Investing Blog

With midterm elections on the minds of every politician, there are more than a few hot topics floating through Washington. One of them is how the US government can salvage social security, and keep paying out benefits even as the payouts exceed income.

One fact that many may have yet to discover is that social security is not yet bankrupt, not even close. In fact, all the way through 2084, the Social Security system will at the very worst bring in 75% of what it pays out based on current projections.

Of course, 75% is not 100%, nor is it 120%, but it does contrast nicely to the concerns we’ve been hearing for years about how the system is going so obviously bankrupt.

Cash flow and SSI

Even if we assume that the money currently held in the social security trust (money invested in special US Treasuries) is gone for good, which it basically is, the cash flow generated from the taxes can sustain at a minimum 50% of the current estimated benefits.

So, the solution to solving the fiscal crisis is simple, even if near politically impossible: The US government will have to cut social security benefits in half, or double future revenues. Cutting benefits in half is simple, but politically impossible. Increasing revenues is simple too, remove the caps on the amount that can be paid in and the crisis is solved.

Plan for the Worst

Dave Ramsey (for the record, I’m not much of a Dave Ramsey fan) frequently labels Social Security as “Social Insecurity” which is good for laughs and accurately displays how poorly the system has worked.

I much prefer the idea that investors accept the idea that they’ll receive little to no benefit from the SSI taxes they pay and plan for an alternative route to covering their retirement expenditures. However, as demonstrated above, things could quickly change, and a reduction in estimated future benefits would bring about solvency in the system, even if those who pay into the system today get far less in benefits than what they paid into SSI.

I, for one, welcome a reduction in future benefits if it means that the system remains solvent. However, my generation isn’t exactly the first in line to vote on election day, and as a result the representatives that call the shots are elected by those who are already getting their monthly check. Only time will tell how this monster plays out.

Round Up