Behind The Curve

As I have stated before, the Social Security system as it is structured is a Ponzi scheme. If I were to "sell" such an investment product, I would be charged with a crime by the same government that refuses to acknowledge that the system is obsolete, broken and soon to become a budget crisis that can only lead to pain for those who need it most.

From IBD:
Posted 5/25/2006

Social Security: In an attempt to shore up its endangered pension system, the government is proposing to raise the retirement age and change how benefits are calculated. It's a worthy effort.

Oh, by the way. That government is located in London, not Washington. While Great Britain and other industrialized nations are dealing with the problems of their pension systems, the U.S. clings to its crumbling socialist-style system.

Here are the facts (that apparently have to be repeated ad nauseam, since a timid Congress refuses to address the issue and opponents of change continue to make silly arguments against it):

In 2017, the Social Security system will begin to run a deficit as benefits will exceed revenues from payroll taxes. For those not paying attention, that's a mere 11 years — less than the time it takes a child to go through school.

By 2040, after dealing with more than two decades of deficits, the system will be completely broke. It will have exhausted its trust fund, that warm, imaginary place where Congress allegedly stores the surplus revenues the system has been collecting — and spending — for decades. Yet Social Security will have to keep paying benefits.

In 1950, 16 workers paid into the system for every retiree who received benefits. By 2025, the ratio will have collapsed to less than 2-to-1. Under those conditions, how high will payroll taxes have to climb to fund scheduled benefits? At least 50% higher than the current 12.4% rate, say the Social Security trustees.

Every two-year election cycle that goes without Social Security being reformed costs Americans $320 billion — the amount of our current budget deficit.

As the U.S. dithers, Chileans are enjoying the advantages of a privatized pension system. Over the first 22 years of that program, the annual rate of return beat inflation by 10%. The U.S. system, by comparison, will provide less than a 2% rate of return for a medium income worker who was born after 1965.

The British and the Australians also have provided private options. Even Latin American governments in Argentina, Mexico, Peru, Colombia, Bolivia, Uruguay and El Salvador are letting their people choose to move into private accounts. Tens of millions of people have made the move.

Once-socialist European nations such as Hungary, Sweden, Poland and Kazakhstan have also adopted some privatization.

Some might take the changes in Britain as a sign that workers' private accounts have failed. That's not the case. The public and private parts of the British system are intertwined, and unsound decisions made in one hurt the other. Today, Britain's government is simplifying its pension system after learning from some of its mistakes.

Washington's biggest mistake in dealing with Social Security has been inactivity over the last decade. We'd like to think policymakers would learn from that before it's too late.