What if Social Security...?

 

There's lots of nonsense out on FaceBook and other social media sites about Social Security.  "I paid into this my whole life!" someone will pout;  "Where's all my money?" and it's followed by claims that SS is old-age insurance or that there's a separate account in each person's name.

None of that is true.

From the very start of the program, SS was a two-pronged piece of legislation.  The first piece was a tax plan whereby every wage earner would be taxed some small amount and their employer would be taxed the same amount.  This tax money (FICA) went into the General Fund from day-1.  There was never a 'separate account', but the Social Security Administration did keep a record of how much was taken and the earnings the tax was based on.  You can still get from SSA a list of how much you earned (that was taxed) from the day you started work.  Mine goes back to 1962.

The other part of that legislation was a welfare plan under which certain persons would be paid money based on certain qualifications: how much you had earned, your age, your health conditions, and a few others.  Under this plan, people who had never worked a day in their life (for wages) still got SS 'benefits'.  If there had been those mythical 'separate accounts', their balance would have been zero.  As a matter of fact, everyone's balance is zero.  You have no contractual right to SS benefits even today.

But listening to various people carp about how unfair the system is got me to thinking about how things might have been had those politicians in the 30s really been looking out for the welfare of the people.  Try this on for size:

Suppose the SS law had been cast something like this:

1. Every wage earner must escrow with a trustee of their choosing not less than __% of their gross taxable wages.
2. Funds so escrowed may not be withdrawn before age ___, except as provided by law.
3. This account is the property of the wage earner and heirs.

As of right now, when you die, your SS benefits die with you (except for your spouse).  Your children and grandchildren do not inherit your benefits, but the scheme above makes your SS account truly yours as many people think (wrongly) is the case now.

There's something else.  There would be other changes that are harder to predict.

For one thing, all that money taken as taxes was used to fund the Social Security Administration, and none of that money would have been needed because there wouldn't have been a SSA.  Our federal spending would have been noticeably lower, our national debt would have been lower, the inflation rate would have been lower, and the general health of the economy would have been higher, not simply because of lower federal spending, but because all that money in individual investment accounts would have been used to fuel the private sector rather than being wasted on the bureaucracy.

The Dow-Jones which now stands at 25,000-something might have been much higher, and the dividends from a more robust economy would have been reflected in higher interest rates paid on your retirement account.  What effect would that have had?  Hard to tell, but I ran a little spreadsheet on my numbers — which were not exceptional — and at 8% of FICA earnings (not including the amount my employers were taxed) accumulated at 6% interest, I would have had almost $400K at retirement age.  In the hands of a savvy investor, that might have been substantially higher.  If that 8% were bumped up to 15% to account for the employer's portion, my balance at age-65 approaches $750K.  That's a substantial nest egg, no?

Beyond that, I'm guessing that those numbers would have been substantially higher given my actual experience with 401k savings accounts.  What little time I did have to pour money into a 401k still provided a nice pile that SS would otherwise not have provided, and that 401k is mine to do with as I please and to pass along to my children when I don't need it anymore.

Yes, indeed, FDR's Congress surely did not do us any favors writing the SS law the way they did, but that probably wasn't their intent in any case.

Regardless, the law is what the law is.  No, you do not have your own personal SS account with a pile of money squirreled away for your retirement.  Stop complaining.