Alpha Consumer

The Future of Social Security: Not Good

By Kimberly Palmer

Posted: June 15, 2009

I spent the morning at the Youth Entitlements Summit on Capitol Hill, where 20-somethings quizzed economists about the future of Social Security, Medicare, and the financial security of our country. I left feeling like young people have a lot to worry about.

Not only are they facing one of the worst job markets right now, which means they're having trouble getting the early experience they need to build future careers, but they also seem likely to pay higher taxes and perhaps receive lower benefits from these entitlement programs. The Social Security trust fund, for example, is scheduled to run out in 2037. After that point, if no changes are made, there will only be enough money from tax revenue to pay about 75 cents for each dollar of scheduled benefits.

Rep. John C. Spratt, D-South Carolina, chairman of the House Budget Committee, warned that by the end of the year, the deficit could reach $1.trillion, and the economic recession is only exacerbating the situation. "We could be heading into a Japanese-like recovery, which is weak and slow," he said.

But in response to a question about whether young people might see their Social Security benefits cut, Spratt had a reassuring response. Political support for Social Security is so strong, he said, they even moderate cuts would be hard to make.

That differed a bit from the Cato Institute's Jagadeesh Gokhale's perspective, who warned that young people could one day find themselves trapped at the bottom of a vortex with all their juices sucked out, and then "you'll be spit out." In other words, no benefits will be forthcoming. Social Security might seem secure now, but that's only because when you're at the top of a vortex, all seems calm, he explained. The 20-somethings in the room responded to his metaphor with nervous laughter.

How worried are you about the future of Social Security? Do you think it will be there when you need it?

Right on!

Paul of Iowa, you are quite correct. If retirees get support then it is the workers who are providing that support. Under the scheme Bush was pushing the money from workers would come, mostly, from dividends on stock. The value would be created by their labor and flow to the retirees. Juat as you say.

In my earlier post I said that the scheme Bush was pushing would result in a crash because when workers started cashing in assets those sales would drive down prices. That's how markets behave.

If you look at what Bush actually said you will see that the planners behind what Bush was pushing anticipated that crash. Bush said several times that retirees would not have access to their principle during their lifetimes. There was a feel-good promise of letting retirees pass on the assets to their heirs but if the heirs can sell (and do) then the crash still comes. The restriction on access to the principal would delay the crash. They could see it coming. Instead of dropping the scheme they simply crafted it to last a little longer before the crash hits. No friends of ours.

Just how comfortable should anyone be with politicians who try very hard to sell them on a scheme but who do not tell the truth about that scheme?

I can feel some sympathy (a tiny bit) with those who are upset about tax money being used to support retirement. The scheme Bush would use to replace that would lead to the collapse of the entire economy - and would still be using the FICA tax. I have no warm place in my heart at all for a scheme that would destroy general retirement security and take the entire US economy down with it.

The biggest problem through all of this is that (a) those in positions of responsibility provided no real analysis of what Bush was trying to get implemented and (even worse) (b) almost 100% of the US population failed to demand that they be given a real and honest analysis of what Bush would use to begin the destruction of Social Security. The topic is general retirement security, which for each worker is that worker's own retirement security. The workers need to watch out for themselves. Letting politicians get away with restricting discussion to the propaganda level is immensely dangerous.

(I say "almost 100%." Who has ever demanded a real analysis of what Bush was pushing?)

not-humble-enough of WI @ Jun 16, 2009 16:30:02 PM

SS, Medicare, Medicaid

If the government would pay back to these funds the amounts it helped itself to the funding would probably be sufficient for several more years. Our government has consistently helped itself to money from these funds and, to the best of my knowledge, has never paid it back. This has been going on since the inception of SS, Medicare and Medicaid.

Pat of IL @ Jun 16, 2009 16:17:17 PM

SS & Medicare

I'm a retiree, collecting SS and also paying into Medicare Part B. It has always galled me that we have to get part B Medicare at age 65. I had good insurance before I turned 65 and I wanted to just keep that insurance. Well, I found out the hard way, that my insurance co. "counted on" the fact that I should be on part B Medicare after 65. so reluctantly, I had to sign up to pay for part B, even though I am fairly healthy.

Regarding SS, I have a seed of an idea that needs to be developed, that we should "start a new SS" that all young people under the age of 35 should fund instead of the current SS. This new SS could be phased in so that current SS recipients will still continue to receive from the "old" SS and eventually, the "new" SS would take over for the younger generation.

It's only an idea, but why continue to pay into a bad system? Additionally, instead of payroll taxes, I would propose a general sales tax (federal) that would supplement SS.

Merrily Hardy of NM @ Jun 16, 2009 11:54:53 AM

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Alpha Consumer

Alpha Consumer

Kimberly Palmer, senior editor for U.S. News & World Report, writes about how to save money, avoid scams, manage debt, and be a savvy shopper. Send your personal finance questions to her for expert money advice.


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