Monday, June 18, 2012

The Social Security Injustice

I’m going to begin this essay with a math quiz.

You have recently retired, having worked 45 years in a career that provided an income that would be considered solidly “middle class” – economically speaking, of course, since there are no classes in America. Suppose you started saving 7.7% of your yearly income as a young man beginning his working career in 1966. Over the years, as your income grew, you diligently continued to save, come hell or high water, until you retired at the end of 2011. Furthermore, you gradually increased the percentage that you saved from your steadily growing annual income until it reached 12.4% for the final two decades or so of your career.

On December 31, 2011- your retirement date - approximately what would be the size of your nest egg?

Answer: $0.00. What the hell kind of a retirement plan is that? It is called Social Security.

Let’s now consider an alternative plan. Let’s also assume the savings rates described above. But instead, you put your money into an investment account holding a broad-based balanced mix of common stocks and bonds, achieving an average annual investment return of a modest 6%. On December 31, 2011, approximately what would be the size of your nest egg?

Answer: $697, 350.

I’m speaking of my own experience, of course.

I arrived at that figure through an admittedly rudimentary calculation method. I took the part of my earnings that is subject to Federal Insurance Contributions Act (FICA) withholding for each year, starting in 1966, and multiplied that figure by the mandated FICA withholding percentage for that year to arrive at the dollar amount deducted from my earnings. I then doubled that amount to account for the matching employer’s “share” of FICA (which is money I earned, even if camouflaged as the “employer contribution” – a scheme intended to hide from the worker how much is actually taken from him).

Starting with the FICA withholding figure from 1966, I added a 6% return plus the 1967 FICA tax to arrive at the ending balance for the year 1967 ($191 + $11 + $388 = $590). I then took the 1967 ending balance, added a 6% return plus the following year’s FICA “contribution” to arrive at the ending balance for 1968 ($590 + $35 + $503 = $1128), continuing that process until December 31, 2011. I assumed income tax-deferred savings, since retirement money withdrawn from a personal account and Social Security benefits are both taxable. (With Social Security it’s even worse, actually. FICA withholding is also subject to income tax so there is double taxation going on.) All of the relevant withholding percentage information is available from the Social Security website. Your earnings record is also available from SS. Anyone so inclined can calculate the extent of the theft.

$697,350 (or there abouts: you get the picture) is the nest egg I could have had if Social Security had been established as a private account plan from the beginning. (This is not to say that it should have been established that way. It shouldn't have been established in any form. The government has no legitimate function that would allow it to establish a forced-savings plan. But just think about how much better off America – and every honest productive American - would be today if FDR had established a private account plan instead of the monstrosity we’re now saddled with?)

Under Social Security I’m left with $0.00. But the damage doesn’t end there. At a 6% annual withdrawal rate, I could realize a $3500 monthly retirement income from my hypothetical nest egg. Assuming my 6% annual investment return, I wouldn’t even have to touch the principle. On the other hand, my monthly Social Security check commencing in 2012 is just under $2000 – 3.4% of my hypothetical private account annualized. So, assuming that withdrawal rate under my private plan, my theoretical nest egg would continue to grow by $18,000 per year assuming a 6% return ($42,000 - $24,000 = $18,000). Since there is no nest egg under Social Security – it has essentially been stolen – not only am I not “getting back” what I “paid in” over all of those years: I’m actually falling further behind to the tune of $1500 with each monthly government benefit check.

That financial drain will continue for the rest of my life. Under my hypothetical private account, my nest egg could be left to my heirs. With Social Security, there is no nest egg – no “trust fund” – and thus nothing to leave to my heirs (or dip into for my own use while I’m living). You have no property right to a single dollar that was taken from you but not yet paid in benefits.

Oh, well, at least you have your monthly benefit check to count on, right? After years and hundreds of thousands of dollars confiscated, you can at least count on your meager benefit as a guaranteed “right.” Or, can you? Here, the government takes the meaning of the term “adding insult to injury” to a new level. As CATO reports:

Many people believe that Social Security is an earned right-that is, they believe they are entitled to receive Social Security benefits because they have paid Social Security taxes. However, in Flemming v. Nestor (1960), the Supreme Court ruled that workers have no legal right to Social Security: Congress can cut or eliminate Social Security benefits at any time regardless of a worker's contributions. [Emphasis added]

This is “social justice” in action.

The framers of Social Security really sprung a monumental trap on the American people. The program is structured so that by the time a worker reaches retirement age, he has no obvious choice but to support the current system, lest he lose every dime he “paid in”, because his benefits depend upon new entrants into the system, just as previous retirees depended upon his “contributions”. In classic socialist fashion, SS makes everyone dependent upon, and responsible for, everyone else, but not himself. Here is essentially how it “works”, as I stated in a recent NJ Star-Ledger forum:

A young person today starts out his working life with the forced confiscation of 12.4% of his income – half directly taken from his pay check, and the other half dishonestly camouflaged as the “employer contribution”. He has no choice in the matter: His money is taken at gunpoint. He will pay this tax all of his working life, regardless of other uses he may prefer to use his own money for. If he dies before he reaches the point that he can begin collecting promised benefits, he cannot leave it to his estate for the benefit of his children or others he values. His money is simply gone.

If he makes it to retirement, he has not a dime to show for it. Every dollar taken from him by force was cycled through the hands of the Washington money launderers, and sent into the pockets of others. He has nothing but rescindable financial promises of politicians, many long gone, and payable out of the earnings of other victims. He spent his working life as a wage slave to others, only to spend his “golden years” as a parasite on others; a horrible position to force him into.

Social Security is said to be based upon an alleged “covenant between the young and the old.” But any such covenant is morally valid only when based upon voluntary, uncoerced agreement – as with a child taking care of an elderly parent. With Social Security, it is the covenant of the chain gang – a slave covenant.

For more, see:

Social Security and the "Hypocracy" Charge

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