Social Security

Many years ago, before I entered the workforce, I understood that Social Security is not a retirement program.  It is a tax, whose proceeds are used to pay retirement and other benefits.  The difference is subtle but important.

In a real retirement plan, the money collected from you and/or your employer is invested over time.  In a defined-benefit plan, there is a commitment to pay you in the future at a specified rate.  In a defined-contribution retirement plan, the money is held in your name and invested.  But in either case, the money is invested in a productive enterprise, so that it will grow, and the amount paid in at the beginning is driven by the amount to be collected at the end.

Under Social Security, the money that you and your employer pay is lent to the rest of the government and spent.  The money that you ultimately receive in benefits is paid by current workers.  The vaunted ‘trust fund’ is an accounting fiction.  And the politicians who vote for new goodies can just as easily vote to take them away.

I didn’t know about defined-benefit and defined-contribution plans in 1979, when I was finishing high school.  But the rest of it, I knew back then.

And it wasn’t a deep dark secret: I read about it in books from the library and bookstores.

The government wants us to believe that Social Security is a pension plan.  They even send out statements every year with the benefits that we might receive, if the politicians don’t change their minds.  But it isn’t so.

Now, I’m roughly halfway through my working life.  With the recent discussions over the Social Security tax, it’s really clear that it’s fake.  (The employee share of Social Security tax was cut by a third a couple of years ago, as a temporary measure.  The cut was continued after raucous debate, as it was the only tax cut that reached the majority of ordinary Americans.  A real pension plan, driven by the need to pay people in the future, would never do that.)

Yet people still believe that Social Security represents a commitment for their retirement.

Now that I’m halfway through my working life, I would have liked to believe that Social Security would be there for me.

But now I’m sure that I will ultimately retire in a coffin.

3 thoughts on “Social Security”

  1. I do not believe social security will be around in 30 years or so when I retire. Once I get another job I will open another savings plan and also 401k if there is one. Here’s the problem though with social security and that is the amount of people who are getting benefits. I’m not sure how that happens or if it’s another program but have heard stories on how someone worked 5 years or so yet have been getting it 10 years. I’ve heard of people who never worked yet somehow are getting it. I’ve even heard stories of immigrants coming here past 65 just to collect.

  2. An argument that I am having with myself over 401(k) plans and other retirement plans is whether or not they are worth the tax break. If you save or invest on an after-tax basis, you always have control of the assets. If one gets a match on their 401(k), there is an incentive to contribute up to the amount that is matched. Whether that makes sense, I don’t know.

    There are spousal benefits under Social Security. When one reaches 62, they have the option of taking a reduced benefit based either on their spouse’s earning history, which is half of the spouse’s benefit, EVEN IF THEY NEVER WORKED. They also have the option of taking the higher of half of the spouse’s benefit or what they would get, whichever is higher. Similarly, if one becomes disabled, they can get SSDI after working only a few years. One needs 40 quarters (10 years) of covered earnings when they are 40 or so, but should you be disabled at the age of 25 or so, you might need as few as 10 quarters of covered earnings.

    There are also survivors benefits under Social Security that provide income for both the surviving spouse and any minor children. I believe that benefits for the surviving spouse continue until the youngest child is 18, but go to for more information. Similarly, if you are divorced or widowed and the marriage lasted at least ten years, you can get Social Security at age 60, based on your spouse’s earning history. You will be subject to an earnings test for eligibility for Social Security that doesn’t go away until you turn 70.

    If you or your spouse do not have a sufficient earnings history to get Social Security, you won’t be able to get it. It’s scary how much the Social Security Administration knows about how much we have earned.

    It is very common to get bad information about Social Security, both who is eligible and who gets benefits. I am trying to get a friend of mine who doesn’t want to take the 25% hit on her Social Security benefits by taking them before she is 66 to apply for SSDI because she has metastatic cancer. I explained that one is eligible for SSDI under two sets of conditions: the condition is lifelong and severely impairs one’s ability to work, or is expected to end in death. It is possible to get presumptive benefits for six months if you have the correct diagnosis. By that time, your case is supposed to be reviewed, but the backlog is longer than that.

  3. Is anyone saving the 2% cut in Social Security tax? The “Making Work Pay” tax credit was better for lower-income workers.

Leave a Reply