COMMENTARY | The program that most people call Social Security has been a tremendous advantage to many people who have reached retirement age -- especially those that did not have a company retirement plan. For instance, my grandmother Mosley depended on her Social Security payments - she had worked in bakeries for most of her life and did not have a retirement plan. After many years of employment, still she had limited savings.
So what is the future of that program? Many people try to characterize Social Security as a "liberal vs. conservative" issue, but all people agree that the system (unless it is again changed) will eventually fail -- the only question is when?
Why will it fail? The system is built on the assumption that we would always have more people paying into the system than taking out of the system, and that is a wrong assumption. As the population ages, we finally have approximately as many retired people withdrawing as we have working people paying in.
Right now the system is running a small surplus but how has the current economic situation affected it? For the first time, we are now about at the point where a dollar collected today turns right around and goes out to a recipient. For many years, surplus payments were invested in U.S. Treasury bonds -- so the money went into the Treasury and could be spent like any other income.
This money went to buy roads, Congressional furniture, rural electrification, etc. The money was not invested in a savings account -- that money is not available now. New Social Security payments are beginning to come from the federal budget.
People say that the Treasury bonds are backed up by the "full faith" of the U.S. government. But what debt is not backed up by the full faith of the U.S. government? How are bonds for Social Security different from other bonds or even debts such as payment of interest to foreign banks? They are not.
So, as promised benefits exceeds income, the U.S. government will have to prioritize Social Security benefits in with all of their other expenses. So what is the relative priority of Social Security vs. defense? Or debt payments?It is scary to remember that this is the Congress that had a tough time approving a federal budget, and finally approved it months late. This is Congress that had a tough time raising the debt limit, making people seriously concerned that the US government might default on its debts -- those that are guaranteed by the full faith of the U.S. government?
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