Checking Social Security Figures Again
Question: Concerning your recent article on Social Security benefits--”Getting Back More Than You Put In”--I have one question: What kind of irresponsible, journalistic drivel is that? You state: “The average worker who turned 21 in 1984 . . . will pay a total of about $720,100 in taxes by the time he reaches 65 . . . (and) should receive about $1,618,000 in benefits . . . . That’s still a pretty fair return.” Utter bull!
I don’t know where you get your figures, but let’s do it this way. I’m 25 today, and pay 7 1/2% on an income of $35,000, or $2,625. My employer pays 7 3/4%, or another $2,712. Total yearly SS taxes: $5,337. Assume that $5,337 per year will continue to be paid, with all calculations that follow normalized to 1986 dollars. If the government were investing my $5,337 per year at a conservative return, a rate of 5% above inflation, I would have $5,470 in my account. We calculate the amount such an account would hold for me by the time I am eligible for Social Security retirement benefits at age 65, and I calculate that in the next 43 years I will have paid in $782,174 (and remember that this is in 1986 dollars).
Some of the ‘Ifs’
Now, if the government would keep the entire principal and just give me the 5% real return, they could give me $39,109 every year for the rest of my life. If they had been managing my SS taxes wisely (not even shrewdly, just conservatively), and assume that I live to age 88, they could still give me $60,000 a year and not deplete my account. You say present maximum SS benefit is about $700 a month, or $8,400 a year. If we assume this figure will stay the same (not likely; real SS benefits have been losing to inflation these last few years), then I’ll be getting $8,400 per year when I should be getting $60,000 a year. Still think it’s a pretty fair return? Please use your position to help expose Social Security for the cruel fraud it really is.--J.V.
Answer: Yes, I’m familiar with all of the “what if?” ways of approaching Social Security purely and simply as an annuity and looking 43 years down the murky road of the future to come up with figures like the $60,000 a year to which you feel you should be entitled at retirement. It’s possible. Anything is possible if . . . .
Your calculations are probably valid (although they’re based on a 7 1/2% contribution by you and a 7 3/4% contribution by your employer, when, in actuality, both of you are currently paying matching amounts--7.15%--but, for argument’s sake, you’re probably close enough).
It’s odd how the responses to a column on Social Security benefits break down. About half are from the young, like you, who see it as a bum deal. The other half, believe it or not, are from the elderly who resent what they see as an implication that--because they got their money back so fast--they’re getting a free ride of some kind.
No one really pretends that, strictly as an annuity, Social Security is as good a deal for today’s young people as it was for their parents.
As Paul S. Hewitt, president of the Washington-based Americans for Generational Equity, told us recently: “In 1935 when Social Security began, there were 16 workers supporting each retiree drawing benefits. Today, there are 3.35 workers supporting every retiree, and in 22 years, when the ‘baby boomers’ themselves start drawing benefits, there will be fewer than two workers supporting every retiree. And, between ’72 and ‘83,” Hewitt continued, “the real, after-tax income of the young declined 19% while those over 65 saw an increase of 6% in after-tax income.”
Value as an Annuity
So, is Social Security really a bum deal? Disregarding for a minute the fact that, without it, 60% of today’s retirees would be classified as poor, you might be able to marshal a pretty good argument about its value as an annuity. But, for openers, consider the “ifs” involved:
--Who would be entrusted with the investment of this money to realize the “conservative” guideline that you mention--”5% above inflation”? And where would such a person invest it? Today, that would require an investment yielding about 8% or 9%. Should it be invested in a stock market that plunged more than 86 points on one recent day? In banks or money market accounts currently yielding 5 1/2% to 6%, which might be 2 or 3 percentage points (not 5) above the inflation rate?
--If employees, individually, were given the option of dictating where their and their employers’ money were invested, how many of them would have the know-how to do it and to avoid things like a repetition of the Great Depression of 1930-39?
Fortunately (or unfortunately, depending on your viewpoint), Social Security is not simply an annuity program. As Robert Neal Butler, chairman of the Department of Geriatrics and Adult Development at New York’s Mt. Sinai Medical Center, reminded us in a recent interview, “A full 25% of all Social Security benefits being paid today are going to people well under the age of 65.
Insurance Coverage
What people tend to forget,” Butler added, “is that a young person, age 25, who is married and has a child, is starting out life with the equivalent of about $250,000 in insurance--covering his possible disability, survivor insurance and educational benefits for that child.”
Another approach was voiced in a recent interview with 71-year-old Los Angeles Gray Panther activist Adele Erenberg when this subject of young-old frictions came up: “I was attending a meeting in Florida recently and we had one speaker who addressed himself to one of several young people in the audience who had complained about the unfairness of Social Security. So, the speaker said: ‘OK, so have it your way--we’ll do away with both Social Security and Medicare and you won’t have to pay it anymore. Now, let me ask you this: How many of you young folks out there are ready to take in, and take care of, your elderly parents?’ ”
Erenberg laughed. “An audible groan ran through the audience.” And then, soberly: “It’s a dumb issue. You either shift the economic burden onto the shoulders of the young, directly, or you lay it on state, county and city welfare rolls. Take your choice.”
A “cruel fraud”? Possibly. What’s your alternative?
