Discussions of the imminent bankruptcy of Social Security and Medicare come around at least once a year and along with it my blood pressure goes through the roof. The latest article I read was triggered over the Biden - Republicans' spitting contest on who wants to axe these programs. You can find the article here.

I've tended to avoid hot political topics for this blog, but this one really gets me running hot. Reminds me of that Texas oilman named Eddie Chiles who in the 1970s did radio spots that started off with "Hi, I'm Eddie Chiles, and I'm mad as hell." Then, he'd go off on a topic about liberals and big government.

Anyhow, what irks me about this recurrent discussion is that somewhere during it there is a statement to the effect that the system is falling apart because I (as a beneficiary) am getting more money in benefits than I paid in. Hence, I'm a moocher on society and don't deserve what I'm getting paid. Thus, I get the sense I'm to shut up and slink back into my retirement corner in shame.

Well, that just chaps my biscuits.

The Article

I'm not going to go down each trail I find amusing or annoying in the article, but will focus on these two sections:

"Biden isn’t talking about any of this [the growing economic problems with these programs]. He’s only promising to protect Social Security and Medicare as they are. He’s also not debunking the myth that Americans are only getting back what they put into the two programs, through the payroll taxes everybody pays up to a certain percentage of income.

Social Security and Medicare tax revenue does not go into a bank where it’s held until needed by each individual payer. Instead, this money is an outright transfer from current workers to retirees. That’s actually a good deal for retirees, since on average a typical couple gets about 90% more from the system than they paid in, adjusted for inflation. On the current trajectory, that “bonus” is due to rise. Anybody advocating for a 1-to-1 payback on money paid in is actually calling for a huge cut in benefits."

I've highlighted in blue the statements I want to talk about.

1) He’s also not debunking the myth that Americans are only getting back what they put into the two programs, and Anybody advocating for a 1-to-1 payback on money paid in is actually calling for a huge cut in benefits.

In my view, the program is in trouble due to the mismanagement of these programs by our government nannies. No one invests a dollar into a program to only get the same dollar back 50 years later. I mean, I know we citizens are pretty dull, but really?!

What I could expect, however, is that the taxes forcibly taken from me and my various employers over the years would make a good return.

What actually happens amounts to a government fraud whereby they literally took the collected moneys and exchanged them for 'special securities' that pay a percentage or two a year. That is, the government exchanged the money for U.S. debt earning a paltry sum year after year.

Think about it: Our dear government took 6.2% for Social Security and 1.45% for Medicare from BOTH you and your employer for every dollar in wages you earned. That's 15.3% for every dollar you you were paid.

2) Social Security and Medicare tax revenue does not go into a bank where it’s held until needed by each individual payer. Instead, this money is an outright transfer from current workers to retirees. and since on average a typical couple gets about 90% more from the system than they paid in.

The reason Social Security and Medicare receipts are going out directly to retirees is that the fund no longer has a surplus, which it had for decades. The surplus earned a relatively pittance of a return over those decades so as to not be able to handle the reversed flow that would take place when Boomers retired.

And, here again is this statement that we are getting 90% (as a couple) more in benefits than we paid in. Of course we do! We should be getting more for Pete's sake! You've been taking my money from me every year for 50 years!

Ok, let's pretend they did something different with my money. What might have happened?

Market-Level Returns

The S&P500 index measures the value of the largest 500 U.S. firms. It's considered one of the best benchmarks in the financial markets. The average annual return of the S&P from 1928-2021 is around 10%.

Let's assume I averaged $25,000 income over my 50 years working and 15% was contributed to a 401k earning 9%/year (vs U.S. government taking it). I earned $4,000 or so per year in my early work years to over $100,000 in my latter years. I'm just guessing what the average would be, but doesn't seem ridiculously high or low as an average.

So, here is the setup using one of these online calculators.

I realize we could argue about the significant compounding affects of low early wages by averaging across all years and how this will distort the end result significantly. No argument about this. Nor about a dozen other assumptions, I suppose.

Let's look at the results and you can do with them as you wish. 

Again, I realize that not everyone's reality would fit these average numbers. However, I entered $15,000 annual average and the calculation still came back with over $1.9 million and $18,000/month draw down at 68.

So, to me, that nonsense that I'm sucking down social benefits I didn't earn is hard to swallow. What really is the issue is the mismanagement of these programs, and the continued mismanagement of them.

I understand that the trust aren't allowed to make such investments, but that simply requires a rule change.

I also hear that equity markets are volatile and people's retirements shouldn't be put at risk. I might even agree with this to a certain extent. However, 90 year return averages of 9 -10% is hard to argue with. And those numbers include the 1929 and 2008 market crashes, and a whole punch of declines in between.

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My point in all of this is that no one should suggest to me that I'm somehow pulling down more than my fair share or more than my contribution warrants. That is debatable.

The alternative narrative is that there are much more productive ways to handle the trillions of dollars that have passed through and will pass through these accounts than is being considered in all this.

I'm with Eddie Chiles on this one - mad as hell.

Kermit