People, particularly Boomers, hate when I inform them that Social Security is not a pension – it’s welfare that’s paid with its own special tax. I get all sorts of vitriol like “we paid into the system” or “Congress stole our money” or that it’s somehow solvent because all of the IOUs in the Social Security fund are backed by the US government. Yeah, no. A government program that takes money from taxpayers and gives it to other taxpayers is welfare. The moment it leaves your paycheck it’s no longer your money. There is no lock box. It’s just a government slush fund.
That slush fund is projected to be insolvent in 2034, or just sixteen years from now. Which considering Social Security is one of the four biggest expenditures of the fed, is kind of scary. Worse, Medicare, another of the big four, will go broke in 2026, just eight years from now. What this means is that instead of money coming out of those funds to supplement the federal budget, the programs will need additional money to maintain services. Since Congress is loathe to either cut spending or significantly raise taxes, they will go to the tried and true method of borrowing more money.
That will work – for a while. Maybe even a long while. At some point, the federal government will be forced to make some very unpalatable choices. Because there will come a point when tax revenues and the credit of the American government will be outstripped by entitlements, interest, and the defense budget.
Personally, I’d like to see a phase out of Social Security and Medicare to private accounts. While I’m not a fan of government welfare, I could at least semi-support targeted welfare for those in need instead of the blanket welfare approach of the current programs.
For my Gen X and Millienial readers, the big takeaway is do not include Social Security in your retirement planning. Of you’re like me and don’t pay into Social Security because you pay into a pension plan, don’t count on that for retirement. Only count on what you can expect to receive from investments. There’s a damn good chance that there won’t be anything for us.