Social Security is Not an Entitlement Program
An entitlement is defined by Websters as:
1.the state or condition of being entitled, a right to benefits specified especially by law or contract
2.a government program providing benefits to members of a specified group; also, funds supporting or distributed by such a program
3.belief that one is deserving of or entitled to certain privileges
B More..ut, does this definition apply to social security? For your whole work life you are required to pay in 6.2% of your gross income into social security. Your employer is required to match that amount. So 12.2% of your gross income is put away for your retirement (kind of).
Getting your own money back does not seem like an entitlement program to me by Websters definition. Also, aside from federal employees we are all required to pay into the system, making the "specified group" quite large indeed.
Here are some facts.
■Average life expectancy in America is 78
■The age I can collect full social security is 67
■The age I can collect social security is 62 with a 30% reduction in payment
I have calculated over my work career (33 years thus far) how much I and my employers have contributed to social security. I figured managing this money over this period at a 4% rate of return. If I live to the average age I will collect full social security for eleven years. The amount I would recieve is actually less than myself and my employers have paid in assuming a 4% rate of return on that money. Even at 3% that amount paid in is more than the amount I would recieve in social security payments.
Social security is a mandatory savings program by our Federal Government. It was enacted in 1936. The first taxes were collected in 1937. The first payment was made in 1940. Clearly the first recipients of the program got a good deal. For them it was truly an entitlement program. If you retired in 1947 you only paid into the system for ten years. They truly recieved an entitlement. Those of us that have paid into the program from day one are not recieving an entitlement! We are receiving back what we paid into the system.
I said social security is a mandatory program. In other words you are not given a choice to "opt-in" or "opt-out". You are in whether you like it or not. During the time social security was enacted it was said that it would be the end of America as we know it. It was socialism. It was un-American. In the 70+ years since its inception I think it have been proven to be a good program. It has allowed millions of Americans to live their retirement years with the peace of mind of a guaranteed income. Since about 1977 those Americans are getting back from the system what they paid in. It is also a simple program that requires little or no work on our part.
How Social Security Funds Get Disbursed
This is where things get a little troubling and we should all be concerned. The money you are paying in to social security is going to pay the people that are currently retired. Your money is not being saved for you.
When social security was enacted there were over 40 workers for every retired person. [Note: I have this information from Heritage Org and Prudential. I have not had time to validate these numbers through other sources] Today (2010) that ratio is 3.3 to 1. This in itself might not be an issue had our government over the years not spent the social security surplusses. It can even be said that social security is a government run ponzi scheme.
The US Securities and Exchange Commission website (US Securities and Exchange Commission (http://www.sec.gov/answers/ponzi.htm) defines a ponzi scheme as...
"A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors."
Irrespective of your beliefs on this matter the facts remains that for generations our government has spent the surplusses we have paid in. We only have 3.3 retired workers today to pay for each retired person. If these 3.3 people pay in the maximum in social security (which is not the case!) this would amount to $43,700 being collected.
The good news is that if the governemnt starts banking the surplusses, and changes from a COLA (cost of living allowance) method for raising payments we could keep social security from becoming insolvent. The bad news is, if you look at how these funds have been historically managed this is not likely to happen.
Click to view image: 'c2889b6c6976-federal_spending__fy_2007.png'
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