Is Social Security a Good Deal for Retirees?

“If youth but knew, if old age but could!” lamented Henri Estienne several centuries ago. But that was before Social Security, something about which youth does know, and old can do. The young know they cannot count on Social Security for their retirement, and the old, with their voting muscle, can ensure that the young don’t have to. If today’s retirees don’t want to saddle their children and grandchildren with a lifetime of paying into the same system that has made their own retirement less prosperous than it could have been, they need to put their strength behind reform that allows for personal retirement accounts.

Had an average-earning 65 year old today been allowed to own the Social Security taxes he paid over his lifetime in a personal account, earning just 7 percent per year (a 75/25 stock/bond portfolio would have returned about 10 percent over his working years), he would have $188,573. Continuing to earning just 7 percent, this would provide $1,000/month and grow to $197,553 over his expected 16 years of retirement. It would continue to grow, while providing $1,000/month to his kids once he passes away, for his grandchildren, and so on. Instead, he gets $895 per month from the government until he dies and is left with nothing to pass on.

It is regrettable that today’s seniors were required to spend their working lives contributing to a system that does not allow for the accumulation of wealth. They are stuck in that system for the remainder of their years, but their children don’t have to be. While today’s retirees cannot pass on the accumulated wealth they would have had, they can use the power they wield in the ballot box to make such an opportunity possible for their kids by supporting personal retirement accounts.

Politicians have for years scared voters away from personal retirement accounts by saying they would mean major cuts in benefits for retirees. The truth is the opposite. Personal retirement accounts do not threaten benefits, politicians do. Jo Anne Barhart, the Commissioner of Social Security, said to the Washington Times, “no proposal that has been put forth affects benefits for current and near retirees.” Retirees have paid their dues, and the government must make sure they get the retirement money they have been promised.

While no proposal supporting personal retirement accounts threatens benefits, not changing the current system does. It is widely known that the current system will go bust soon. It is less widely known that Congress has the power, as ruled by the Supreme Court, to cut our Social Security benefits at will and that we do not own any of the money we have put in. In this light, Social Security is to retirement security what sling shots are to national security. If today’s retirees were allowed to own their retirement money in personal retirement accounts rather than the government owning the money in Social Security, the amount of their benefits would not rely on the whims of politicians.

Personal retirement accounts would ensure both a more secure and more prosperous retirement for the children of today’s retirees. Michael Tanner and Peter Ferrara of the Cato Institute have calculated that a married couple, both earning an average income, would accumulate $1,776,634 by the time they retired if they started working and saving today, and earned a conservative 6 percent annual return. The average return for a portfolio with 75 percent stock and 25 percent bonds from 1872-2000 is 6.32 percent. Continuing at 6 percent, this would provide $106,599 in earnings per year forever. With Social Security this couple would get $36,436 per year as long as they were both alive, $20,715 per year after one died, and nothing once they have both passed.

The alternative to saving Social Security through personal retirement accounts is to keep doing what has been done in the past when the system ran short of money: raise taxes and cut benefits. Today’s seniors have lived through over 20 Social Security tax hikes that have raised the tax from 2 percent on the first $3,000 of income to 12.4 percent on the first $87,000—an increase from $60 to $10,788. Even when adjusted for inflation, this is a tax increase from $653 to $10,788. But doing the same thing over and over again and expecting different results is the definition of insanity. We’d be crazy not to look for a better answer.

Personal retirement accounts are the answer that will allow workers to become investors and savers. It is the answer that will let workers enjoy a more prosperous retirement and build wealth to pass on to their children. It is a solution that ensures that today’s retirees receive the money they have been promised by the government. It is an opportunity for today’s retirees to free their children and grandchildren of the burden and danger of relying on a government promise for their retirement.

A generation that took to the polls to ensure a better retirement for their children and grandchildren…now that would be the Greatest Generation.

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