Monday, July 17, 2017

A Word or Two About Social Security

The Social Security Trust Fund contains U.S. Treasury Bonds (paper IOUs) backed by the full faith and credit of the United States. Also, those bonds earn interest. There is currently about $2.8 trillion in the Trust Fund, which was built up in anticipation of baby-boomer retirements. Social Security is self-funded (interest on bonds plus payroll taxes), and by law is not part of the federal budget. It is not the Federal government's biggest expense; it has its own revenue stream.

Any adjustment to retirement ages or benefits only affects the date at which time the Trust Fund is depleted (currently around 2033, after which Social Security revenue can pay only 80% of benefits through the year 2092 unless simple adjustments are made to payroll tax rates or salary caps). The wealthy pay very little into Social Security; payroll taxes for Social Security drop to zero for incomes above $127,200 (this year's salary cap). Someone making $10 million pays the same amount of money that someone making $127,200 does in Social Security taxes. Capital gains (investment income) are not even subject to any Social Security taxes.

Social Security is not broke (would you be broke with trillions in your bank account?).

Conservatives are against Social Security ideologically. They do not want the government involved. They would rather the private sector handle retirements. Of course, private retirement accounts would be subject to administrative fees (think 20% rather than less than 1%). And $2.8 trillion to invest sounds wonderful to the financial sector. Trump signed an Executive Order revoking the fiduciary responsibility of financial advisors to act in your best interest. Private retirement accounts are subject to loss by fraud (think Bernie Madoff), theft (Leonard Cohen's manager stole all of his money and he had to go back to work in his 70's), bankruptcies, and stock-market crashes. Social Security will always be there. Unless, of course, politicians take it away from us.

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