Every Dollar Matters

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

But, 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.

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 [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.

More Information (added 6/22/2011)

I will not waste time with all the people on record talking about social security going bankrupt, being insolvent. The internet is a permanent record for all these people that are either ignorant or lying to us. There was a time not long ago where I believed social security was heading for insolvency.

Social Security Myths

Social Security currently is running surplusses. It is projected to run surplusses for the next 10 years. In twenty-five years if nothing is done to social security it will only be able to pay out 75% of the scheduled benefits. This is NOT insolvency or bankruptcy. However, it is certainly a problem we need to address.

Social security is a 100% self-funded program based upon separate taxes we pay. People that try to tell you otherwise are either ignorant or lying to you. All you need to do is look at your pay stub to figure this one out. Also note that your employer matches the tax you pay as well.

Social Security Facts

In the beginning workers received benefits that did not pay into the system. Social Security has not been an entitlement program since about 1965.

The program works because there are more workers paying the tax than there are retired persons. The problem is that with the baby boomers retiring we will reach a point where there will not be enough workers to fund the program for retirees at a full 100% benefit. In fact in 25 years, if nothing is done, retirees will only receive 75% of their scheduled benefit.

It has always run surplusses. In the last 10 years it ran close to 1 trillion dollars in surplusses. The government does not save the surplusses. They have been spending our retirement money on things other than retirement. If our government had been saving the surplusses we would not have a problem to deal with. In fact, the surplusses would be large enough that we not even have a medicare problem!