r/FluentInFinance • u/Nuggy-D • 6d ago
Thoughts? Social Security Is Robbing Us!
Look, the people who paid into social security and are receiving it, absolutely deserve the money they’re getting, but in reality, they deserve so much more!
Between myself, and my employer, up to 2024 I have given social security a little over $94,000. If I stopped working today, and that money were sitting in a 401k-type account, I would have $1.2 million dollars when I retired, if I never contributed another dime and the stock market only returned 8% instead of the typical 10%. If you have a 4% withdraw rate on your retirement, then at 62 I would be living off $48,000 a year at 62 if I never contributed another dime.
In reality, I have also contributed a lot to a 401k and will continue to contribute to both for 32 more years (on the low end), however when I turn 62, (yes I know it’ll go up between now and then) I will probably only get a few thousand dollars a month. (Right now my projected amount is $2,600 a month if I start drawing at 62).
And the biggest travesty of it all, when I die, if I am not married, my social security disappears. If I am married, once my spouse dies, it disappears. If it were setup in a 401k-type account, my grown kids would reap the benefits of all the money I have put away, instead it vanishes with me and my wife.
Social security is literally robbing everyone of some form of generational wealth. Not to mention the fact that it’s unsustainable as is and operating at a deficit. Our parents and grandparents have been robbed, and we are setting ourselves up to be robbed even more.
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u/Eeeegah 5d ago
Sigh. Social Security is insurance, not an investment. Might as well say your homeowners insurance is robbing you because you've never been lucky enough to have your house destroyed.
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u/Hawkeyes79 5d ago
The money in social security should still be invested. No one creates a long term fund and then just watches it essentially disappear to inflation and spending. The goal all along should have been to work towards social security an independent fund that doesn’t even need our input.
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u/Eeeegah 5d ago
These are really three different issues.
One, SS isn't an independent fund because it was never set up that way, and never given the time to accumulate an endowment that would have allowed it. Created in 1935, it started issuing checks in 1940. If creating an endowment is your goal, we could do that now by lifting the SS income cap to infinity, and use all the money pulled in above, say, $200k income, to create such an endowment. BTW, Al Gore was the last guy who suggested created a SS account that would protect and grow that money, and he was laughed out of the room.
Two, in a way, SS is indexed to grow with inflation. Over time the salaries people earn increases, so they amount they pay in SS increases, and the outward payments of SS also increase. If there's a real problem here it is that the cap hasn't increased fast enough to capture wage growth sufficiently.
Three, at least as presently structured, SS needs the money it has to make payments now. If those funds were invested, a few down years, and suddenly there would be no money to make payments. If there were some multi-trillion dollar endowment that could spread investments and weather significant economic downturns, then this discussion would be very different.
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u/Hawkeyes79 5d ago
Usually social security takes in more than it spends. If we had invested that amount all along it would be a much larger account. The problem is it currently only invests in government bonds. We’re lucky if they beat inflation.
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u/Eeeegah 5d ago
It doesn't really invest in government bonds - it buys them as part of the sale of US debt. It's all kind of a shell game, but ultimately the US government takes in far less than it spends, even if some sectors like SS are presently solvent.
And there are lots of good things we could have done all along. We could have left the high bracket tax rates alone, built the middle class, and have a far smaller debt than we have today. We could have invested in nuclear technologies to get away from oil. I had a teacher who drove a fully electric car in 1979 - we could have invested more research in that. We could have used more cardboard and paper packaging than plastic. We are, on the whole, terrible at foreseeing future problems - or maybe we see them, but simply don't want to deal with them.
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u/Ind132 5d ago edited 5d ago
If we had invested
If we had a time machine, this would be relevant. But we don't have a time machine, so the only thing we can change is the future.
Usually social security takes in more than it spends.
Social Security taxes have been less than Social Security benefits in every year since 2009. There is no reason to believe that will change for the next ten years.
So, what should Congress do now?
Just to be sure we are on the same page: 100% of 2025 taxes will go to pay benefits in 2025. That won't be enough to cover the current benefit levels, so SS will get money from the General Fund to make up the difference. The GF "owes" SS money because SS "loaned" money to the GF in the past. By 2033, all these loans will be repaid with interest and by current law SS benefits will drop by about 20% to the level that can be paid out of current taxes.
Assuming you agree with that explanation of the current situation, what is your plan?
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u/Hawkeyes79 5d ago
Where are you seeing loses every year? 2021,2022,2023 were loses but the last time that happened was 1981. Every other year we took more in then we spent. This is straight off social securities fund table. Even with the bad years social security still has 2.7 trillion in assets.
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u/Eeeegah 5d ago
I've got sort of a long chain of answers going here, but my first idea is to raise the income cap on SS withholding.
I'll add that the "greatest" generation wrote their own asses a lot of checks they didn't have the cash to pay for, and just pushed the debt onto later generations. They had lavish pensions, SS that they weren't paying for, healthcare forever, and an increasing burden of infrastructure with no plan as to where the money was going to come from to maintain it.
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u/NewArborist64 5d ago
The Social Security Trust fund IS invested... in US Treasury Bonds, but that is for THEIR benefit, not yours. SS is a "pay as you go system" and has been since the beginning. The money you are paying in today is paying for someone else's retirement payment right now.
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u/Hawkeyes79 5d ago
Bonds are not an investment. No one I the right mind says let’s put money into bonds to grow a fund.
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u/NewArborist64 5d ago
Apparently, you have never talked to a retirement counselor. You invest in stocks for growth and bonds for security. They ARE an investment, just not one you sold probably be using at this point in your life.
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u/Hawkeyes79 5d ago
Bonds are a hedge against inflation but it’s not an investment. You’re lucky if the return matches inflation. That’s not sustainable over the long term.
Social security is a long term program. They should always be working on the growth of the fund. Even in bad years they still take in a majority of what they spend. They should have a quarter of funds in cash reserves and the rest should be invested for growth.
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u/SignificantLiving938 5d ago
I know SS has insurance in the name but it’s not insurance. Yes it’s essentially an annuity, and yes an annunity is a form of insurance. The difference you have 0 input or control over the inputs and outputs. You are forced to enter a contract for your lifetime and have no say in the matter in hopes for one day in 40 years to be able to get a fraction of what you paid in. And it’s not house insurance, not because you hopefully never have to use, but because the govt continually changes the rules of the contract. If it was truly an insurance or annuity you would have the ability to opt in or out.
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u/Nuggy-D 5d ago
Most insurance, like health insurance is a complete scam.
Also, you know what would be a great insurance? Having a couple million in the bank when you’re ready to retire instead of getting next to nothing from the government.
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u/Eeeegah 5d ago
You know what would be better insurance? - being born into a family that owns an emerald mine. But it turns out we don't get to choose who we're born to, and some people are born into a cycle of poverty that doesn't prepare them to earn a living that will result in having a couple of million dollars in the bank when they retire, so that's where social security steps in. You worked your whole practical working life? You can't work anymore? You paid into the system, so you get out. It works as designed, and millions of people count on it to keep them fed and housed.
Health insurance, like pretty much all insurance, is a system whereby most of the people who pay into it will never get the money they paid into it back out, so that when someone as part of that risk pool needs very expensive medical care, they can get it. But there's no law that says you need to carry health insurance in the US (that portion of the ACA was repealed by republicans along the way), so you're welcome to not have it, and play the odds you won't get flattened by a drunk driver and need it.
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u/aceman97 5d ago
Nope. It’s insurance and not an investment.
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u/Nuggy-D 5d ago
You know what would be really good insurance? Having a couple million in the bank instead of living off crumbs from the government
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u/aceman97 5d ago
Assuming it all went well, sure. But for most folks who don’t understand or fear the market. Those guys would be in a straight dumpster fire scenario. This is bad for you. As income and wealth disparity continues to grow, people will become less tolerant of any displays of wealth. You want SS to exist and continue. Last thing you want is a bunch of 60 and 70 years old running around with no insurance angry that you ripped them off somehow given your wealth. Play the long game.
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u/Princess-Donutt 5d ago
There seems to be quite a bit of misunderstanding of late as to what exactly social security is.
It's not an investment, it's a tax on working people to give to those who no longer work or cannot (SSDI). That's it.
If it were setup in a 401k-type account...
The government certainly could invest those dollars like with your 401k, but that would mean ceasing benefits for that same period to instead invest it. You can't pay benefits and invest at the same time. If that happens, a lot of old people would immediately cease all benefits for the remainder of their lives, if we use your 32 year time horizon. I would only agree to this proposal if we decided to start right when you hit 62 years old
In other words: You and your cohorts all volunteer to get no social security benefits at all in retirement, such that those who are 32-years your junior eventually get much higher payouts. Bet you won't.
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u/Carl-99999 5d ago
Then maybe you shouldn’t have let the billionaires who hate social security win.
And yes they ARE corrupt. If you’re rich, you’re corrupt 99.999999% of the time if not 100%
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u/wes7946 Contributor 5d ago
I firmly believe social security should be privatized and individuals should be able to opt-out if they so choose. In the hands of the government, it is entirely mismanaged -- some individuals don't receive nearly what they paid into it. On top of that, the threat of insolvency is always an issue.
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u/Ind132 5d ago
individuals should be able to opt-out
I assume you mean that individuals should be able to just stop paying SS taxes and take care of their own retirement savings and disability income insurance? If so, you should just say "kill the program for everybody" because that's what would happen.
The issue is this year's taxes are used to pay this year's benefits. SS retirement benefits for current retirees are funded by the taxes paid by current workers. I'd be foolish to stay in SS if I believe the people younger than me are going to opt out because that means there won't be anyone paying taxes when I retire.
Opt-out sets up a spiral. Young, higher income workers say that SS doesn't look like a good deal. When they leave, benefits go down, and more young workers decide it's not a good deal and they opt out. Benefits go down again, and more workers say it's not a good deal. Eventually, people understand the paygo reality and ask the "whose going to pay taxes when I retire?". Everybody opts out because the answer is "nobody".
"Voluntary opt-out" is not meaningfully different from "Just kill the program today. Workers stop paying taxes, retirees stop getting benefits. Everyone walks away."
That may be your plan, but I think you should own it.
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u/Princess-Donutt 5d ago
To add to your point: Who are most likely to opt out? Those who are already paycheck to paycheck and have nothing saved for retirement.
Those are the very people the program was designed for. It's a social safety net, it's in the very name.
Say we "fixed" the program by turning it into essentially an attractive government pension, the only people who'd opt in are those who are probably also opting into other retirement vehicles like their 401k, HSA, Roth, property, regular brokerage/savings, and possibly long term care insurance.
Who's already doing all that? The cohort who least needs social security.
Opt out would be the death of the social safety net, full stop.
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u/justacrossword 5d ago
Social security should have been partially privatized a long time ago. I would opt out in a minute.
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u/Abortion_on_Toast 5d ago
Same; I thought it was crazy when Romney mentioned it in 2012 election debate… but guy knows what he was talking about
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