Friday, April 18, 2008

Social Security Benefits: Apparently We Have Nothing To Worry About

I read an interesting article yesterday from MarketWatch that said all the talk about the failing Social Security System, and how it is going to soon run out of money is completely overblown. According to the author, Dr. Irwin Keller, the social security system may never run out of money, let alone run out of it in the near future. He claims that people are reading only the summary page from the annual report issued by Social Security’s board of trustees, which offers a warning of the possibility of a shortage in funds, and that if people read further they would see that the projections used in predicting the fund shortage scenario are drastically conservative. Using growth projections that are more historically consistent, the fund would actually never run out of money.

This is an interesting view, but I’d like to point out one thing that he neglects to mention: there is no money in the Social Security system right now. All that’s there is a bunch of IOUs from the U.S. government that they plan to pay back to the supposed trust fund. Let’s look at some quotes from President Bush himself in an MSNBC article a few years back:

“’A lot of people in America think there is a trust—that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you,’ Bush said in a speech at the University of West Virginia at Parkersburg.

‘But that’s not the way it works,’ Bush said. ‘There is no trust ‘fund’—just IOUs that I saw firsthand,’ Bush said.”

The article goes on to explain that the so called “trust fund” is actually a white notebook filled with physical evidence of a couple trillion dollars worth of Treasury Bonds.

We have loaned our retirement funds to the U.S. government—the most indebted country the world has ever seen—and the government doesn’t have the money to pay us back. Of course they can print more money to pay us back, but the actual buying power of currency will likely be far less than what we put into the account in the first place. Even if we get our full Social Security benefits, as Keller argues we will, in reality the value of those benefits will have been drastically reduced.

Personally, I’m a big fan of moving at least a portion of our Social Security benefit payments into an investment account that is controlled (at least somewhat) by the taxpayer. I wouldn’t hire a financial planner with the spending habits of the government, and I certainly don’t want them in charge of my retirement money. The more control I have over my Social Security benefits, the better I will feel. I hope that Keller’s assessment is correct, but I’m certainly not counting on it. I suggest you not plan for your retirement with the assumption that you will get your full Social Security benefits either. It is far better to be pleasantly surprised and have extra than to count on your full Social Security benefits and not have enough money for retirement.

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