SOCIAL SECURITY

Lies About Social Security

Lie #1) The trillion dollar Social Security Trust Fund is merely a fiction, it owes $10 trillion it can't repay.

Social Security is the government's single largest revenue producer but while the overall federal budget currently operates at a deficit, Social Security does not. In 2005, the difference between what it spends in benefits and its administrative expenses and what it collects in taxes and interest is expected to be about $178.6 billion. The SS Trust Fund lends this surplus money to the federal government by purchasing interest-bearing U.S.Treasury securities which it will have to redeem to cover the retirement, disability, and survivor benefits for future retired, disabled, and orphaned Americans. The annual administrative fees of the Social Security Administration run less than 1% of the benefit payments while costs of private annuity accounts offering similar lifetime and inflation protection are higher and run from 12% to 20% (an amount that is 12 to 20 times more). U.S.Treasury securities that the SS Trust Fund holds are considered the safest investments in the world and are backed by the full faith and trust in the American people and their government.

Lie #2) It can't continue when it will take 2 workers to support 1 future retiree.

The Social Security Act was signed into law on August 1935 by President Roosevelt. It took 20 years until 1955 to see the decline in the worker-to- beneficiary ratio go from 16:1 to 5:1. During this 20 year period the number of retirees jumped from 0 to 14 million without affecting the SS funds stability. It took another 46 years from 1955 to 2001 to have a more moderate decline in the beneficiary ratio from 5:1 to 3:1. This ratio is slowing and may soon reverse itself. Today there are 145 million contributors to the SS Fund and 47 million recipients (which includes disability payments to 8 million American of which 1.7 million are children and 6.8 million are survivors, mostly children of workers who have died before reaching retirement age. Also note that the benefits are inflation- indexed and last as long as the recipients live and the value of the amount received can not be eroded by higher prices.

Lie #3) Current workers pay SS taxes that support a program that won't exist when it is their turn to retire.

This lie is an attack on the integrity and honesty of the American people and the government they elect. In the almost 70 year history of the Social Security Program there has not been a single incident of fraud or default in paying out benefits. The same can't be said for the private financial and investment programs of the private sector and corporate institutions of our economy. Current workers are making contributions to an insurance program (Social Security) that protects their parents and grandparents against the hazards of old age. If there was no guaranteed safety net, the current workers would face the decision of abandoning their elders and not be able to pay for the needs of their own children and the standard of living they enjoy today which resulted from the support of their parents and grandparents work and sacrifices as they grew up and matured. Current workers must have faith that their own the children and grandchildren will honor the social contract made between the generations in America. If Social Security does not exist neither will America exist as a democratic nation with liberty and justice for all its citizens.

Lie #4) The only way to have Social Security be there for young workers when they retire is to convert it from a defined-benefit system into a private-account system.

The history of Social Security has shown since its birth in 1935 that constant modification is inherent in a defined-benefit retirement plan. This is true for any such plan whether publicly or privately funded. No one can know in advance what changes in life expectancy, wages, interest rates, and many other factors will occur to affect the funds held by the plan to pay out its benefits. Throughout the years, Social Security has made many adjustments in tax rates and benefits to maintain its solvency. These are not flaws in the Social Security but are the result of inability to precisely predict the future. Social Security has never defaulted on its obligations to its beneficiaries as it has depended on the good faith and trust of the American people and its government. The same cannot be said for private corporations (for example Enron, United Airlines, S&L institutions, banks, investment firms, and others). The reasons private accounts default is because changes outside their control are spread over the plan's individual owners and not by the overall pension system. Congresses over the years have made numerous changes in the system without changing the basic structure of a defined-benefit system using the projections of actuaries. These actuaries try to estimate 75 years ahead (1980) and look for a combination of tweaks to the system to maintain its solvency. The current guess is that an increase in workers' payroll deduction from the current 6.2% to a little less 7.0%, or instead of increasing the payroll deduction, do a combination of changing the earnings cap, the full or early retirement ages, or other factors. Such changes will permit Social Security to maintain its full paymrnts.This does not mean adjustments to the current program cannot be made if employment, wages factors , and the economy improve in the future.

For a well documented and complete book on Social Security read The Plot Against Social Security by Michael A. Hiltzik, a Pulitzer Prize-winning Columnist for the Los Angeles Times.

Truths About Social Security

Truth #1) There are 3 Social Security Trust Funds - one each for the old age, disability, and Medicare programs which are collectively referred to as the "Trust Fund". They have been built up by the $1.5 billion assets belonging to millions of working people who have been paying payroll taxes. The money represented by these assets has been a huge loan from the middle class and poor, who pay most of the payroll tax, to the wealthy, who pay most of the income taxes. These loans have been used by 4 presidential administrations to pay for federal spending that should have been financed by income taxes. Why shouldn't the wealthy pay this loan back? Spokesmen for the wealthy "deadbeats" say the Trust Funds contain no genuine assets only government bonds. These same bonds are regarded all over the world as the safest investments a person can own because history has shown that no U.S. government has defaulted on a single obligation. Investors ranging from American citizens, major U.S. and foreign institutions, and foreign governments clamor to own these bonds even though they offer the lowest interest payments of any bonds anywhere. Over $4 trillion of U.S. bonds are owned by the U.S. government's other creditors compared to the $1.5 trillion full faith and credit of its citizens. This pledge is the only backing for our cash, bank deposits, pensions, stocks and private investments.

Truth #2) Today, the average life expectancy of a 65-year-old American has risen beyond age 83. Retirement benefits are paid out on average over longer periods than in the past. The life expectancy for 65-year olds varies by gender, race, and wealth. For example, life expectancies for white women are 84-1/2, African-American women 83, white men 81-1/2, and African-American men 79-1/2. Longevity statistics show an increasing gap between the life expectancy of high-wage earners and that of low-wage earners. Social Security's actuaries adjust for these life expectancies and make recommendations to congress for changes.

Truth #3) The share of wage earnings beyond the annual ceiling of $90,000 where higher wage earners stop paying into Social Security have grown dramatically. This lowers the percentage paid of their total earnings to much less than lower wage earnering workers. The number of over-the-limit U.S. wages is rising to over 15% of all wages subject to payroll deductions from wages. This is not due to more workers earning more money but the same 6% of richer workers earning more. The $90,000 earnings cap, amounts to $5,580 per year. This amounts to a 6.2% deduction. For wage earners getting paid $100,000 per year this same $5,580 cap represents a 5.5% deduction. For those earning $200,000 per year it amounts to only a 2.1% deduction, for persons earning $300,000 per year it amounts to a 1.8% deduction, and for those earning over $400,000 per year it falls below 1% of their wages. If the current cap were eliminated and those earning over the cap paid the same 6.2% of their wages as persons earning less than $90,000, Social Security would be able to meet its benefit payments well beyond the next 75 years (2080). (Recommend you visit the American Academy of Actuaries web site to learn more www.actuary.org).

Truth #4) The Old Age and Survivors Insurance Funds Trustees make predictions about the funds' solvency based on estimates of Social Security Administration actuaries. These are guesses that have been used as a basis for changes to the system historically. The estimates are made resulting in 3 alternatives over a period projected 75 years into the future. They are listed as least, middle, and low cost using different assumptions which are approved by the Trustees who serve at the discretion of the U.S. Presidentand who can choose between the different values used by the actuaries. This introduces prejudicial factors into the assumptions and influences the conclusions drawn for each alternative. Historically the low cost estimate has proved to more closely reflect the actual results. Currently the intermediate cost estimate is the one favored by the trustees and which those saying that the funds will run out while the low cost estimate projects solvency beyond the 75 year window. You can view a copy of the 2005 assumptions and methods that appeared on Social Security's Web Site.

Truth #5) Along side the stable guaranteed benefits of Social Security, there are two other elements of a secure retirement. These are private pension plans and personal savings. Social Security is the only one that provides a defined benefit that protects working folks from risk. Social Security became law to protect working people from risk. Substituting private accounts for current Social Security will eliminate the protection from risk. Social Security provides the majority of income for 2/3 of its recipients and has been the only source of income for 1/3 of its recipients. A retirement program that depends on a person's skill as an investor or the advise of a stockbroker is a very risky business. (Recommend you visit the AARP web site at www.aarp.org/money/social_security/).

For comments contact I.Glicker

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