it, just go to:  http://www.ssa.gov/myaccount/, create a password and away you go!)  They also have information about how to apply for Medi-Care, how to apply for disability, and much much more.  It is an excellent site.

And what I see there is that in spite of the fact that I have never been a saver and I am not terribly disciplined about money, the government has saved a lot of money for me.  They have taken over $130,000 from my wages over the course of my life.  If I retire at 66, I am guaranteed a monthly income of $1998.00.  If I live to be 82, which is the life expectancy of women today, I will have been paid $383,000.  Certainly, had I saved $130,000 on my own, I might also have been able to invest it carefully and, with compound interest, made it grow to $383,000 (an almost 300% increase) but that is too many variables for me.  And that fact is I may live longer than 82 and I will continue to get this money for as long as I live. 

And keep in mind that Social Security is more than just a retirement program. It provides important life insurance and disability insurance protection as well.  In fact, according to the Center on Budget and Policy Priorites,  “as of June 2012, 56 million people, or about one in every six U.S. residents, collected Social Security benefits. While three-quarters of them received benefits as retirees or elderly widow(er)s, another 11 million (19 percent) received disability insurance benefits, and 2 million (4 percent) received benefits as young survivors of deceased workers.” 

There are many irrefutable facts about my life:  I should have saved more, I should have eaten less, I should have remembered friends’ birthdays, I should have told aging relatives how much they meant to me.   Some of these I can correct in the future and some I can’t. 

But  I do intend to make one thing an irrefutable fact of my life going forward:  I will defend Social Security as a cornerstone of a commons based society.   I will always be grateful to President Roosevelt’s administration for creating this program and to all the politicians who have kept it from being privatized or eliminated.   It works and it works for a lot of people. 


Jan Masaoka said...

Great article. We also have to remember that when Social Security was instituted, it started paying benefits at age 65 and the life expectancy for Americans was 64.

So the system isn't designed to make a person "forcibly" save enough to pay through today's life expectancies. Like selling Avon products or Ponzi shares, the system depends on new people coming into the system to pay, not just the "forced savings." So if you live for many years after you start collecting (which I hope you do, Kim!) you will be using your savings, the earnings on those savings, and the money of people in their 20s and 30s, not just your own.

Kim Klein said...

Jan, I admire you and hope you live a long time too, so we can continue to argue about things. But I have to say comparing social security to a Ponzi scheme makes me think you really need a day off. Social security depends in part on the productivity of workers: fewer workers making more money will pay the same as more workers making less. Also, lifting the ceiling on the amount of income on which you pay social security tax (currently $110,000) would insure the solvency of the program. This is one more way high income earners walk away without doing their share.