by Dale Coberly
Social Security Works by Nancy Altman and Eric Kingson
A friendly review from a different perspective.
I have great respect for Altman and Kingson for the work they they have done writing this book. I disagree with their ultimate “fix” for Social Security (it ain’t broke), but I want you to read the book. I want everyone to read it.
This book does a comprehensive job explaining Social Security and the lies of those who are trying to destroy it. I do have a different point of view and reach a different conclusion, but you should read their book so you can understand the problem. It would be far better for you to disagree with me and agree with Altman/Kingson than to leave yourself at the mercy of the Big Lie being told by the haters of Social Security and the politicians and press who have been bought or fooled by them.
The book demonstrates conclusively that Social Security is not going broke. And so far from being a “burden on the young,” it is perhaps the only thing standing between today’s young and terrible poverty in their own old age. They describe the situation in America today in which all forms of reasonably secure retirement savings are under attack or already destroyed. The attack is orchestrated by a few very rich people who are either true believers in “free enterprise’ (as opposed to what they call “socialism”) or they are simply looking at the huge profits they can make by forcing everyone into “the market” and collecting fees while the workers take all the risks.
I would go a bit further, based on statements from people like Alan Simpson, or Peter Peterson when he isn’t being careful, I think these people truly hate the poor and would rather see everyone who isn’t rich like them working at menial jobs into deep old age. I have nothing against “the market” or taking risks, and I am very much not a socialist. But there are some things that people can do better for themselves if they cooperate in what is called a “government” and use that government to organize if not pay for what no individual can do by himself. One of those things is retirement insurance. Currently “the government” does NOT pay for Social Security. Neither do “the rich.” Nor “the young.” YOU do. Your “payroll tax” is the best way for you to save and insure “at least enough” for a basic retirement “if all else fails.” After that you are free to take whatever risks you want in the hope of getting rich or at least “a better return.”
Here I will offer a different framing of only one point that the authors make. It is important to recognize that I do NOT disagree with them as to “the facts.” I just think I have a better way of looking at the facts.
In Chapter 10, “The Conventional Wisdom”, page 171, Altman/Kingson answer the charge that “Social Security is unsustainable” by appealing to a concept called “the dependency ratio.” They show that while the number of old people no longer working is increasing, the number of those too young to work is decreasing. Since from a societal point of view the number of people “dependent on” those still working remains unchanged, society can afford to “pay for” the old.
This is true. But people don’t think in terms of what “society” can afford, so I would like to show what this means from the point of view of an individual person, even a very selfish individual person.
Imagine there is no Social Security and no “market” safe enough for prudent savings.
Suppose at the age of sixteen you get your first paycheck. Your grandfather whom you love, or perhaps a rich uncle whom you respect, advises you to put 10% of that check in the bank. “Pay yourself first.” he says. ”That money will be what takes care of you when you get too old to work.”
[Now, remember this is sort of a parable, so I am making it much simpler than real life.]
You aren’t particularly worried about getting “too old to work” yet, but almost without knowing why, you do what grandfather recommends.
It turns out that saving 10% per year results in your saving a total of four years pay over forty years. That four years pay will be just enough to pay for ten years in retirement if you can live on 40% of what you lived on while you were still working (and buying your house and taking care of your kids). And that ten years is your life expectancy after you retire.
[You make a $1000 per year. You save $100 per year. After 40 years you have saved $4000. You spend $400 per year during retirement. It lasts 10 years.]
Now suppose that fifty years later, incomes are twice as high, and your grandson’s life expectancy after he retires will be twelve years. If he wants to keep the same standard of living relative to what he had while working, what should you tell him? You might think, “well, save 10% for forty years and then live on 40% for…. oops… that won’t last twelve years. What to do?”
The answer you and every other prudent person would come up with is… “save 12% each year for forty years.” Then he will have saved 4.8 years worth of wages. And if he spends that at 40% of his working wage per year, it will last 12 years.
Moreover he won’t have been hurt by saving that extra 2% because, remember, his wages are now twice what they were when you were his age. So, if you made a thousand dollars a year and saved 100, you had 900 to live on. Now he makes 2000 per year and saves 240, leaving him 1760 to live on, plus having 800 per year for his old age. (You had $400).
Now if you (or I) haven’t got lost in the oversimplification, I hope you can see that without regard to “society” it is in your own self interest… and a perfectly easy thing to do… to save a little more per paycheck to save enough for a longer retirement. That is what raising the Social Security “tax” does. Only Social Security combines the risks of 300 million people into one insurance pool, so that there is no chance you will lose your savings on the market… or to inflation, thanks to pay as you go financing.
I am sorry I can’t make this explanation as comprehensive as I would like in a short blog post, so I’ll have to leave the rest to you.
My point here, besides explaining why you should raise your “tax” 2% without reference to dependents or society, is to encourage you to examine your Social Security “costs” and “benefits” from your own perfectly selfish point of view. The authors of Social Security Works are sociologists and tend to think in terms of “society,” which is valid and important, but leads them down a primrose path to sounding like “socialists” and making Social Security an easy target for those who hate it.
Their conclusion is that “society” should raise the taxes of the rich to pay for YOUR retirement. The rich won’t let that happen. Or if they did, they would own Social Security and turn it into “welfare as we knew it.” You won’t like that.
It would be better for you to raise your own “tax” (it’s really savings plus an insurance premium), pay for your own basic retirement, and “no damn politician can take it away from you.” Which is the way Roosevelt designed it… over the heads of his own social insurance commission.
The cost of raising your own tax would be eighty cents per week each year while your wages are going up over eight dollars per week each year. Or you could wait about twenty years and raise your own tax about 20 dollars per week all at once (after your wages have gone up over 200 dollars per week). I think this would be harder, much more dangerous (by giving the Big LIars another 20 years to create hysteria), and be marginally less fair (you would be getting a free ride for 20 years and pay less in taxes than you “should” pay for what you will get in benefits.
Or you can count on the rich to say, “Sure, I’ll pay an extra 12% on my million dollars, and an extra 10% on top of that to “expand” SS benefits. I won’t notice 220 thousand dollars on top of my other taxes.”
God knows, the politicians never listen to the rich, so you should be okay.