I’ve been a proud, full-time, member of the American workforce since 1988.
Since then, I’ve earned approximately $2.4 million in base salary — excluding bonuses, stock option cash-outs, and other income streams. It also excludes the money I earned working part time while I was in school.
Since 1981 when I took my first part time job as a 16-year-old kid, I’ve paid more than $120,000 in Social Security taxes. I’ve also paid roughly $32,000 in Medicare taxes. Add it all up and that comes to roughly $152,000.
Wake Up: The Social Security Trust Fund Is A Ruse
In 2010 it was announced that Social Security paid out more in benefits than it received in taxes for the first time since 1983 — and that has been the case every year since.
And although we are also told there is no reason to worry, that claim is an unabashed sham.
The truth is there’s no money in the trust fund and there hasn’t been for years — if ever. That’s because our politicians have been using all of the Social Security surplus collected over the years that was supposed to go into the Trust to pay for their pet projects and an ever-expanding government instead.
The sooner you understand that sobering news, the sooner you’ll stop believing the feel-good Social Security office propaganda they send you every year that shows how much cash you’ll be getting each month after you retire.
According to my most recent statement, one lovely day many years from now I’ll be entitled to the following benefits:
- $3,380 per month if I continue working to age 70.
- $2,700 per month if I continue working until age 67
- $1,863 per month if I continue working until age 62
Couple that with the nest egg money I’ve already accumulated and, assuming hyperinflation doesn’t rear its ugly head, my golden years will be very comfortable indeed, financially speaking.
But I’m a realist. There’s a reason why my kids shouldn’t expect an inheritance from me.
Lots of Options, All of Them Bad
The truth is, the only way I’ll have any hope of seeing any of that money is if Congress:
- Raises the Social Security tax rate from the current rate of 6.2% (12.4% if you are self-employed)
- Eliminates the Social Security tax cap on earnings (currently $118,500)
- Pays the Social Security shortfalls out the general fund
- Borrows even more money than they already are to cover the expenses
- Sharply reduces the benefits we have been promised (and advertised each year in our Social Security report)
- Pushes the qualifying retirement age so far back that it hardly matters any more
As I see it, the first two options are non-starters because our politicians have already shown that they are incapable of leaving their hands off any new revenues intended for a trust fund. The next two options are simply unsustainable, especially considering we are now running trillion-dollar deficits annually.
That leaves the last two options, which aren’t good either — so no matter how you look at it, I suspect I’ll never see a dime.
The Sad Reality of It All
As I mentioned before, I’ve already paid $152,000 into the Social Security and Medicare systems.
Assuming I retire at age 65, and can stay gainfully employed with continuing modest salary increases, I’m going to pay another $200,000 or so into Social Security and Medicare — if not more, assuming Congress decides to hike those tax rates and/or raise the salary cap.
The sad truth is if Congress allowed me to keep all that cash under the condition that I put it in an ultra-safe low interest savings account — or even a shoebox under my bed — I’d be much better off than simply giving it to them to grossly mismanage.
Let’s Make A Deal
I’d like to make Uncle Sam an offer he can’t refuse: If he lets me opt out of Social Security from here on out, I’ll let him keep all of the Social Security taxes he’s taken from me so far.
After all, I’m confident I can do a much better job saving for my retirement than he can — even after spotting him $152,000.
Photo Credit: DonkeyHotey
(This is an updated version of an article that was originally posted on August 9, 2010.)
Hey Len, I’m sure you could do a better job investing your 6.2% instead of handing it over to the government, but I don’t see them allowing opt-outs.
I don’t know what to expect for social sceurity by the time I’m ready to retire. Probably not much if anything at all. I think we should all be planning for nothing, and if we do receive some social security benefits it will be gravy.
Like you said, even putting the money under your bed would be more likely to result in you actually seeing some of that money come retirement age. I don’t plan on seeing any of it with the current plan.
Len,
They are going to raise the retirement age and the 6.2% and they had better do it soon. The only reason nobody is talking about this is because it’s an election year.
Although I would hate to see it, Bret, I think the more politically palatable alternative would be to leave the tax rate alone and raise the salary cap to $250,000 – or even no limit.
I sure wish those people in Washington would actually start thinking about what would be best in the long run for the contry, instead of what they need to do and how they need to vote in order to stay in office for the rest of their lives. Some very hard and unpopular decisions need to be made now for there to be any hope for my children and grandchildren to not be crippled under enoumous taxes and government debt.
I’ve been saying since I was in my 20’s (I am now 47) that I won’t ever see a dime of Social Security. I have always planned on not having it.
The Social Security money I pay out of my check is just another TAX used by politicians to waste.
Vote the suckers out! Most of our representatives are nothing but a bunch of crooks who line their own pockets with money from hard earned Americans.
The apathy we as Americans have allowed in Washington is SAD, SAD indeed!
Scary information! I’m in the younger workforce demographic on top of this fear there is the added worried about being able to provide care for the older demographics with a smaller work force. Although maybe more people will get involved in this field given the high unemployment rate.
I paid into Social Security over the years (starting when I was 6 months old!) and don’t expect to get much back. Luckily (or maybe not so luckily) 9 years ago I started paying into a school district pension fund in lieu of social security. The district matches the amount I put in annually. If the pension plan can remain stable for another 20 years or so, I should have a small nest egg saved up. However, I’m also a realist, so this year I’m starting a 403(b) plan just in case!
Sadly, Little House, most pension funds for teachers are in a world of hurt too:
http://www.usatoday.com/news/education/2010-04-14-teacherpensions14_ST_N.htm
You missed one option I suspect they’ll include: Falsifying the inflation calculation used for annual COLA changes in the benefits. Even a percent lower each year makes a huge difference over 20-30 years. Recipients will have nothing concrete to complain about since the damage is done slowly over time.
BTW it’s probably unhelpful to say “SS won’t be there for me when I retire.” Even for upper-middle class people SS repesents a big percentage of their retirement income, and it can’t just stop. There will be SS benefits for everyone who has paid in — it’s only the buying power of those benefits that is in question.
Yes, the tinkering with inflation data is a given. But you’re right, they could tinker with it more than they already are.
I can’t speak for all middle-class individuals, but for my retirement planning, I do not account for Social Security. Anything I eventually get will be a bonus.
And you’re right, I may get a check for $3000 (or $30,000) per month when I retire, but if that only buys me donut and a cup of coffee, who really cares? 🙂
Agreed that inflation hanky panky is a given. However, assuming we survive as a country long enough to have to worry about retirement benefits, the real solution is option 5, but not by reducing the dollar amount paid, but the value of the dollar amount paid.
Being the government, they can print as much money as they need when they need it – benefit of a fiat currency. The inflation and devaluation will happen automatically as a by product of too much money chasing too few goods.
I’m sure I’ll receive Social Security, but I’m not sure if it will be of any use…
You’re going way too easy on Uncle Sam…. Social Security is a World Class Ponzi scheme that makes Madoff look like a chump. It is already falling apart as demographics change and there are no longer 8-9 workers to support the retirees. Means testing is coming, so anyone who has accumulated wealth will have the privilege of paying into the system while being punished with lower withdrawal benefits. This is the best case scenario for the future of Social Insecurity.
I’d probably opt out too, but you just pointed out something amazing.
Yes, you’ve paid $114,000… but that’s only 8% of your total earnings of $1.5 million! That is AWESOME!
I’ll tell you this Len, I pay more than $114,000 in total taxes every year, and I don’t come close to making $1.5 million a year. Tell me, is this fair that the goverment charges me almost 4X a year in taxes than it charges you? Serious question, love to hear your thoughts on how I should feel about this.
thnx
Sam, that $114,000 is only the amount I paid in payroll (SS and Medicare) taxes. If you include my federal and state income taxes it would be a lot more.
I’m not sure how you came up with the 4X more figure, Sam, but I will say this: if you want lower taxes we all need to support politicians who believe in limited government.
Ahhhh, gotcha! I thought that was your total taxes paid so I thought it was 114K/1.5 mil. So I thought you were paying an effective tax rate of 8% vs. my close to 30% or 4X! Good to know I did my math wrong!
OK, so let’s see… $114K just in SS/Medicare over the past 22 years…. guess it’s pretty similar with me too.
We should raise taxes on everybody!
I literally just asked for the Same exact thing over on my site. I am with you buddy…let me opt out – keep what you have taken so far and I won’t ask for a dime later on!
i remember my first economics class in college where my professor told us Social Security was a farce. He spoke of privatization and how without it we will have spend all our money and we will never see it.
my question is once it is gone then what….do the people who never got it that paid into it get their money back?
As gn pointed out, you’ll probably end up getting a check, but it’s purchasing power will be worthless.
Len – what about the 6.2% your employee has also contributed on your behalf? Technically speaking you have contributed 182K to your social security when you consider what your employee has contributed too. The SOcial Security system is a farce and I am not counting on it being there when I retire (at what age, I have no idea!)
Another thing too, not everyone gets their SS statement in November – it comes 3 months before your birthday so mine comes in May!
I would love to make that deal with uncle sam. Giving us the option to opt out of the system altogether (as long as we surrender any claim based on our past contributions) sounds like a great and sensible idea.
But, since this is all just a giant ponzi scheme, there is not way to stop it now until it collapses!
@Lynn: I’m always learning new stuff from my readers! Both the Honeybee and I have b-days in Feb and so we always get our statements in Nov. I just figured EVERYBODY got their statements in November! LOL 🙂
@Khaleef: A Ponzi scheme is exactly what it is, my friend. Thanks for calling it like it is.
@BITFS: Nah.
Yes, Len
You’re right on the money. I run two scenarios when I do planning for anyone under 55 years old. One with SS and one without. People always insist on SS so I keep it in.
I don’t expect to ever collect SS. I’m on my own by the time I hit 66.
What everyone forgets is that SS was designed to cover the people who happened to live past the normal time of death. It was not meant for retirement.
“People always insist on SS so I keep it in.” That just amazes me, Kim. Anybody who under 50 who asks to keep SS benefits in their scenario runs are simply deluding themselves. Any SS I may receive will be a bonus. Like the Federal government, the scope of entitlement programs seem to always expand from their original mandate over time.
Assuming zero SS benefits, and paying SS taxes on all your income until you retire, is extremely pessimistic IMO. The truth is going to be something in the middle.
When I run my own personal numbers the amount I’d have to save and have available privately at age 67 to cover the potential for me and/or my wife living until 90, with enough to cover inflation, is absolutely huge. Completely unrealistic without some COLA-adjusted SS thrown in there. Not sure if you have ever run those numbers through something like esplanner.com but they are very scary.
@gn: I like to think of it as being “realistically conservative” as opposed to “pessimistic.” LOL
I don’t think people realize the stakes here. I really don’t. Once the bulk of the Baby Boomers start drawing SS en masse, the Ponzi scheme that is SS will completely break down — either by inducing hyperinflation, or by the government being forced to pull the rug out from everybody under, say, 50 who had planned on receiving it (by pushing retirement age back to a ridiculously late age, for example). I prefer the latter option, because otherwise hyperinflation would lay to waste all the savings (and associated sacrificing) I accumulated over the past 20+ years so I wouldn’t need SS. If the gov’t cowards choose to take the politically easy route and let hyperinflation “save the day,” well, whatever happens it won’t be pretty, I’m sure of that.
GN,
The numbers are huge but there are ways to deal with it. For example, I’ve already dealt with my day to day costs now for the future.
Also, I’m running scenarios until age 120 for anyone under 50. It may seem excessive but I’ve been volunteering with seniors in their 90s and 100s for over 20 years. Some of these people retired before I was born and did not expect to live this long.
With medical advances, we’re living longer. Not necessarily well but longer.
And I thought I was conservative. 😉
IF YOU DONT KNOW.SOCIAL SECURITY HAS BEEN GIVE OUR HARD EARM MONEY TO PEOPLE WHO HAS NOT WORKED A DAY IN THEIR LIVE.SOME PARENTS PUT THEIR KID ON IT WHEN THEY ARE YOUNG SO THEY CAN GET THE MONEY AND THE KIDS CAN AT 18 WITHOUT WORKING FOR IT AT ALL. WHY SHOULD WE USE OUR RETIRENT PAY FOR THIS.ITS NOT FAIR!!
LOL Len, there’s no way a productive citizen like you will be allowed to opt out! According to the BLS, only 58.4% of Americans over age 16 are employed, with 3.3 workers supporting each person on Social Security. Other pensions don’t look all that more stable, but sadly, a third of workers aren’t saving for retirement at all.
@gn: They have been messing around with COLA for years. The inflation rate they use is not credible. Seniors should actually be getting twice what they do now. My husband’s grandmother has worked since she was 6 (not a typo) but she has to room with her brother in a small condo and be very careful with money to get by.
You make some great points, Len. I have featured this post in my latest “round-up” on my blog.
Sorry but your article is wrong. SS has a surplus of over $2 trillion held in treasury securities. Yes, the government has issued treasuries to finance itself, and the SS trust fund is one of the holders of government debt. In other words, it’s lent the US government money. Almost the only way SS will “default” or get wiped out is if the US government fails to pay its debts to its various creditors, one of which, again, is the SS trust fund. This is unlikely to happen, in spite of the political mistakes made with budgeting year after year. Somehow or other, the government will have to reduce its outstanding debts and soon. But is it fair to do that by stealing money that people have contributed their whole lives? And don’t have the time or the means to replace? Or fairer to tax present and future earnings? The SS tax rate was raised in 1983 from 2.2% to 6% or so. That was a huge tax increase but you don’t see that mentioned much. This was done to offset the huge baby boomer wave of retirements that’s now happening. It wasn’t enough of an adjustment, but not because the government ran a deficit in other areas of the budget. It wasn’t enough because in and of itself, SS isn’t generating enough money to pay out beyond 2036.(this is the year given by the SS website). Part of this is due to the severity of the recession of 2008 and the lack of full recovery and bigger tax revenues.
To say you don’t expect to see a dime in benefits is an extreme exaggeration. Many of the commenters are under the same illusion. Even if they cut benefits in half you’d still get something each month. Talk like yours is what spreads misconceptions about SS. Why? What are your ulterior motives? If it’s to get people to save more on their own, why don’t you just say so?
Sorry, but you’re wrong. Even the President’s budget chief, Jack Lew, admits that SS surpluses were redirected to the Treasury, which then deposited corresponding IOUs known as “special issue” bonds – in the Social Security trust fund.
So it’s merely a shell game. These intragovernment bonds are an Enron-like accounting trick that records how much the Treasury owes the Social Security Administration. In the end, those IOUs sitting in Social Security are nothing but a record of what has already been borrowed — there’s no money there.
True, we can’t technically default on money owed to ourselves, but that’s not the point. The point is, the money already promised to millions of SS beneficiaries does not exist. So future payments to SS recipients will have to be met either by future taxes, more borrowing or scaling back past promises.
You certainly wouldn’t accept IOUs as payment from your employer, so why try to argue that intragovernment bonds sitting in the SS “lock box” represents real money?
In what sense, exactly, does this money “not exist”?
Let’s look at an analogy here. Suppose you have $50,000 in an account at the bank. And suppose that 99 other customers at that same branch also have $50,000 in their accounts, for a total of $5 million. Now, that bank almost certainly doesn’t have $5 million in cash sitting in its vaults at any given moment. The bank has invested it–loaned it out to other customers for things like mortgages. That is how banks make their money, after all. If they didn’t do that, they wouldn’t be able to pay you interest on your account. But does that mean that the money in your account “doesn’t exist”? Do you really fear that, if you go to the bank to withdraw it, you won’t get it? No, of course not. You know that the bank will keep enough on hand to meet the normal requirements of its account holders–and that even if there is a “run on the bank” in which all the account holders demand their entire balances at once, the bank will be able to get the cash by borrowing it from another bank. And even if the bank itself collapses under the weight of bad investments, you’ll *still* get your money (though it may take longer) because the bank is backed by the FDIC–that is, by the full faith and credit of the U.S. government.
So if you think that the money in the trust fund “isn’t really there” because it’s been loaned out, then why aren’t you worried about the money in your bank account? Why aren’t you buying gold bullion and burying it in your back yard?
Paul Krugman analyzes this in a little more detail on his blog (http://krugman.blogs.nytimes.com/2008/03/28/about-the-social-security-trust-fund/), but of course I wouldn’t expect you to pay any attention to a pinko liberal like Krugman, even if he does happen to have a Nobel Prize in economics.
You do not understand how the banking system works. THIS is how the banking system works:
https://lenpenzo.com/blog/id46112-how-banks-work-vs-how-people-think-they-work.html
And just because Krugman won a Nobel prize doesn’t mean he understands economics; he doesn’t. Only those from the “Austrian school” understand economics.
The Nobel prize was awarded to him because he affirms their crackpot theories on economics.
I still think you’re interpreting the SS situation wrong. Even if they are, as you say, IOUs, they’re paid as needed to the SS fund. Otherwise, no one would’ve been getting their checks for the past several years. Intergovernmental IOUs are backed by the US government, it IS the same as money. We’re arguing about accounting practices. You seem to want to interpret the situation to be more dire for SS than it really is. It’s really the US deficit that may deserve the concern you’re putting to SS.
I think we are pretty much on the same page, sb, but coming at the problem from different angles. However, my problem with saying that US debt (in the form of IOUs) is the same thing as money overlooks the fact that every dollar the Fed prints out of thin air, devalues the dollars in my wallet that I have earned through my hard-earned labor. When dollars become so devalued that it takes $100 to buy a loaf of bread, and $300 for a gallon of gasoline — and it will if the government insists on printing money to pay its debts — then it won’t matter anymore if you have $100,000 or even $1,000,000 saved in your retirement account. So, no, I refuse to be satisfied with your assurance that the US government IOUs are okay simply because the Fed has the power to print as much money as they want.
But, wait a minute…doesn’t that same argument apply just as much to cash as it does to securities? I mean, the U.S. dollar is no longer backed by gold or silver; the only thing standing behind it is the “full faith and credit” of the U.S. government. So if your real concern is that the government is so deeply in debt that it will have to massively inflate the currency to pay it off, then doesn’t that concern apply just the same to the cash in your wallet as it does to the securities in the trust fund? I mean, even if all the money currently loaned out from the trust fund were to be called in tomorrow and paid back with cold, hard cash, wouldn’t the government *as a whole* be just as much in debt as it is now, and therefore your concerns about the possible devaluation of that money exactly unchanged?
Yes, it does apply just as much. The big difference is that I can spend the fiat money in my wallet now on tangible products that will allow me to protect my purchasing power, whether it is gold, silver, real estate or cans of corn!
But in that case, why do you say the securities in the trust fund “aren’t real money”? If they were all replaced with cash (which presumably you would say IS real money), your concerns would be exactly the same.
Because the securities aren’t real money until the government says they’re real money. At least not yet. But they will be!
The US dollar has lost 98 percent of its value since 1913. Why do you think that is?
Looking forward it’s crystal clear that a dollar spent today is going to have much much more buying power now than it will in the coming years, as the government’s gargantuan bills come due.
Look at it this way:
1) Inflation is primarily affected by the amount of money in circulation and how often it changes hands (the “velocity” of money).
2) We can’t spend money we don’t have — even if it’s been promised to us. If we can’t spend it, it’s not in circulation.
3) So we can’t spend the “unfunded” liabilities the government has only promised to give us in retirement.
4) The only way any IOUs can affect inflation — and erode our purchasing power — is when it is officially placed in our bank account as real money; only then do the liabilities become as real and spendable as the money in our wallets. (And the value of the dollar becomes diluted even more.)
5) Those liabilities will eventually be paid and we can’t simply print money to pay them — otherwise the currency will collapse via hyperinflation — as the Wiemar Republic, Zimbabwe and other historical examples show. Real wealth has to be created. Hopefully, the private sector will be able to create enough wealth to cover those liabilities and maintain our standard of living — although if we continue to run up enormous government debts, I sincerely doubt it.
Aside: There is no money in the social security trust fund. Zippo. It’s been plundered to pay for general fund expenditures. As proof, the fund is listed as a liability to the general government budget, and is included in the calculation for the national debt. So the only way to make the fund whole again is for Congress to raise taxes — or borrow even more.
One of the problems with this entire argument is that the “Trust Fund” has been borrowed or loaned out in some fashion. The money is not loaned to someone for repayment with interest. It will never be repaid. The money has been stolen. Never to be seen again.
True.
if we all opt out at once, they only have enough prisons to hold about 15 million of us.
Took me a moment, but if anyone else doesn’t get this, I believe ohboy is suggesting we opt out whether they “let us” or not 😛
Imagine if all the SS monies had been properly invested in the US economy. The system would probably be way beyond solvent. At least until the Congress would appropriate the funds for various socialist welfare programs to compensate for the “unfair advantage” the SS recipients would have.
My guess is the solution will be the Weimar Republic/Zimbabwe model. (Print, Print, Print).
Agreed, Randy.
Len, all of this is moot. By the end of this decade the Dollar will be in the dustbin of history! I’m planning on using my Back to the Future money (my pet name for gold and silver) to set me up for retirement. In time all fiat money is vanquished and everything is reset to the only real money the world has ever known Gold and Silver. It does piss me off knowing the money they are stealing from my paycheck in the name of SS and Medicare could be used to pad my stacking of the only Constitutional money this country should have ever had! Why has our countries leaders rebeled against the Founders like a bunch of children? Who knows, but a scary awakening is in store very soon!
Yep. Paper wealth will be annihilated, and 99% of America doesn’t see it coming. The day of reckoning is almost here, Jared. Get ready for the greatest wealth transfer in the history of the world.
Don’t forget that your Social Security contributions provide disability insurance and survivor benefits to your family should you die. I’m for partial privatization but I doubt Social Security will ever not pay benefits.
SS will always pay out, Joe, because the government will simply print cash to make up the difference. At some point, that fiscal irresponsibility will end up killing the dollar — so even though the monthly payments will be made, they won’t be worth much because a cup of coffee will cost $1000 (if not more).
Wow your comments with haverwench were too much for the comment reply box.
My wife and I have never based our retirement income on SS. We focus on what we have(real estate and other investments) and use these to help acquire our retirement funds. I am in my mid 30s and have been hearing about the SS breakdown since I was in high school.
Good strategy, JB. I am not relying on SS either — or my pension. If I see a penny from either of those, it’s a bonus.
I wonder if some sort of opt-out/buy-out is part of a possible solution (paired with others, e.g. – #5 & #6).
For example, a lot of pessimists who have planned well but are still being taxed due to high earnings, might willingly forgo some or all of their future social security benefits in exchange for tax credits that are definite and can be realized immediately. The proceeds of those avoided taxes can (and probably would be) invested and/or otherwise put into the economy.
Someone smarter than me would have to figure out if Social Security would truly be better off if these high earners left.
It’s wild, but 30 years ago AARP was all over this info. How social security siphoned tax money through a series of internal governmental categories and “borrowed” it for other purposes. Now, not a peep. Now they advocate for more and more benefits for retirees.
Fudging inflation is a given. Food prices have escalated way more than government figures indicate. COLA is a farce.
“Entitlements” have increased, (both in number of recipients and amounts handed over per person), with fewer working folks to cover them.
Later retirement age is already being implemented incrementally by social security. But businesses “letting” older workers “go” just before retirement is also commonplace. Once the minimum wage increases this will be even worse.
If you phone in and are on hold at social security, you may hear a recording that says the money used to pay current social security benefits comes from current workers’ taxes, not some stockpile you “sent ahead” for your own use.
What our nation’s financial future looks like is just a matter of “connecting the dots”. As long as you use the “old math”. Assets> debits= happiness. Assets<debits=poverty.