More social insecurity

More thoughts on the so-called Social Security "crisis"...

The current administration is being just a little bit sneaky by talking about solving the "crisis" (actually a short-term cash crunch) and instituting private accounts all in the same breath. That's because these are two very separate issues, and instituting one (private accounts) doesn't in any way solve the other (the cash crunch).

First, the cash crunch. It's simple math, really. At some point in time (projected to be 2042 or so), the shear numbers of the Baby Boomer generation start to overwhelm Social Security's cash reserves. That is, in about thirty-five years or so, there will be more people drawing benefits than paying into the fund, hence the cash crunch. Of course, the cash crunch is only temporary; at some point after 2042, the Baby Boomers start to die off, and then we'll be left with more people paying into the fund than withdrawing from it -- the mirror-image cash surplus awaiting the retiring Gen X'ers. Still, if nothing is done to shore up the fund in the meantime, something will have to happen in 2042; the expected something being a reduction in benefits paid, to the tune of 75% of the current level. Not an immediate "crisis" (again, I'll probably be dead before this hits), but something to plan for.

The easiest way to fix the short-term cash crunch is to simply funnel more money into the fund, and the easiest way to do this is to raise the cap on contributions from its current $82K level to $100K or so. Today, you only pay into the fund for your first $82K in yearly income; anything you make over $82K isn't subject to the Social Security tax. Simply raise the taxable level a bit, which is relatively painless to do (and has the added benefit of not affecting lower- and middle-income workers), and the problem goes away. Voila!

The issue of privatizing Social Security is something entirely different, although the Bushies would like you to think they're somehow connected. Funneling currently public funds into private investment accounts doesn't do one thing to solve the cash crunch, and actually accelerates it; if some percent of SS funds no longer flow into the general SS fund (instead being funneled into private investment accounts), then that's even less cash on hand to pay out to the retiring Baby Boomers. So in terms of solving the SS cash crunch, privatization is a non-starter.

What privatizing SS would do is turn our current social insurance plan into yet another investment scheme. And, while it's possible that some savvy citizens could earn more on their funds than the government currently does, it's also probable that some citizens will earn less. That's the way investing goes, you know -- there are winners and there are losers. And unless you're very diligent and somewhat lucky, you're more likely to be a loser than a winner. Do you really want to risk your retirement income like this?

Besides, as I wrote in my last post, Social Security was never designed to be an investment. Social Security is an insurance plan against running out of money when we grow old. "Rate of return" doesn't factor into things when you're dealing with insurance; reliability does. Our current system is highly reliable, a very effective insurance for our golden years. I (and most Americans) see absolutely no reason to change from the insurance model to the investment model. Besides, if we want to invest, we can -- that's what IRAs and 401(k)s are for.

But that's just my opinion; reasonable minds may disagree.