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Monday, December 11, 2023

Stuck with Social Security

I wish Social Security had been set on track toward a sustainable financial future years ago, when it might have done me some good. But I turned 65 in December, and now I'm stuck with it.

I wish Social Security had been set on track toward a sustainable financial future years ago, when it might have done me some good. But I turned 65 in December, and now I’m stuck with it.

By “sustainable” I mean, to be entirely non-technical about it, that the system is in actuarial balance as far as projections go, with projected revenues sufficient to pay projected benefits forever. Depending on who’s counting, the system is several trillion dollars short of that now.

One of the clearest writers on Social Security is Donald Luskin, who writes the Web log _ that’s as in “The conspiracy to keep you …” (Check the archives for the week of Jan. 9 and search for “downriver” on Jan. 10).

Social Security was not designed to be in actuarial balance. But it would still be in pretty good financial shape, overall, if it hadn’t been for the otherwise agreeable development that people live much longer now than they did when Social Security was created and the retirement age was set at 65.

The age for “full retirement” is moving upward gradually toward 67, at the rate of two months every year. Having been born in 1939, I reached full retirement age this month. But if retirement age had been indexed to life expectancy from the beginning, it would be somewhere around 80 now.

If Social Security didn’t kick in until age 80, people who wanted or expected to retire between 60 and 65, as many people do today, would have to arrange their own “sustainable financial futures.” That means investing much more during their working lives, so that by the time they reach their desired retirement age, they have a large enough net worth _ an endowment, as it were _ to live off the income.

That’s not nearly as impracticable as it sounds, provided people have the discipline to do it, starting from their very first paychecks. My parents were married in 1930, and my father the lawyer worked as a lifeguard during the summers and repaired furnaces during the winters. By Depression-era standards they were fairly well off; but by today’s standards they were poor. They saved anyway.

So did my husband and I, despite the fact that the lethal combination of inflation and high marginal tax rates made it a mug’s game for much of the time we were married. In the ’70s, you could hardly afford to save unless you were rich already.

Inflation is low, and the tax code is far more favorable to savings and investment now than it was. Still, for young workers whose capacity to save is limited, Social Security is a burden now and a distant and uncertain promise of benefits a long time from now. They, more than anyone else, would benefit from the opportunity to divert some of their Social Security taxes into accounts that they would own, and could one day leave to their children.

Actuarially, it makes no difference to Social Security. Slightly reduce revenues in the near future, and offset the reduction by suitably adjusted expenditures in the far future; it’s a wash. And making suitable adjustments is what actuaries do.

Actuarially, it makes no difference to individuals, either, but personally it makes all the difference in the world. Every dollar put into Social Security is committed to future spending and then some! _ but you don’t have to spend the money in your personal account if you don’t need to, and it’s surprising how much more carefully you think about what you need when you’re spending your own money.

Social Security’s temporary surplus is invested in Treasury bonds. It would be dreadful public policy to put those funds into stocks and other investments in private markets, not because they are unsafe _ on a time horizon of decades, they aren’t _ but because public officials would not be able to resist political pressure to meddle. But individuals can invest in a diversified portfolio, if they wish, and reasonably expect significantly larger returns.

And even if private accounts are mostly reserved for retirement, they provide a significant buffer against financial emergencies.

Had I been given the choice, I would have opted out of Social Security at the first opportunity. But I didn’t have a choice, so now that I am eligible for full benefits even though I’m still working, I will take the money and pass it along to my son Peter and his wife, who need it worse than I do.

Peter, as a freelance writer, enjoys the dubious privilege of paying both parts of the Social Security tax. In fact, he tells me that last year he paid far more in Social Security taxes than his entire taxable income.

Peter is 32. “Here I was thinking,” he said, “that I’d never see a penny of Social Security.”


(Contact Linda Seebach of the Rocky Mountain News at