During a recent road trip, I had an interesting chat with my buddy Phil. We were talking about the state of America’s despair, and I started taking a pretty hard-line stance on my opinions of social entitlement programs. During the course of the discussion, we talked a bit about the morality of social entitlements (a worthwhile debate in it’s own right), and we also discussed the economics. The two major programs we have today (in entitlements) that keep coming up are Medicare and Social Security. I was curious as to the nature of Social Security, so I looked up a bit more about what the program was designed to do:
On August 14, 1935, the Social Security Act established a system of old-age benefits for workers, benefits for victims of industrial accidents, unemployment insurance, aid for dependent mothers and children, the blind, and the physically handicapped.
These seem like fairly reasonable ideals for which to establish a social welfare program. Essentially, as the name suggests, a security system for those who would frequently be at a loss in society if they didn’t have any personal support system (namely: family, friends, or non-governmental groups like churches or non-profs). Even lightly applying a veil of ignorance to the country as a whole, it’s reasonable to say that we might want to have some money tucked away for people who are truly down on their luck, or have reached old-age with nothing to support a person who is no longer capable of working. Sure, I’m with ya.
So what went wrong?
My position is straightforward but a little morbid: The failure of Social Security (much like many retirement plans) is that it wasn’t pegged to lifespan. We’ve held a theoretical “retirement age” (65) that really has no bearing on reality anymore. It’s a little grim, but let’s face it: Social Security (at least, in the “retirement” aspect of it) was designed to only be used a few years.
How many years? (source at InfoPlease)
The lifespan of the average American in 1935, all races, all genders: 61.7 years
The lifespan of the average American in 2005 (70 years later): 77.8 years
Difference of lifespans: 16.1 years.
So yes, there’s a 16 year difference in collection times from when Social Security was enacted to today. And yes, the original social security age of retirement was 65. (source ssa.gov) So that means, in 1935, when Social Security was enacted, the government was significantly betting against the lifespan of the American people (truthfully, like all good retirement programs ought to), by an average of 3.3 years. As a proportion, they were building a program that assumed within 5.3% of the average lifespan for a payout. My guess is that standard deviations on ages are probably within 5-6%, so this makes a fair amount of sense. But for those skimming at this point, let me reiterate. The retirement age was 5.3% older than the age that an American was expected to live.
But let’s fast forward to today. Now, people are living to an averageof 77.8 years. That means, by this same proportionality, that social security shouldn’t kick in until age 81.9! If the original intent of Social Security were applied to today’s working people (as a portion of age to “age of retirement”), it wouldn’t kick in until people were 81.9 years old; 105.3% the current average lifespan – exactly the same mathematics that was in play in 1935.
That was the plan.
Now Social Security accounts for nearly 1/5 of our annual budget, the program is insolvent, and about the last thing a politician who wants to stay in office can do is vote against seniors. But the reality is that Social Security wasn’t designed to be your guaranteed retirement parachute; it was designed to provide a last-resort safety net to a small portion of the population.
I think it’s time that we as a nation take a serious second look at some of the social security reforms proposed back in ’04-’05. Though maybe with the total market tanking of the last few years, total privatization probably isn’t a popular notion these days either.