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by FiveBoxes Staff | 2008-04-29 11:13 

Last month, US Treasury Secretary Henry Paulson said that Social Security is “financially unsustainable” and needs an urgent overhaul.

Ya think? Simple elementary-school math shows it’s unsustainable.

Paulson, speaking after a government panel had completed its annual assessment of the Social Security and Medicare benefits programs, said waves of retiring Americans threaten to soon deplete available funds stockpiled in the two programs.

“As the baby boom generation moves into retirement, these programs face progressively larger financial challenges,” Paulson said.

The Treasury secretary said a growing number of retirees and the programs rising costs could harm Americas future prosperity if Social Security and Medicare are not overhauled and bolstered.

The needs of the Social Security program, which provides retirement benefits to all Americans as long as they have contributed to the program, are less acute, however, than Medicare.

Paulson said the Social Security programs cash flows are projected to turn negative in under 10 years and that a Social Security trust fund would likely be exhausted in 2041 without urgent reform.

Regardless what any politician will tell you, Social Security cannot be maintained. And you can prove this by doing some simple math. So sharpen your pencils, and read on for today’s lesson.

First, some basic information to set the stage for our word problem. The Social Security tax rates have been increasing steadily for years. So let’s take someone who is retiring today at age 65. Let’s say he started working at 22 (and figure he cut grass and did other under-the-table jobs and didn’t start paying into the system until he was out of college.) That means they were born in 1943 and started working in 1965, so they paid into the system for 43 years.

Let’s say he started at a good job and made $14,000 a year (a lot back then), stayed at the same employer, and to make math easy just say that he got a 5% raise every year.

That means that he paid $115,011.88 into the system, left his job making $108,662.23, and according to this Social Security calculator is entitled to $1823 per month. Figuring this person dies at age 85, the system will have paid him $437,520, assuming no benefit increases or decreases over 20 years. (Which is highly unlikely. Social Security benefits have always gone up, but we’re looking at a bankrupting system, so they may get cut. For the sake of discussion, we’ll keep math simple and keep his Social Security paycheck at a flat rate.)

This system works so long as you have an ever-expanding workforce and a steady death age. But currently the workforce is declining and the death age is increasing. This all leads to more money going out than coming in. Using our example, he will have been given $322,509 more than he paid in. And we all pay for it in our paychecks, despite the fact we may never see a dime.

Thanks, FDR.

We’re in this mess because people want to absolve themselves from the responsibility of planning for retirement, and instead want Mother Government to provide for them, cradle to grave.

It is time to wake up. You are not entitled to retirement. You are not entitled to a monthly check. You are not entitled to see a dime back from the government, in any form. Contrary to popular belief, you are not entitled to happiness. You are entitled to life, and the right to pursue happiness. If your happiness means retiring at age 65, then you have to earn that retirement by making wise decisions and saving enough money for 40+ years so that you can afford to stop working. 

But politicians want you to believe that they can provide you happiness in the form of entitlements like Social Security, Medicare, and prescription drugs. Just as long as you vote for them, of course. They all promise you the world, but none of them will do the math to figure out how to pay for it. And like kids at Christmas, we don’t care how much it costs as long as we get the big gift-wrapped box with our name on the tag. Never mind that dad had to take a second part-time job to pay for it, or that mom just got a pair of socks… so long as we got our big present, who cares that someone else got shafted? As long as it wasn’t us, right?

When we become dependent upon the government, we become enslaved by the government. True freedom, and true liberty, means we must break the shackles that hold us. What are you dependent upon the government for? How can you free yourself from the chains of the government? How can you free others?

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Comments (5)

5 Responses to “Doing the Social Security math politicians won’t do”

  1. Josh Fetzer Says:

    I think you answered your own questions in a way. The only path to take is to get smart, get educated, and be proactive in supplying enough funds for yourself to live until you die. The problem therein lies with those who don’t supply enough funding for themselves, obviously.

    The bottom line is still that the government is not the answer, despite what the government has done in the past and continues to do today (i.e. Social Security, welfare, etc.). Government created the teat for people to suck on and now that they’ve created it, they’ll never remove it for fear of being ousted from office by losing votes and other support (read: financial). Hence, we’re on the path to destruction as a country. This is why I agree with you that we should have really strict rules on campaign contributions – cut off half the bullshit reasons politicians have for making the piss-poor decisions that aren’t in the best interests of the people.

  2. patriot Says:

    Here’s a way to ensure your kids will have a nest egg. (If you’re reading this, chances are it’s too late to implement this strategy, and will have to rely on your 401k, IRAs, and savings.)

    At birth, open up a retirement account for your kid. Put $2,000 in it every year until they’re 18. That’s $36,000 on your part. (And most people can afford it with their tax return.)

    Everyone knows that compounding interest translates into big money in the long term. So you take $36,000, compound 6% interest from inception to age 66, and you have $1,013,326.61. Your kids then put that in an annuity which pays out 6.74% per month, and they’ll have a monthly income of about $8,833 before taxes, or about $82,000 a year. Even if the annuity only makes a paltry 2% per year and the remaining 4.74% comes from your principle, if they die at 85 they still leave $402,763 to their kids (your grandkids.) Or better yet, structure the annuity to pay $41,000 per year, and there’s more than enough left over to cover medical expenses and *still* bequeath a tidy amount to your grandkids.

    Hell, if the government did this, they’d save a couple hundred thousand dollars per person over paying out Social inSecurity.

  3. Ed Says:

    We should just privatize SS just like we got the Gov’t of Chili to do a few years ago.
    Most get 3 to 4 times the retirement income and it transferable to their estate unlike our US Gov’t SS.

    Keep up the good work.

  4. Lynn Robb Says:

    While I agree with you in general principle, I am curious to know what fate you intend for those who work their entire lives making just enough to put food on the family table without being able to save for retirement.

    When Social Security was initiated, it kicked in just before the average lifespan was due to end. It was never intended to finance a 20-30 year golf vacation. If you want to save Social Security for the original purpose for which it was intended, we need to strengthen laws protecting older workers from discrimination. Too many are getting an involuntary gold watch so some Gen-Xer who has the boss’s ear can move up the ladder.

  5. patriot Says:

    “I am curious to know what fate you intend for those who work their entire lives making just enough to put food on the family table without being able to save for retirement.”

    Well, there’s the motivation to work harder, isn’t it? “If I want to retire, I need to bust my butt and make more money.”

    If Joe Schmoe doesn’t work hard enough to afford retirement, that’s not my fault, nor yours, nor anyone else’s fault but Joe Schmoe’s. Why should we all be penalized because — as you pointed out — a death benefit has turned into a retirement plan?

    As for the “involuntary gold watch”… how many recipients of that gold watch have failed to keep current on knowledge and skills that businesses need to compete in the workplace? How many 50-year-olds know about viral marketing, for instance? How many 60-year-olds still can’t figure out email? Not to be crass, but just because they’re old doesn’t give them an excuse to stop learning the skills businesses need to remain competitive.