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| Social Security is Bankrupt Social Security is in much more trouble than lawmakers are willing to admit. In fact, it�s been bankrupt for decades, and we haven�t even begun to see the worst of it. Any proposed solution will be unpopular, and voters need to be prepared for the worst. Frankly, the only real solution would be to dismantle it altogether, but no one has the political courage to recommend this. In order for you to understand this, let�s go back to the beginning. When Social Security began (1935), there existed an important and interesting actuarial phenomenon; the retirement age equaled the average American worker�s lifespan � 65 years of age. What�s interesting about this is that 50% of those contributing to the system (that is, paying Social Security taxes) died before they began withdrawing benefits. This statistic is referred to as the �law of averages,� and is a mathematical certainty. As long as nothing changed, the system could survive indefinitely, even at the low initial tax rate of 1 to 3%. But, over the years, the average lifespan has increased (to over 80 years of age), and benefits are now being awarded to some individuals before the age of 65 (due to many generous changes in the legislation, allowing disabled citizens and even non-citizens to �early retire�). In an attempt to retain solvency of the system, the tax rate has been increased to over 7%, and the retirement age has been changed to 67. But (and, this is a very large BUT), the only mathematical way to resolve the problem is that the retirement age and lifespan to again be equal. Otherwise, the system becomes a Ponzi scheme. So, if all this is true, why hasn�t the system collapsed? First, as noted above, tax rates have increased dramatically. Initially, the tax rate was 2% (1% each paid by the employer and employee). In 2008, the tax rate had climbed to 15% (7.5% each paid by the employer and employee). In other words, the total impact on the gross US wages has risen from 2% to 15% in approximately 70 years, and must continue to rise (at an even greater pace) over the next few generations. And, there�s another key factor in retaining solvency that lawmakers won�t discuss. As of 2008, it was estimated that there were approximately 10-20 million undocumented workers in the US, of which 5-10 million were working using fake Social Security documentation. These individuals have been contributing to the system, with no ability (because of the fake documents) of withdrawing Social Security retirement funds. It�s important to note that if these undocumented workers become documented (with full access to the system), Social Security will collapse overnight. There is a solution to the problem. Remember, again, that mathematically, a permanent solution (to keep Social Security intact) must not ignore the laws of mathematics � the retirement age must continue to match the average American lifespan. But, people simply cannot work until they�re 80 years of age (heading towards 85). So, this is an unacceptable solution. In other words, there is NO solution that ensures long term survival of the system. So, we must phase it out. The proposal would be to phase out the system over the next 60 years, so that it doesn�t impact anyone not already in the workforce. During this period of time, we would legalize undocumented workers, but not allow them to withdraw retirement funds. Instead, we would charge them a �guest worker� tax, equivalent to the Social Security contribution. Over the next 60 years, the Social Security tax rate would decline (it would probably peak near 10% before it began to decline), but never reach zero � there would need to be money to pay for the inevitable retirement funds for the various disabled Americans. US workers would need to be conditioned to save for their own individual retirement accounts. So, how can you help? By first being aware that our lawmakers are going to attempt to do what will make them popular. Those that want to legalize undocumented workers have likely not considered the impact on Social Security, and it�s your job to inform them that YOU are aware! Second, write your elected officials (at the federal level), and provide them with excerpts from this document. Return to the Politics page for links for writing your elected officials. References: The 1935 Social Security Act Life Expectancy Tables (from Ask.com) Ponzi Schemes |