8 Reasons Why I Loathe Social Security

I know lots of people love social security. I know lots of people consider social security a successful government program. I disagree.

A comment left in my previous post about the 2017 changes coming to social security, inspired me to list out what I don’t like about the program.

So, here they are:

1. I don’t like the underhanded way Roosevelt went about passing the social security act in threatening to pack the Supreme Court.
2. I’m not a fan of the government confiscating our money with the promise of giving it back to us at some later date.
3. I don’t like the government confiscating our money, but still taxing us on it as if it was our money.
4. I don’t like the government taxing social security payments.
5. I don’t like the government deciding how much “other” income is allowed before social security payments become taxable. Those who are diligent in saving for retirement will be penalized.
6. I don’t like that social security is a pay-as-you-go plan, which means current recipients’ payments are funded by current workers. At the very least, the plan should have been set up as separate accounts.
7. I don’t like that the income subject to confiscation keeps going up each year.
8. I don’t like that social security has given many people a false sense of financial security, which leads many people to not save for retirement.

I’m sure there are other things I could find that I don’t like about social security, but this is a good start.

I feel the program could have been much better had it been set up as individual savings accounts rather than the pay-as-you-go plan. FDR knew what he was doing when he set it up the way he did. He knew if he set it up as a pay-as-you-go plan, it would never be done away with.

COLA for 2017 Social Security Recipients: .3%

I just saw that the Cost of Living Adjustment (COLA) for social security recipients is going up a whopping .3% (yes, that’s point three percent!).

What really stinks is the amount of income subject to confiscation (that’s really what it is, you know) is going up from $118,500 to $127,200, a WHOPPING 7.3% INCREASE! That means those who make enough will see an additional $539 confiscated from their checks.

Longtime AFM readers know how much I loathe social security.

Source: Social Security Administration Press Release

Geoff Colvin and Allan Sloan’s Vague Plan to Fix the Economy

I just spent the last few minutes reading Geoff Colvin and Allan Sloan’s piece in the latest issue of Fortune (sorry, no link available yet).

The article started out promising in that it made it sound as though they actually had a solution for the economy. Instead, I was disappointed because there is no solution, only generalities (much like politicians give us day in and day out).

What do I mean?

Well, they start out by talking about how bad everything is right now and about how childish Washington politicians are. I agree with that.

Then, they move on to address how they would fix certain parts of the economy. The first of those is spending.

Social Security and Medicare

Medicare first…

The biggest problem in dealing with Medicare is the endgame—when people enter their final descent and are kept alive, expensively, often with no statistically significant chance of leading what most people would consider a decent or rewarding life.

I agree with that. It’s very awkward to talk about elder care. Their solutions:

We propose that if you want to use heroic measures to keep yourself or any other Medicare or Medicaid recipient alive—we’ll leave it to experts to define “heroic measures”—either spend your own money or buy a supplemental end-of-life policy from the market that will doubtless spring up if our propsal is adopted.

Not sure I’m comfortable with “we’ll leave it to experts to define ‘heroic measures'” but I understand their point. At some point it’s time to let go.

I like this but wonder where they would draw the line:

We’d also surcharge smokers and the ultra-fat for their Medicare coverage.

Seems like we would eventually cross over into the nanny state. Smokers, ultra-fat, consumers of certain foods, etc. Seems scary to me.

They move on to talk about Social Security. This is where it starts getting vague.

The fixes are simple and obvious: Bring in more money by slightly adjusting the payroll tax, and change the benefit formula to reduce benefit growth over time to the highest-income beneficiaries. Social Security tax is levied only on salary income up to $110,100 (while Meidcare tax is levied on all salary income), and that wage base rises gradually over time. Let’s raise it a little faster while also edging up the reitrement age to keep pace with increasing life expectancies. That would do it.

Questions: How much? How fast? What age?

I won’t even get into why this idea of raising the income cap while lowering the benefit amount disgusts me so much.

They briefly address lowering defense spending before moving on to…


They use the phrase “Broaden the base and lower the rates” but they give NO DETAILS on how they would broaden the base and how they would lower the rates. One thing is for sure: their proposals would mean SIGNIFICANTLY INCREASED TAXES for my family. Why? Because they want to do away with…

• the exclusion for employer-sponsored health insurance

• the tax deduction for mortgage interest

• the tax deduction for state and local taxes and for charitable gifts

WOW! That would kill us.

I’m a reasonable person. If we want to do away with those things, fine. But, while we’re at it, why not just go with a FLAT TAX?

The authors don’t address welfare spending, which is unfortunate. Maybe that’s because this was a magazine article and not a book. Still, if I’m going to face higher taxes, I would like to see fewer people mooching off everyone else’s hard work.

WSJ: 49.1% Receiving Government Benefits?

From Number of the Week: Half of U.S. Lives in a Household Getting Benefits:

49.1%: Percent of the population that lives in a household where at least one member received some type of government benefit in the first quarter of 2011.

This number is misleading because it includes those receiving social security benefits even though they already paid at least something into the system.

I’m also not sure where he got 49.1% unless it’s overlap.


That number is concerning.

I’m sure it will come down some by the time Generation X retires and they means test us out of our benefits because we sacrificed and saved on our own.

Quote of the Day – Social Security

From the Concise Encyclopedia of Economics regarding Social Security:

Social Security retirement benefits are based on average indexed monthly earnings for the thirty-five highest earnings years prior to retirement. The benefit formula is set up to favor lower-income workers. For example, in 2004, someone with average monthly earnings of $624 received a benefit that replaced 90 percent of earnings. Someone whose average monthly earnings were $3,760 received a benefit that replaced 42 percent of earnings, while someone with monthly earnings at the then-taxable maximum of $7,325 received a benefit that replaced only 28 percent of earnings.

This kind of proves the point I have been trying to make over the years that Social Security is progressive and not regressive like some people try to make it out to be. It would become ridiculously progressive were the income cap removed thereby subjecting all earnings to FICA.

As a side note, I think it’s kind of funny that the author of the article I link to has the last name “Saving.”

What If You Could Dollar Cost Average Your Social Security Contributions

This is a follow-up to yesterday’s post, which you can read here.

As I mentioned yesterday, I have monthly total return data for BOTH the S&P 500 Index and the Barclay’s Aggregate Bond Index going back to January 1991 (I have S&P data going back to 1926). I thought it would be interesting to look at how much a person could have accumulated over the last 21 years had they been able to invest their social security contributions on their own.

The results were somewhat surprising.

According to my numbers, the portfolio that offered the highest end value was the one invested 100% in the Aggregate Bond Index: SS Invested in S&P 500 with Bonds (1991 – 2009).

Actually, when you consider the way the market has gone over the last 20+ years, it’s not surprising that the bonds outperformed stocks from a dollar cost averaging standpoint. Why? For one, when you’re investing a small amount of money over a long period of time, it’s best for the market to trend upward slowly so that you can accumulate more shares at the beginning, which will increase in value as the market increases. What we saw in the 90s and 2000s was a massive run-up followed by a massive drop.

Anyway, were social security contributions your money, and you maxed out those contributions over the last 21 years, you (and your employer) would have contributed $176,779 (I’m only counting the portion that goes towards social security, not disability). Your account balance would have been somewhere in the neighborhood of $322,000 to $335,000 (depending on your chosen asset allocation). And…that’s only for the last 21 years. Most people work much longer than that. So, it’s not out of the question that the account would be worth $450,000 or more over a thirty year (or longer) career.

Now some may look at those numbers and think that what social security is offering is a better deal. Here’s the thing: there is no free lunch! If social security is paying out more than a person could have earned investing in stocks and bonds, then that tells us the program is based on taking from the current earners to pay the current recipients. It’s “fine” as long as there are a greater number of employees contributing than there are retirees receiving. Not only that, if you did max out your social security contributions over the last 21 years, the government most likely will consider you rich and will take back a portion of your social security payment by taxing them.

So take a look at the PDF I put together and let me know what you think. Is there anything else you would like to see?

NOTE:Also, if you have monthly total return data for the Aggregate Bond Index that goes back farther than 1991 (and you’re willing to share), please let me know. It would be cool to be able to run different scenarios using more data.