The Social Security Obligation

By James Schaefer

Dr. Krugman’s comment about “people who . . .  are itching to dismantle Social Security” is an interesting one.   It would appear that government has already done this over the past forty years, using the Social Security trust fund to cover federal budget shortfalls.  The well is now dry, and making Social Security solvent can only be done at additional future expense to taxpayers.

Taxpayers will now have to pay twice to fund Social Security, the first time out of their paychecks during their working years, and – starting this year – yet again, to pay back the IOUs to keep the system running.

When the system was set up in 1935, government was supposed to manage Social Security for its citizens, and ensure that it would be there for retirement.  See David Gergen’s article, “How Much Government?”.  Note in particular Gergen’s observation,

“FDR, ever the master, came up with an ingenious solution: create a program in which Americans would be asked to contribute to a social savings account that government would manage on their behalf and would be there for retirement. Instead of big government, it was to be a partnership that would encourage individual thrift and responsibility.”

It would appear that government has not fulfilled its part of the bargain – the social savings accounts are empty – and it would further appear that the program, rather than encouraging individual thrift and responsibility, has instead done the opposite, leading many citizens to believe that government will fully take care of them in their retirement, thus foregoing personal savings for retirement.

Thirty-seven percent of American families have no retirement savings; of the remainder, the average savings is $96,000 and the median is $27,000.  See Dan Ackman’s article, Retirement Doomsday, in Forbes.

The irony is, a million dollar tax-sheltered retirement fund is attainable for most Americans, through diligent savings alone.  At a 4% drawdown rate, it would provide $40,000 in annual income, with Social Security on top of that.

However well-intended, any program that detracts from personal responsibility has unintended consequences.  Caveat to government: be careful what behavior you reward.

Taxpayers are going to have to pay – again – for those Social Security IOUs to be redeemed.  And there are only three places government can get the money: tax it, borrow it, or print it.

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