The United States Social Security System


“Never let a good crisis go to waste,” the old saying goes. This statement is often attributed to Winston Churchill, and it means that one should take advantage of the new opportunities that crises open up (1). Churchill is most well-known for guiding Britain through World War II, and leading up to World War II was another major historical event, the Great Depression. In the United States, Franklin Delano Roosevelt was the president for most of this period, after he took over the presidency from Herbert Hoover in 1933. It was during the Great Depression, a great crisis, that FDR passed his New Deal, a series of public assistance programs intended to help the country in the midst of the depression. In 1935, this included the Social Security Act, and it established what is now the Social Security Administration, the SSA, which administers the Social Security program in the United States. This program is probably most known for paying monthly benefits to people over the age of 65 to financially sustain them during retirement (2). It also pays survivors benefits to eligible widows and children of those who worked 10 years under Social Security who have died, acting similar to a life insurance policy (3). You can also take Social Security while under the age of 65 if you have certain disabilities such as end-stage renal failure (the last stage of kidney disease). Prior to Social Security, elder assistance programs in the US were inconsistent at best, and the Great Depression did not help struggling elderly people (or anyone struggling financially, for that matter). Payroll tax collection for the benefits began in 1937, and monthly payments of retirement benefits began on January 1st, 1940 (4).

And who funds this elder and survivors’ assistance? That would be working people. FICA tax is 6.2% of our wages, and both the employer and employee pay them. Self-employed people have to pay the entire 12.4%, although the extra 6.2% can be written off as a business expense (5). It is estimated that in 2060 24% of the US population will be 65 or over — an increase of 7 percentage points from 2020. Presently, around 10,000 Baby Boomers turn 65 each day (6). It is estimated that 57% of the US population will be working age in 2060 — a decrease of 5 percentage points from 2020. More people getting benefits means more cash leaving the system, and fewer workers paying into the system means less cash getting into the system. So, the program is almost certainly going to face challenges in the future as there are fewer young people to support a growing population of retirees. Additional challenges are that the longer a person waits to claim benefits, the higher the monthly benefit they get. You don’t have to take Social Security once you turn 65, and many people wait until 70. However, for those born after 1960, the retirement age for Social Security is 67.

So, will 25 year olds in 2022 (like me) even see the money they put into Social Security every paycheck? According to the SSA’s 2021 report, the Old-Age and Survivors Insurance Trust Fund, which pays retirement benefits and survivors’ benefits, will only last in full until 2033, after which it will begin relying fully on current taxes and only pay out 76% of scheduled benefits (7). That is only an estimate, though, and 2020’s report predicted that the fund would reach depletion in 2034. If the year of depletion kept moving up one year every year, the fund would run out in the middle of 2027. So, no, we probably won’t ever see that money, unless the government wants to keep running up the national debt (which happens every second according to https://usdebtclock.org/, about $100,000 every 4 seconds based on my observation of the clock). Alternatively, maybe Millennials and Gen Z’ers need to have a lot of babies. The US birth rate declined every year from 1989 to 2018, and the past few years have only seen a slight uptick (8). So, we’ve got work to do. Otherwise, politicians could raise taxes, but that usually doesn’t go over very well. Or, the retirement age could be raised. I could get on board with that.

Philosophically, I do not usually agree with the government taking some people’s money and giving it to other people. When people argue for government redistribution programs, what they are really arguing for is the act of receiving money that belongs to someone else. For example, we hear lots about plans for “free” college or “free” healthcare. It’s not “government money” as much as it is money collected from taxpayers. So, Social Security is taking money from working people and giving it to retired or non-working people. Advancements in medical technology have raised our life expectancies higher than ever before in human history (except in the Old Testament), but they have also created a class of people largely unable to take care of themselves, unfortunately. I do not want to hang our current class of seniors out to dry, but I don’t find the set-up ideal. There’s also no opting out of Social Security. What if I want to invest and save for my own retirement (which will almost certainly come, Lord willing, when I can no longer physically work), instead of having the money I worked for taken from me every paycheck and given to other people? People can invest and save for their own retirement, and Social Security substitutes government taxation for people taking responsibility for their own lives. Your retirement is not the government’s responsibility. I also don’t think anyone able-bodied should ever retire for only leisure, so I don’t like the government redistributing money just so people can go on vacation. Administrative expenses for running the SSA cost $6.5 billion in 2017 (9). That’s $6.5 billion wasted on buildings, employees, mail, etc., when people could take responsibility for their own retirement.

Social Security aside, there are many practical ways to help the elderly — churches and people in the community can help out the elderly, struggling, or otherwise. Children should assist their parents, too, as the first line of defense. 1 Timothy 5:3-4 says, “Honor widows who are truly widows. But if a widow has children or grandchildren, let them first learn to show godliness to their own household and to make some return to their parents, for this is pleasing in the sight of God.” There’s nothing here about government programs. Of course, not every elderly person is a church member or has children or grandchildren. And Christian seniors who do have children may not have Christian children who want to make that return. The church can and should help in that case. For the former, I believe it’s one’s job to pay for one’s own expenses, and if one cannot, I believe the community can rally to help people in need. On a Facebook group I’m in called Dane County Neighbors Helping Neighbors, I’ve seen many examples of strangers helping each other. I believe in the command to “love your neighbor as yourself” and helping an elderly person in need, Christian or not, I think is a good example of that. Having money withdrawn from my paycheck every week is impersonal, and is not like the personal interactions of love like helping the old lady next door. This choice to directly help others is also gone when money is just taken from you. If about $50 is taken from my paycheck every week in FICA tax, that's $50 I can’t give to a needy person at Kwik Trip for gas. Although, the Bible does promise that if you give you will be blessed (in a general sense). Proverbs 19:17 says, “Whoever is generous to the poor lends to the Lord, and he will repay him for his deed.” Perhaps I should be giving that $50 away anyway. God will repay it.

What would I do with Social Security if I were in charge? I would give everyone under the age of 18 the option to opt out of the system. This age restriction would ensure that a fund still exists for the retirees that are relying on the system and expect a payout. I would hope that the system gradually phases out of existence as people choose to opt out. What to do with people at the middle of their careers, around age 35 to 45? I don’t know. The reality is that their money is probably needed to fund the benefits of current 55 to 60-year olds.

Social Security just will not last forever if current demographic realities continue. Ultimately, for those of us not yet at retirement age, I don’t think we can rely on Social Security for our retirement needs. There are ways to provide for it, though. Investing now, even $50 a month (preferably more), should be a good amount for retirement at 70, assuming normal returns on the stock market. Using the investment calculator on the Ramsey Solutions website, a 25-year old who starts by putting $50 in investments every month could have $137,799 at age 70 with a 6% annual rate of return. Six percent is a good suggested rate for this sort of calculating (10). The historical annual average is 10%. Put in $200 every month (my estimate of how much I pay per month in Social Security taxes) and that number becomes $551,198. Put those contributions in a good Roth IRA or 401K and the gains aren’t taxable after a certain age and if certain criteria are met. For example, if you’ve had a Roth IRA for at least five years, withdrawing money from the account is tax-free once you’re 59 and a half or older (11). Money in the Social Security trust fund is kept in securities with an interest rate that really varies. In 2020, the average interest rate was 0.990% (12). In 2019, it was 2.219%. Both of those numbers are lower than a 6% return in the stock market. So, perhaps we could empower people to save for their own retirement (or help others in their communities) instead of relying on an impersonal government system.

 

Curran Martin is a Minnetonka, Minnesota native and currently resides in Madison, Wisconsin. He graduated from the University of Wisconsin-Madison in May of 2019 with a degree in Economics, then spent two years working with a campus ministry, and now works in the insurance industry. Curran enjoys playing outdoor sports, learning about history and politics, and playing board games with friends in his spare time.