"Brain surgery is not rocket science to a brain surgeon".
Over the last couple of weeks I have been answering the questions I seem to be getting asked most often lately. Below is another answer to a question that is billed as complicated and confusing. It's not.
Question 3: "Why do I keep hearing that Social Security won't be there when I retire"?
Short answer: Because it probably won't.
Follow-up Question: Why not?
Short answer: Arithmetic
Long answer: Please, read on.
I am in the final stages of writing a book entitled "Money as a Second Language". There are three chapters dedicated to what I describe as the three biggest enemies of wealth building. One of those three is excessive taxation. I go out of my way to say that the chapter is not intended to be political commentary because it isn't. But you simply cannot talk about financial responsibility, money, investing and wealth building without talking about the single largest expense a working family has. That's right. Taxes are the greatest expense a working family has in America. More than food, mortgage, car payments, etc. How can that be? Note, I did not say "income tax". I said "taxes". Income tax is only one of the myriad taxes we all pay to local, state and federal governments. It troubles me that while most people are aware of the more well known taxes by name like income, property and sales they fail to recognize other costs as the taxes they are. Some include parking meters, pet licenses, tolls, telephone, and sin. There are over 90 taxes we pay regularly and the number of taxes as well as the rates we pay are growing all the time. So, please keep in mind as you read that this is not political commentary. It is just an objective, mathematical description of why the Social Security program is fatally flawed with the unavoidable implied criticism of the policies and management that created the problem.
I keep hearing about how complicated the Social Security problem is. I guess it could become complicated if you did not understand basic arithmetic so students Pre - 1 may require five to ten minutes of additional explanation before they get it. The rest of us, well...
Let's begin with the concept of Social Security (an oxymoron). Originally Social Security was advertised as a guarantee that everyone who earns a paycheck, responsible and irresponsible alike, would have money set aside for retirement. The mandate was to take money from workers' paychecks and set it aside for their golden years. There are those who will say the more sinister goal was to give a federal government with a rapidly growing appetite easier access to a percentage of every paycheck issued without having to go to the inconvenience of billing for and waiting for us to remit our taxes.
Regardless of how you feel about such a program in theory, it is fundamentally flawed as a practical matter. Those flaws are routinely and aggressively camouflaged with misinformation. Again, a simple concept. Take money from a paycheck and set it aside for retirement, right? Wrong!
The first problem with Social Security is that it does not provide "security". Aside from the real risk of going broke you know very few, if any, people who can afford to retire on Social Security alone while maintaining a lifestyle they aspire to. So, by default, no "security".
The second problem is that the program, as advertised, is a complete falsehood. For simplicity, one way to save money is to take some money from each paycheck and put it into a piggy bank. Each check same procedure and the balance keeps growing. They want us to think that's how Social Security works. It doesn't.
Without getting into the details of trust funds and collateral the simple fact is that it does not work as advertised. You see, the money taken from your check is not put into an account for you to just keep growing with every check. This is the really important bit. THE MONEY YOU PUT IN TODAY IS BEING PAID OUT TO RETIRED PEOPLE TODAY. We each have a Social Security number but that number is just the unique identifier of a tax payer. It does not correspond to an "account" with our names on it that just keeps building up cash. Don't buy the line that Social Security yields about a 3% return. There is no return on money spent on other people today! In addition, Social Security has well exceeded its original mandate with payments for disability, lost spouse, lost parents, etc. The fraud and abuse is enough to eventually bankrupt the program but we have a much bigger threat to it than that.
Here is the simple arithmetic I keep referring to. This is all you need to know to fully understand the un-sustainability of the Social Security system. Social Security is funded exclusively by the current labor force. It can be expected that over time the population and, therefore, the size of the labor force, will ebb and flow. That is just common sense. The baby boom produced a big, bell-shaped curve in the population of the United States. If the money taken in today goes to pay for people retired today and the number of people retiring today exceeds the number of people entering the work force today and that trend continues for 5, 10, 15, 20, 25, 30...years eventually the obligations owed to the recipients will overwhelm the ability of the donor force to meet the demand. Things just keep getting worse and worse because the number of retirees keeps rising and the work force keeps shrinking. That's it.
This situation is exacerbated by the recession we are currently in (yes, we are still in it) occurring at a time when the baby boom generation is starting to retire en masse. So an already shrinking labor force is being further decimated by a prolonged recession with double-digit un/under employment leading to curvilinear revenue reductions for a system already stressed to the breaking point.
Solutions? Several good ones. I just hope I don't need to explain why raising the Social Security tax rate is not one of them.
As always, thank you for reading and...stay tuned.
Over the last couple of weeks I have been answering the questions I seem to be getting asked most often lately. Below is another answer to a question that is billed as complicated and confusing. It's not.
Question 3: "Why do I keep hearing that Social Security won't be there when I retire"?
Short answer: Because it probably won't.
Follow-up Question: Why not?
Short answer: Arithmetic
Long answer: Please, read on.
I am in the final stages of writing a book entitled "Money as a Second Language". There are three chapters dedicated to what I describe as the three biggest enemies of wealth building. One of those three is excessive taxation. I go out of my way to say that the chapter is not intended to be political commentary because it isn't. But you simply cannot talk about financial responsibility, money, investing and wealth building without talking about the single largest expense a working family has. That's right. Taxes are the greatest expense a working family has in America. More than food, mortgage, car payments, etc. How can that be? Note, I did not say "income tax". I said "taxes". Income tax is only one of the myriad taxes we all pay to local, state and federal governments. It troubles me that while most people are aware of the more well known taxes by name like income, property and sales they fail to recognize other costs as the taxes they are. Some include parking meters, pet licenses, tolls, telephone, and sin. There are over 90 taxes we pay regularly and the number of taxes as well as the rates we pay are growing all the time. So, please keep in mind as you read that this is not political commentary. It is just an objective, mathematical description of why the Social Security program is fatally flawed with the unavoidable implied criticism of the policies and management that created the problem.
I keep hearing about how complicated the Social Security problem is. I guess it could become complicated if you did not understand basic arithmetic so students Pre - 1 may require five to ten minutes of additional explanation before they get it. The rest of us, well...
Let's begin with the concept of Social Security (an oxymoron). Originally Social Security was advertised as a guarantee that everyone who earns a paycheck, responsible and irresponsible alike, would have money set aside for retirement. The mandate was to take money from workers' paychecks and set it aside for their golden years. There are those who will say the more sinister goal was to give a federal government with a rapidly growing appetite easier access to a percentage of every paycheck issued without having to go to the inconvenience of billing for and waiting for us to remit our taxes.
Regardless of how you feel about such a program in theory, it is fundamentally flawed as a practical matter. Those flaws are routinely and aggressively camouflaged with misinformation. Again, a simple concept. Take money from a paycheck and set it aside for retirement, right? Wrong!
The first problem with Social Security is that it does not provide "security". Aside from the real risk of going broke you know very few, if any, people who can afford to retire on Social Security alone while maintaining a lifestyle they aspire to. So, by default, no "security".
The second problem is that the program, as advertised, is a complete falsehood. For simplicity, one way to save money is to take some money from each paycheck and put it into a piggy bank. Each check same procedure and the balance keeps growing. They want us to think that's how Social Security works. It doesn't.
Without getting into the details of trust funds and collateral the simple fact is that it does not work as advertised. You see, the money taken from your check is not put into an account for you to just keep growing with every check. This is the really important bit. THE MONEY YOU PUT IN TODAY IS BEING PAID OUT TO RETIRED PEOPLE TODAY. We each have a Social Security number but that number is just the unique identifier of a tax payer. It does not correspond to an "account" with our names on it that just keeps building up cash. Don't buy the line that Social Security yields about a 3% return. There is no return on money spent on other people today! In addition, Social Security has well exceeded its original mandate with payments for disability, lost spouse, lost parents, etc. The fraud and abuse is enough to eventually bankrupt the program but we have a much bigger threat to it than that.
Here is the simple arithmetic I keep referring to. This is all you need to know to fully understand the un-sustainability of the Social Security system. Social Security is funded exclusively by the current labor force. It can be expected that over time the population and, therefore, the size of the labor force, will ebb and flow. That is just common sense. The baby boom produced a big, bell-shaped curve in the population of the United States. If the money taken in today goes to pay for people retired today and the number of people retiring today exceeds the number of people entering the work force today and that trend continues for 5, 10, 15, 20, 25, 30...years eventually the obligations owed to the recipients will overwhelm the ability of the donor force to meet the demand. Things just keep getting worse and worse because the number of retirees keeps rising and the work force keeps shrinking. That's it.
This situation is exacerbated by the recession we are currently in (yes, we are still in it) occurring at a time when the baby boom generation is starting to retire en masse. So an already shrinking labor force is being further decimated by a prolonged recession with double-digit un/under employment leading to curvilinear revenue reductions for a system already stressed to the breaking point.
Solutions? Several good ones. I just hope I don't need to explain why raising the Social Security tax rate is not one of them.
As always, thank you for reading and...stay tuned.
so insightful- loves it :o)
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