July 19, 1996

Paul Roberts
Business Week

Dear Mr. Roberts:

I can't believe that you received an overwhelming negative response on your article about Social Security. When I was in my twenties and was not a Business Week reader I did not pay much attention to the economy, the markets, or Social Security. Since becoming more interested in these subjects, and becoming a Business Week reader, I have seen nothing but support (from my viewpoint, others obviously disagree) for the necessity of Social Security reform.

In 1985 I turned thirty and got interested in economics in general. One of the first things I notice about the crazy SS system was the cutoff point for paying it. Everyone had to pay SS tax, but only up to a certain point. My salary was always below that cutoff point. People that made more than the cutoff point were able to save money for retirement in their own name which was a good deal for those who made a lot of money.

Shortly after that, I read about replacement ratios for SS. This was a way for the SS system to take from the higher income wage earners and give to the lower income wage earners, equal out the benefits. Fair enough. However, when you realize what's really going on and you are in the middle-class you may become somewhat frustrated. The poor were being compensated for their lower incomes by the middle-class and the wealthy as it should be, but the wealthy only had to pay a small amount based on what they made. Remember there is a cutoff point for paying SS tax so the wealthy only had to pay tax up to a certain point, their obligation to the system is very close to what the middle-class have to pay when it should be a lot more. Like I said before, once the wealthy hit the cutoff point they did not have to pay anymore SS tax and could start saving money in their own name. (Many times people like to twist things around, I'm not saying that the lower income people should not be compensated for, I'm saying that there should not be a cutoff point, the wealthy should have to pay SS tax on their total income not just a part.)

Next I would read that my company is paying into the system too. I was paying 7.5% and my company was paying 7.5%. You did not need an advanced degree to know that the average person paying into SS at a 15% rate, starting at the age of 18 and continuing until 65, was going to accumulate a hell of lot of money even if the investment choice are 30 year treasuries let alone if the investment choice was small-cap stocks. There was no way that the average SS recipient was going to get back what they put in. Yes, there would be some that made out, but the vast majority could be much better off making their own investments for retirement and having good disability and life insurance plans. (Granted, my last statement is based on the fact that adult Americans have some pride left in being responsible for their own lives which includes planning for retirement.)

Some politicians talk about the little old lady that put in a few thousands bucks into the SS system and is now reaping all the awards. It's amazing how the politicians don't understand the time value of money. Giving someone $30 dollars in 1940 and getting back $30 in 1996 is not a fair exchange. And more importantly is the little old lady scenario the average, I don't think so. Let's look at another example of a person paying into the SS system. My father born 1923, died 1993. He was an average Joe for the time, at age 9 was in a major depression, one month after turning 18 the Japanese would attack Pearl Harbor and after the War he got a job, bought a house, and raised a family. Oh, and paid into the SS system.

What did he get back? He paid into the system for 50 years and got back less than $100,000. Most men born in the twenties only lived to be 72, they maybe got 7 years of benefits and most of these men were tough, look what they had been through when they were children and young adults, it was not their style to go to doctors, that is, I don't think many of them sucked a lot of money out of the Medicare system. Something else about SS that I never hear about, when you die under the SS system the money you invested in your so-called retirement/disability plan goes to the government.

What I have talked about so far is the SS system from the thirties to now. Even during that time is was a rip off for most (again, I'm not saying their were not some who made out). Looking into the future of SS it is nothing, but a joke. I am only 40 years old and the SS system has already increased my full benefit age to 66 years and 2 months. They still have 25 years to go. Can you imagine what my full benefit age is going to actually be in 2020? Do I here 80? 85? 90? My guess is that since I have a good company retirement plan, my 403B retirement, and my personal savings that the government is going to tell me in 2020 that I have no benefits coming at all. They will tell me that I have been too responsible and they need to take my benefits from me and give them to someone else.

Sincerely,

ADDENDUM (February 14, 2000)

One of the FAQs on the Social Security web site asks:

"I think Social Security is a rip off compared to a private retirement plan I have. Can I drop out of Social Security?"

The politicians who run Social Security answer:

"No. Social Security coverage is mandatory. But consider this: unlike your private plan, Social Security provides disability and survivors coverage in addition to retirement benefits. And Social Security generally offers greater protection for family members than private pensions."

I say consider this: my benefits plan does include disability and survivor's coverage, your's may too. My mother just told me that, after my father passed away, Social Security gave her the wonderful option of selecting my father's benefits vice her own since my mother's benefits were smaller. I replied, "Guess what? If you both had had your own retirement benefit packages, in your own names, and one spouse passed, you would not of gotten the best one, but would have gotten both of them."

This year alone I paid $5,000 to SS. I could grow that much money alone to a quarter of a million dollars in the next 22 years (I will turn 66 in 22 years.). Now remember that's only one year's worth of SS payments and even that one year's worth, doesn't include the money paid to SS from my employer for that year. If I could have invested each and every year's worth of SS payments I made during my lifetime including what my employer puts in, I could be a millionaire several times over. And on top of that, all the money that I accumulate during my working years and after, would be in my control, and available to me. For example, If you die at 68, after paying into the SS system for 49 years, you have nothing to leave your children and grand children from your SS retirement, however, if you had maintained your own account, in your own name you could have left them millions of dollars. The bottom line, if you were born after 1950 and you are a responsible person, Social Security will be one of the biggest rip-offs you will face in your lifetime.