Often It Is not the Best Retirement Saving Tool. Yet, like it or not, you must buy Social Security coverage.

Mandatory Social Security, America’s foundation welfare state program, became law in 1935. Over some 80 years it has become more than a retirement program—-it has become an article of faith in our ever expanding welfare state. Millions of Americans depend on it as a primary retirement income source. And, unfortunately in some cases, some rely on it as their only source of retirement income as we have previously detailed at this blog:
http://gregorybresiger.com/the-quiet-crisis-in-america-part-i-a-lack-of-savings-makes-the-last-years-a-miserable-time-for-many/

Social Security, in part thanks to government propaganda efforts, has become a virtual religion. For many Americans, to question it marks one of as a dangerous radical. It is a program that almost every worker must pay into regardless of whether he or she approves or needs it. A worker must also pay for it regardless of whether politicians like Chris Christie—mentioned in the first part of this series—can threaten to take away all of our part of promised payments.

Holy, Holy Social Security

Its religious aspects were mentioned by a former Social Security Commissioner, Dorcas Hardy, in her book “Social Insecurity.” She warned that it is very difficult to criticize a government program that for many has become a religion, albeit an expensive one.

The Social Security tax was initially one percent assessed against both employee and employer. Today, including Medicare, the total tax is 15.30 percent, 7.65 percent paid by the employer and the employee. Luckily, for this social welfare/religion, most taxpayers haven’t a clue how much they and others are paying. And often they don’t understand how much is paid on their behalf by employers. They take the tax into consideration when figuring out how much they pay in salary.

For millions of Americans, as well as millions of others in other advanced welfare democracies with similar social insurance programs, the idea of critically examining Social Security is sacrilegious; it takes on the tone of someone criticizing motherhood.

Please Keep Reading

Indeed, many will turn away from this column or this blog the minute they see our banner, “The Social Security Scam.” That’s because Americans, as well as millions of Western Europeans, have been told, over and over again through taxpayer subsidized government advertising, that social insurance programs are the best way to save for retirement and prevent elderly poverty.

Are they?

If the case for Social Security is overwhelming, why the need for propaganda and the force of the federal government demanding that every worker is part of it?

And if social insurance programs are the best way to save for old age, then Social Security advocates should answer this question: If the program is so wonderful then why should workers be forced to “contribute” to the program over their working lives?

Do you want $1,200 a month or $943,000?

Unfortunately, putting far more money into this badly run program that returns so little to the worker—and now might return nothing to some—-is not such as good deal compared to the worker who puts an equivalent amount in index funds over 30 years or 40 years.

Say $200 a month—$100 the worker pays and $100 paid by employers—over 40 years with a 9 percent rate of return, which is just an average rate. You end up with some $943,000. That could provide an average person with a lot better life than depending on Social Security measly payments, which average about $1,200 a month.

Which would you rather have? About $1,200 or so a month for the rest of your life or $943,000 by your early 60s? You could take the $943,000 and put it in annuity that would provide you with a monthly income stream for the rest of your life that would be worth much more than $1,800 or whatever Social Security will pay you.

My point is you, the embattled taxpayer, should have a say in all this. It’s your money, right?

“Let’s Fire Greg, then Send Him to Jail!”

In a small history I wrote on Social Security for the Mises Institute, “The Revolution of 1935,” I found that the effective rate of return to the Social Security recipient over an average lifespan was about one to two percent. That’s not much of a return.

Imagine I am your retirement planning advisor. You religiously put money in your retirement account year in, year out. You ask me, after forty years or so of managing it, “Greg, how are we doing on retirement savings?” I reply, “Well, I got you about two percent.”

I don’t think you’d want me to manage any more money for you. In fact, given the historic return of the stock market, I think you want me put in the hoosegow for a long time.

More importantly, there’s another benefit on not being dependent on the lousy investment returns of Social Security: Your private resources belong to you, not to the government. It can change your Social Security payments any time it wants as we can see from the proposal now offered by Governor Christie.

By the way, in my history of Social Security for Mises, (https://mises.org/library/revolution-1935). I read the original legislation and it contains a clause that says Social Security benefits are whatever Congress says they are.

That means you can pay and pay but there is no “contractual obligation” for the government to pay. It is the opposite of a contract you sign with an insurance company for an annuity payment or the shares that you own of a mutual fund or a company. They are yours. They are not subject to the whims of pols.

However, Social Security advocates have a warning: You’ll ’’ be in trouble if the fund goes bust or the insurance goes bankrupt” (The way the Weimar Republic’s social insurance program did). You are better off, they say, having the certainty of lifetime payment. That is provided your government never goes through a cash crisis—as many have in history—-and redefines who gets paid and how much as proposed by Governor Christie.

Do I Get a Choice?

But surely, if the Social Security program is so good, then it would continue to be popular if it were made voluntary, right?

Wrong.

We are repeatedly told by social insurance advocates that these programs cannot be voluntary. The unstated reason: Lots of people would exercise choice and opt for private savings. It is the same mindset of the parents who prefer to send their children to private instead of public schools.

One retains one’s buying power and can seek another private school if there’s a problem or if it doesn’t fit the needs of a young person. And an investor controlling his or her retirement assets can switch private investments, seeking better ones or ones that better fit one’s needs.

One can’t do that with Social Security, or almost any other government program. The mentality of government programs is thus: It is a one size fits all situation. It can’t provide for the individual needs of tens of millions of retirees.

In effect, government officials are telling you: “This is what we have. This is what you will use. Take it or leave it. We offer you no choice. You pay. And you do what we tell you to do.”

These are not the principles of a free society.

In the latter, there is a choice. And millions of Americans and Western Europeans should demand choice.

In the concluding segment of this series on Social Security, I will offer the principles of Social Security devolution—how millions of us who have paid or will pay too much can and should have options. It will be here in a few days.

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.