Happy retirement, Boomers

Ken Curley

Brookings Register Online

On March 26 I became eligible for early retirement under the Social Security system.

The day before my birthday, the trustees of the federal government s two biggest benefit programs announced that the Social Security trust fund will be bankrupt by the year 2041, and the reserves in the Medicare trust fund that pay hospital benefits will be wiped out by 2019.

According to a new book on entitlement costs, Social Security and Medicare have promised $42.9 trillion more in benefits to senior and disabled workers than the programs will be able to pay.

Beginning this year, more than 78 million Baby Boomers will start rolling out of the ranks of the employed and into retirement, and many will have little or nothing set aside for their later years.

Happy retirement, Baby Boomers.

I have to be careful when I write about Social Security and Medicare, because I get so incensed with Congressional mismanagement that I m afraid one day I might actually burst a blood vessel and stroke out. And I m not eligible for Medicare for another three years.

For more than two decades, I was a financial planner ? a specialist in employee and executive benefits. I was active in the Norfolk and Virginia Beach life underwriters associations in Virginia, and I often taught agent classes on Medicare and Social Security.

One of the questions I d ask my students was, ?How much are you contributing to Social Security? To Medicare??

Some would answer 5 percent, some would say 6, but most didn t have a clue.

?Would you be surprised to learn that you re paying 15.3 percent of your wages?? I d ask.

Stunned looks.

What salaried people actually pay is 6.2 percent of the first $102,000 of earnings (that s the figure for 2008) for Social Security, and another 1.45 percent for Medicare. The folks in Washington have tricked us into believing that our employer also ?matches? those figures, but don t kid yourself ? the entire 15.3 percent is coming out of your compensation package. (The self-employed have always paid the entire amount.)

That means if you re making $50,000, you and your employer are sending in Social Security and Medicare ?contributions? in the amount of $7,650 a year. (Funny, nobody actually asked if I wanted to ?contribute.?) Double that if you re at the $100,000 salary level.

And then I d say something like, ?Do you know that if you took that $7,650 each year for, say, 35 years, and invested it at 6 percent, you d have just under a million bucks in retirement savings at age 65??

?Now,? I d ask my students, ?how much will you have in your Social Security account??

?The answer is, ?Nothing. ?

By federal law, you have no ownership whatsoever in any of the dollars you ?contribute? to Social Security and Medicare. More important, Social Security is not and never has been a retirement savings plan. It is an annuity, which means you collect it only if, and only as long as, you live.

Social Security was passed in 1935 and paid its first benefits in 1937. My dad worked for 40 years under Social Security and died one month after his 65th birthday. Mom collected a single check. My brother took early retirement at 62 and died of a heart attack three months after he became eligible. He worked more than 45 years under Social Security and probably reaped all of $3,000 in benefits ? and nothing whatsoever from Medicare.

As the man in the carnival says, ?you pays your money and you takes your chances.?

And what about Social Security and Medicare going bankrupt some day? Smoke and mirrors, my friends. They re already bankrupt.

There is no Social Security or Medicare trust fund ? not in the sense that someone has taken your money and invested it in gold or Google stock or office buildings. What happens is that your contributions go into the government s general revenue fund, where they re used to build roads or fund pork barrel projects to keep senators and congressmen in office. Or to pay someone else s Social Security benefits. What goes into the ?trust fund? is an IOU from the federal government, a promise to pay the money back ?when the time comes.? There are no hard assets whatsoever.

But where will the money come from when the government has to redeem those IOU bonds?

You re exactly right. They get the money from you in the form of higher taxes, and from your children, and your children s children. I m betting your children s children are going to hate you for having to subsidize your old age.

Social Security as it s set up now is a Ponzi Scheme, a pyramid scam that if it were perpetrated by some private financial services company would send all the executives to prison.

There are fixes for these programs, but they need more than a patch job. They need a total overhaul, and they require the will to get the job done and the willingness of the members of Congress to do something in the nation s interest ? rather than what is politically expedient for themselves.

I personally think Congress should step aside ? get out of Medicare and Social Security altogether. These programs are too important to the rest of us to continue to allow Washington to screw them up with its incessant political infighting.

I suggest we create a bipartisan national task force to hammer out some fixes, then present a plan to Congress on a take-it-or-leave it basis, the same way they did with the military base closing recommendations.

There s got to be a better way to treat our senior generations than what we re doing to them now.

Ken Curley is managing editor of The Brookings Register; the opinions expressed in this column are his own and not those of the newspaper.