Politics

Why Old Bernie Sanders is extremely naive or simply lying to you about Social Security

To remain solvent Social Security needs an infusion of cash or a rethinking of the future benefits provided. To accomplish either or both requires “sacrifice” by Americans at all economic levels. Regular readers have heard this all before, but the facts still remain even as politicians such as Sanders attempt to mask the truth.

As I have pointed out before, simply raising the taxable wage base does not solve the trust fund shortfall let alone allow for increased benefits. These are not my numbers, but both the Trustees and the CBO calculations. Further, simply raising the tax base and not the related future benefit for these individuals moves Social Security further into the realm of welfare.

If you don’t want to fix the design of Social Security to keep it solvent, which contrary to the left’s rhetoric, does not mean cutting any current beneficiary’s benefit, then you better be prepared for a increase in taxes on every working American.

Excerpt from Wall Street Journal op-ed 1-5-16 regarding adequacy of Social Security benefits

NevĀ­erĀ­theĀ­less, the CBO reĀ­port also brings sobering news. The agency projects that the SoĀ­cial SecuĀ­rity proĀ­gram is under-funded by 24% over the next 75 years. RaisĀ­ing the payĀ­roll tax rate to restore its solĀ­vency would reĀ­quire an imĀ­meĀ­diĀ­ate and perĀ­manent 4.37 perĀ­centĀ­age-point inĀ­crease to the exĀ­isting 12.4% tax. [Note: these est. are higher than Trustee projections if 2.9%]

To restore the proĀ­gramā€™s solĀ­vency, some want to remove the ceilĀ­ing on earnings subĀ­ject to the SoĀ­cial SeĀ­cuĀ­rity payĀ­roll taxā€”currently $118,500. That was the proĀ­gresĀ­sivesā€™ faĀ­vorite proĀ­posal, unĀ­til they decided to inĀ­stead to use much of the adĀ­diĀ­tional revĀ­enues to inĀ­crease benĀ­efits.

HowĀ­ever, taxĀ­ing all earnings would fill only 41% of SoĀ­cial SeĀ­cuĀ­riĀ­tyā€™s long-term deficit. FixĀ­ing the rest would reĀ­quire eiĀ­ther cutĀ­ting benĀ­eĀ­fits or raisĀ­ing taxes on lower-earnĀ­ing houseĀ­holds, which DeĀ­moĀ­craĀ­tic frontrunnerĀ­ Hillary ClinĀ­ton has pledged not to do.

The extent to which Social Security provides replacement income is part of the debate and depends greatly on the methodology used. The typical private pension plan calculates a benefit based on an average of several years immediately before retirement 5/10, 7/10, etc and may pick the highest years within the last ten years or so. Some plans use a career average for earnings. Many will not count overtime compensation. The general exception to these formulas are the overly generous public employee pensions (many of which are seriously underfunded).

But regardless of all this, Social Security was never intended to provide the sole source of retirement income. It was always one-third of the three-legged stool of retirement income. The other two being a pension and personal savings. For many the pension never existed and has nearly disappeared for others, but often replaced by an employer contribution to a 401k plan. While the stool may have been reconfigured, it still exists. Today, we have Social Security, personal savings and  4% est. of pay employer contribution and/or tax-advantage savings for individual retirement saving. And unlike decades past when pension plans were in their heyday, we have household incomes based on two earners thereby providing additional opportunities for the prudent.

A person earning $55,000 could accumulate $966,000 with 4% saving plus 4% from the employer (assumes 7% average return for 40 years). I know in early years earnings will be less than $55,000, but as wages grow so should the savings percentage. The Social Security monthly benefit would be about $1,388.00.  Thus income in retirement from savings would be about $38,666 plus $16,656 in SS benefits for a total of $55,322 or 100% income replacement. Add just a spousal SS benefit and ignore spouse savings and income goes to $63,650.

The lesson is clear; Social Security is woefully inadequate if you live your entire working life in the moment and don’t plan for the future. Otherwise, as long as we keep it solvent, Social Security can fulfill its intended purpose. The real problem is not Social Security,  but rather how to get Americans to save for retirement. The answer to that is to focus on economic growth to expand personal resources and on financial and lifestyle education which in my view should start in elementary school.

Contrary to popular opinion on the left, going through life does require personal responsibility. Sanders and friends intentionally or not undermine that accountability instead trying to convince us we are all victims.  We may be victims, but victims of our own poor decisions, irresponsible actions and short-sightedness.

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