I thought I had come up with a great analogy for Social Security: It is a ship rushing towards an iceberg, but that berg is very far away and a simple and small course correction is all that is required to avoid disaster. But, as expected, the fundamental disagreement with my conservative friends is not tactical, it is strategic. I got a response that went something like this: “The Social Security fund is projected to run out of money in my lifetime, and I don’t have any faith that I will be able to collect anything close to what I put in. If they would give me my actuarial benefits today, I would ever so gladly take them and invest them myself.”
We haven’t yet gotten to the core issue, but nonetheless it is useful to address this common complaint. Social Security is an insurance program, not an IRA. My friend doesn’t want insurance, he wants an IRA. Fair enough. But let’s not say that Social Security is broken because it is insurance, not an individual retirement account.
I have fire insurance on my house. I will be very, very happy if I live out my days never having to collect on that policy. Does that mean all those premium payments have been a waste? No. That’s the nature of insurance. Likewise, Social Security is insurance against poverty in retirement. I hope that I will never need it. That will be success for me. But for 40% of people in this country aged 65 and older, social security is their only income. They need it. I’m glad they have it. My friend and I may be better off with an IRA, but they wouldn’t be.
The whole discussion about Social Security as a sinking ship is a ruse. The course corrections required to avoid disaster are simple and relatively painless – and such corrections from time to time are inevitable for all such insurance programs. But by saying we need to get rid of Social Security because it is broken, one avoids having to debate the true issue: My conservative friends want to get rid of Social Security even if it is not broken. The philosophical/policy issues involved are fundamental and worthy of debate (properly balancing individual versus shared risks and needs), but instead we argue around the core issue. That’s a shame.
One thing I’ve managed to learn over the years is that in politics, as in marketing, words really matter. Many times the battles fought over what to name things, while unappealing to the engineering side of our brains, are critical to setting the rules of engagement for the really important battles to follow. Social Security is a perfect example.
The right wing says Social Security is broken because it’s not serving it’s function as a retirement fund. As Chris says, it’s not supposed to be your primary retirement fund. But I also don’t buy the argument that Social Security is an insurance program. What kind of insurance only pays it’s poor policy holders, not the "rich" ones (i.e., us)? As we saw in the aftermath of Katrina, real insurance only pays the rich, not the poor.
The truth is that FICA is a tax, and like many taxes it has the primary aim of redistributing wealth. I don’t have a problem with that; I just wish people had the honesty to admit that’s what it is. If we did that, then fixing it would be easy.
I don’t listen to politicians much, and I don’t understand specifics well, so correct me where I’m overgeneralizing.
I’m 24 years old. Unless my SS payroll contributions are increased now, I can expect to receive roughly 30% less(including inflation) in benefits when I retire.
The TSP is a way for me to ensure a second source of retirement income and is similar to personal accounts that have been developed in other countries. (Can you imagine the woes in Japan, with their life expectancies?)
But in order to ensure a comfortable retirement, I must also contribute to an IRA or receive a pension from an employer, provided that they don’t file bankruptcy the year of my retirement.
You take a chance when you spend your money (whether it’s through taxes or in buying a boat) that it won’t come back to you. I don’t know how people get rich. I haven’t gotten there myself. But I assume they stay rich because they hold on to their money, or they continue to earn more than they spend.
When you retire, you’re left with what you’ve saved. That’s pretty scary. Sure, it seems unfair with SS to think you put in more than you’ll take out. But have you? You’re just paying to care for the generations that cared for you in your youth. And by saving of your own accord, outside of SS, you’re teaching the rest of us to be financially responsible.
So what’s wrong with SS again? We just need to have more babies, heh.