Social Security and naive Americans

I saw this gem I thought I would pass along. Read the comments and then reflect on the facts below. You might also want to read many of the comments on this blog in the Social Security category. 

Social Security is the most important and most misunderstood of all government programs and the misleading rhetoric from politicians doesn’t help. In addition, the over 65 population has an increased sense of entitlement (again reinforced by political rhetoric) that is unrealistic and unfair to younger generations. 

What’s the answer? Really fix the system and don’t reach retirement age dependent on Social Security for a significant portion of your income. 

Social Security benefits will be a major source of income for millions of folks after they retire. That’s why it was so alarming when an AARP/Financial Planning Association survey found that Americans were far from savvy when it came to understanding basic Social Security benefits.

However, some of the comments from CNBC readers didn’t seem to grasp the gravity of the situation.

Let me share a few: “Can’t convince me not to take it early. Will be good gambling money.

“There continues to be articles indicating how unprepared most Americans are or will be for retirement. This is ridiculous. Americans are a resilient and creative people. Most will be just fine in retirement and will adjust and figure out how to manage retirement needs.”

“Social Security lacks smarts. It was an idiotic plan that was never financially sound from day one. A tax and spend fiasco that is a major burden, not a benefit for young people. They don’t need SS smarts they need freedom from the Ponzi scheme.”

If these comments weren’t so sad, they would be funny. 

Interestingly, you can’t solve a problem until you admit you have one. This severe lack of understanding or downright ignorance about the Social Security benefit rules will keep many folks from having a secure, comfortable retirement.
Jim Pavia
Senior Editor at Large

  • Social Security benefits represent about 38% of the income of the elderly.
  • Among elderly Social Security beneficiaries, 52% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
  • Among elderly Social Security beneficiaries, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income.

    10 replies »

    1. Your stats are flawed. “Income” measured by Census excludes a wide range of actual income. The problem is known.

      This piece looks a couple of problems with the calculation and how we use them.

      PolitiFact measured the accuracy of Huckabee using those statements, and basically said that while the statistics are wrong, Huckabee would have no way to know it.


        • The SSA says on page 1 of the material that the statistics are materially flawed. I think that they say that the SSA is looking for a better source with timely information. It is true that the SSA say it, but why quote the data if you know it is wrong. The one thing that we know is that less than 38% of seniors depend upon SS for 90% of income. We have no idea by how much.

          70% of all tax returns with Social Security benefits trigger the tax for people with substantial outside income. The Fed and Census both agree that the wealthiest of all age demographics is households headed by someone 65 and older.


        • That is a great question. They have not only published it but I think that I read that we have known about the problem for decades. My guess is that they are more interested in the sound bite than actual information.


    2. JRatt. Almost all of today’s top 30 percent of earners in America, weren’t in the top 30 percent 40 years ago. 40 years ago we didn’t have Steve Jobs, the Walton’s, Mark Zuckerberg, and of course Bill Gates. I assume you believe they didn’t earn their billions, because your wages haven’t kept up.

      You complain about CEO pay relative to rank and file workers, but you selectively exclude most CEO’s from your stats. Three considerations here:
      First, less than 100 of the Fortune 500 companies in 1965, are still in the Fortune 500 in 2015, so there has been massive turnover there, it is not the same companies, nor the same people.
      Second, the average pay increase in CEO pay has recently been less than the average increase in worker pay – if you include all CEO’s, not selectively limit it to CEO’s of the Fortune 100 or Fortune 500.
      Third, remember that most American workers don’t work for a company in the Fortune 100 or 500 – so comparing average wages for all Americans to a Fortune 100 CEO is intentionally misleading.

      The cap on FICA taxes is also a cap on wages used to determine Social Security benefits – which are already massively skewed in favor of Americans with lower 35 year wage averages (due to the bend points in the benefit formula). So, the taxes are already disproportionately higher, relative to the benefits they fund for higher income Americans. Raising the wage base won’t solve social security’s funding shortfall – and the higher benefits you seek would only add to the $100 – $200 trillion long term deficit we are leaving for our children, grandchildren, and the yet to be born.

      The same progressive taxation (relative to the benefits funded) is true, but even WORSE for Medicare.

      In terms of “worsening” inequality, I can confirm that 40 or so years ago, my wages were in the lowest quintile, while in 2014, my wages were in the top quintile. My dad died when he was 53, and I was 17. He never earned $10,000 a year. He left three minor children, an unemployed wife, and two kids in college.

      In my “climb” from the lowest to the highest wage quintile, I didn’t step on anyone to get there, instead it was over 45 years working 10 – 14 hour days, six or seven days of the week… I volunteered my draft, then leveraged my GI bill benefits, and a significant portion of my income to obtain four degrees, all at night, while working full time during the day. Those who want more must be willing to invest in the skill development, and make the commitment necessary. Most Americans don’t – they want to limit work to 8 hours, then head home to watch Monday Night Football, or Dancing With the Stars.

      President Obama and Senator Warren like to argue that people like me did not earn it. They note there are roads, public services, military defense, etc. that made my success possible. My retort is simple – who do they think paid the taxes that financed all that stuff… It was me, and people like me.

      Mr Herzrent and you may believe people like me are wrong to argue that we earned MORE than we will receive in social security and medicare, because the value of the taxes we paid far exceeds the value of the benefits we will receive.

      I say that If you believe that the benefits you receive are too high, you need not claim them. As for me, it is already a rip off, and as structured, it is clear that it will be a much larger rip off for my two children.


    3. I think Social Security primarily benefits the wealthy. I am 73 and married and the combined benefits received by my wife and me are more than $3500 per month. This is after deductions for Medicare but before income taxes.

      Much of our huge national unfunded liability (in addition to Social Security) is attributable to federal and state government worker pensions and to military pensions. Add in the health benefits and PX privileges and our system is providing giant subsidies to those in the “privileged” sector of society. USA is not unique in this regard, inasmuch as most advanced countries have treated their government employees and defense employees in a similar fashion. It is true that government jobs were not formerly as well-paid as they are today. It is also true that “we” as a society have made promises that people have relied on and any changes in the system should give consideration to this reliance. But we should ask ourselves: How long may these privileged citizens demand or expect that the rest of society — taxpayers and voters — continue to pay for a system that most of those bearing the burden could not ever expect to replicate for themselves?

      The federal government can print the money to pay for the “entitlements” and we who benefit can be fairly secure in knowing that we will get the dollars (if not the value) that has been promised. At the state and local levels, there seems to be no way out other than bankruptcy.

      Speaking only for myself, the extra income provided by the Social Security System will enable my children to have a much larger inheritance than other peoples’ children and will perpetuate the inequity and wealth disparity that so many middle class Americans resent. I think the system should be reformed so that benefits are need-based. This is difficult and intrusive and full of opportunities for abuse and evasion. And since we live in a democracy where old people vote and where most people are uninformed, I am not optimistic about a change. Sure, I contributed to the system as did my employers. But most beneficiaries take more out of the system than they and their employers put in. Voters are unlikely to do what is “wise” for our society and our descendants, whether that be environmental protection, gun control. or voluntary relinquishment of entitlements or any other privileges.

      All societies have winners and losers. Old folks with pensions, social security, Medicare, robust 401(k) balances and real-estate that has appreciated are among today’s winners. Many of them (us) worked hard to get here and some of us feel entitled to the privileges we enjoy. However, we should not lose sight of the fact that we are a part of the cause of the welling resentment that is playing itself out in the 2016 elections and which is likely to increase the inequities perceived by our fellow-citizens in the U.S. and fellow-humans in the world.


      • You raise some interesting facts, but I don’t understand your conclusions. I am in a very similar situation to yours it seems, but don’t see that Social Security benefits the wealthy. In fact, benefits are skewed to lower income and as you know there is relationship between the earnings, taxes paid and the benefit. The fact you or I may not need Social Security to survive in retirement is not a mark against us, it’s a reflection of what SS was supposed to be and of work and saving and prudent spending along the way.

        If you are saying SS should be means tested and a turned into another welfare program, that’s a different thing.

        You talk about the older person today with a pension, 401k, etc as being privileged. I don’t see that at all, I see it as a prudent and responsible person over a lifetime; perhaps fortunate in the absence of misfortune, but hardly privileged. There are many in our generation who were not so responsible.

        Your point on state and federal workers is valid, but that is purely the result of irresponsible politicians and union leaders, but nevertheless a problem falling into the laps of taxpayers.


    4. Here’s the problem, a reasonable estimate shows that the return to millennials is negative, even the social security administration’s return calculations, as generous as they are, suggest barely break even for some groups… And that is using averages … Which can be misleading.

      It is a tax, and a welfare system… Nothing more. Expect to become even more means tested in the future… Where more, and more and more individuals will have benefits that are much, much less than the value of taxes paid.



      • The problem with Social Security is incomes for the vast majority of workers has not gone up and adjusted for inflation for many it has gone down. Who thinks in today’s economy a family of four with income of $50,000 or less before taxes has anything to save for retirement. Record corporate profit, record low pay for the average worker. In 1975 CEO pay was 40 to 50 times what the average worker made. Today it is 250-400 times as much. The top 30% of earners in the U.S. have done very well over the last 40 years. Corporations like GE paying zero taxes on 4 billion in profits in 2010 is a big problem. The Social Security tax has not kept up with inflation. Since many employers provide very few benefits to their workers today, the employers tax will have to be raised. Also, the Social Security tax should be on all income not limited to $118,500. Let us face it Social Security System is not going anywhere, so we better fix it now. Or people who have paid into the system during their working life will just go on welfare and the taxpayers will foot the whole bill.


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