War of Words
columnist: Paul Benedict

Topic: Social Security
Financial Stimulus, Bank Bail Outs, and Ending Social Security

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The median American family, after forty years, will receive benefits from Social Security that are only a few thousand dollars more than the federal poverty level. If, instead, we ended Social Security today, not only would the ultimate retirement benefits, on interest alone, be almost double those of the Social Security, but we would bail out the banks and stimulate the economy.

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by Paul Benedict
(libertarian)
Wednesday, February 4, 2009

Financial Stimulus and Ending Social Security The median American family, after forty years, will receive benefits from Social Security that are only a few thousand dollars more than the federal poverty level. If, instead, we ended Social Security today, not only would the ultimate retirement benefits, on interest alone, be almost double those of the Social Security, but we would bail out the banks and stimulate the economy.

Because Social Security is not a retirement investment plan, but a wealth transfer strategy, it can never be truly solvent. Even at its best, when the payroll benefits take more than enough money than its legislated benefits distribute, the surplus is not used to produce wealth. By definition any Social Security surplus is only used to finance debt. That is, the Social Security surplus is translated into "special" non-negotiable treasuries. These treasuries only serve as one of the least expensive ways for the United State government to finance its on going debt.

Because Social Security, like a pyramid scheme similar to Bernard Madoff's investment fraud, depends on many more people working than people retiring, as the program has continued its economic fundamentals have placed a greater and greater burden on the work force. What began as a 1% contribution by worker and employer, without any contribution required from the self-employed, has now become a 6.2% contribution by both worker and employer. Now, the self-employed must also contribute %12.4 as well. The initial 2% contribution also included Medicare. When the new Medicare expenses are included, the total contribution of employer and employee is 15% or one's salary.

If each American worker were ever to do the math, and see how much 15% of their salary would amount to over a lifetime of work (compounded annually even at a conservative 4.5%), they would have more than a sufficient basis for desiring an alternative retirement program from the government.

For instance, taking the U.S. census bureau's median household annual income of about $50,000 per year as an example, the annual household contribution to Social Security is $6,400. If the average household continues from their mid-twenties until Social Security retirement age their lifetime contributions will have been $256,000 more than a quarter of a million dollars would have been squirreled away safely in the Social Security assured benefits program. If, at 65, instead of giving a quarter of a million dollars to the government plan, they held on to their own money, and, at retirement, let this money earn a standard FDIC (federally insured) certificate of deposit rate, say 4.5%, their annual income would be about $11,520 per year. If one were to plug in $50,000 per year to a Social Security quick benefit calculator, a get a rough estimate of the Social Security benefits is $16,716. One must admit, yes indeed, that good ol' big government Social Security is just the best. Their estimated benefits actually exceeds the interest rate on that paltry $256,000 the retirees in their golden years would own and be able to transfer to their children.

Although Social Security wins in this income benefit calculation, besides the fact that the smaller interest rate is offset by the fact that  such a blessed elderly couple would actually own a quarter of a million dollars, two other things should rattle Joe payroll worker (that's you). The first is that the median household, if it can stay together for forty years, will retire with less than $20,000 per year in Social Security benefits. Secondly, the interest income that Social Security exceeds, excludes the compounded interest over forty years of the median household's working life. If the $6,200 earned that same conservative 4.5% interest rate and was  compounded annually, over forty years, the total nest egg would then be $691,406.79! This nest egg would yield $31,113 dollars per year. That's right , and I promise you no one taught you that in your high schools civics class. Why not? Just why do you think no high school teachers ever shared information like this with their high school classes? You don't suppose its possible that a government sponsered education is  contrary to the intellecutal qualities required by a free people? At any rate, this information is freely available. Everyone who does financial planning understands this. The only people who don't understand  the wealth 15% of one's income can produce over forty years is are American high school graduates.

Now, obviously, personal ownership of one's retirement investment is a far better deal than Social Security. If the average, or median household trusts only in Social Security, after forty years of working and staying together the average benefits for a couple would be only a thousand dollars above the poverty level. That's communism and big government, and it will be worse. The government cannot even pay these benefits without increasing the burden on young workers even more. Beyond the benefits to the individual of owning one's own retirement funds, invested money can earn interest because invested money stimulates the economy. Business use such wealth to generate wealth at even greater returns than the investor receives. If we ended Social Security in favor of individual accounts the injection of money into the banking system, federally insured money, would far outweigh the current tarp funds. Sadly the interest income would not be consumable for another generation. Ultimately, though, the compounded wealth of individual American would abound in a stimulus package for the next generation beyond America's wildest dreams. America stands at a crossroads. It can continue to follow the promises and lies of popular big government figures, or American can think for itself and invest in its real future.

An FDIC secured savings account, IRA, or CD with long term savings bonds and a very conservative yield, results in twice as much in benefits per individual, or median American household, as does Social Security. That's why any American worthy of participating in the democratic process should immediately vote to end Social Security immediately! However, as detailed in Social Security and Bernie Madoff Style Pain, if America were to decide to end social security today it would owe 22 trillion dollars over twenty years (in non inflationary dollars). We would have to come up with a trillion dollars a year for a generation just to pay what we've promised to the older generation. It is possible.

For a detailed description of a plan that allows the Median Family (thirty-five or under) to secure their own retirement at higher benefit rates than Social Security promises, while, at the same time, making good the baby-boomer bailout their parents committed them to, see: "Ending Social Security by Applying Payroll Taxes to Primary Residences" by Paul Benedict.

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©2009 Paul Benedict, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Wednesday, February 4, 2009
Last modified: Sunday, February 22, 2009

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