*edited to include drmiler's dispute over the payout arrangement of Social Security. I will have to do more research on this aspect.
There is a nice article over at National Review dealing with Social Security and it's impending collapse. I suggest you read it but in case you don't want to I will summarize the key points:
1. Social Security will not cover its yearly payouts with contributions starting in 2017. Then it would have to rely on the trust fund (where past surpluses were supposed to have gone).
2. The trust fund would keep it running until 2041.
3. The trust fund is already gone (long, long gone actually).
4. This means that in 2017 Social Security is broke. We will either have o lower benefits or raise Social Security deductions from current workers.
The article goes on to laud the benefits of private retirement accounts. This is fine and true but also not the point. Social Security is not about your retirement. It is about other people's retirement and sundry payouts.
This is why Social Security is going broke. If you simply paid a given amount of money into the government during your working years and had it doled back out to you when you retire Social Security would be just fine even if it didn't pay you interest on your money.
The problem is that Social Security takes the money you have paid in and gives part of it away to other people who either didn't pay in as much as you did or even to some who never did or ever will pay in a dime.
Social Security payments pay around a center line*. If your career was spent earning (and thusly contributing) less than the average American worker you will be paid back more than you contributed. The poorer you were the bigger the difference. Conversely if you were well paid during your lifetime you won't get back out as much as you paid in. Social Security is also used as payments to people who do not and cannot ever pay into the system (like the mentally handicapped).
*drmiler disputes this part of the article and has personal experience to back it up:
"This where you're dead wrong! What you get is based "solely" on how much you put in. So much per quarter. When you apply they take what you've paid in over your working years add it up and divide that by 20 (years which is what they figure you'll last). The figure is now your annual income. So you take that and divide it by 12 (months) and that's what you get per month! And don't try to tell me different. I "just" went through this with my wife. So I'm 100% positive on those figures. And it's the same figures with disability. Which I know because "I" went through that!"
Add in the overhead of a large government agency running the program and you get a negative rate of return overall. Run this way for enough years and add in the fact that people retire earlier and live longer and get what we have: a program that is mathematically unsustainable without even more taxation.
This is why comparing Social Security to private accounts, IRAs, or 401k plans is senseless. None of those plans are intended to do anything for anyone except the person who pays into them. No one else gets paid, they are invested in solid plans, and they have a lot less admin overhead.
The only issue to decide is whether you think that people at or above the median income in America owe a retirement to those who live below it or to those that cannot work at all. In essence it is Capitalism vs. Socialism and what balance is to be struck between the two as a moral society.
My opinion is that the folks like the mentally handicapped should be cared for with monies held separate from anything intended as retirement for anyone. Simply make it a separate tax. Aside from that I do not buy into Social Security for anyone of my generation or later. If you were born after 1970 and can't figure out how to succeed moderately over the course of a 45-47 year working career with the current flood of government subsidies, education programs, and job placement programs then I don't have a lot of sympathy for you.
Americans seem to believe that they shouldn't have to budget or live within their means. Most of the minimum wage people I worked with over the years drove cars that were more expensive than they needed. They bought fast food for lunch and got their groceries at expensive places like the 7-11 rather than go to the grocery store.
Many drank, smoked weed, or had other recreational drug habits. They had nice stereos, TV's, and multimedia electronics while collecting food stamps or other government benefits (read as your tax money). I would say that 98% of the minimum wage co-workers I had over the years could have lived comfortably while saving 10-15% of their income.
There were exceptions to this rule but these were mainly the fast food folks with lots of kids; a personal choice. Almost all of them could have started saving for retirement at age 18 or even sooner since many had worked in for minimum wage since age 14 or 15 (not an upwardly mobile crowd you see) had they simply cut back on non-essentials and saved some money. The issue was not that they couldn't save but rather that they didn't want to make the sacrifices to do so. Should this sort of decision making be paid for by the taxpayer?
It would have been hard but even working as a pizza guy I could have saved enough for a modest retirement over the course of 47 years. I would have had to lower my current standard of living and cut out most entertainment expenses of course. I don't think anyone should owe me any money when I am 65 just because I wouldn't do without DVD's, fast food, or a car I shouldn't have bought. You should have to make the right choices to be rewarded.
