Social Question

JLeslie's avatar

Why is social security dependent on the younger generation?

Asked by JLeslie (59761points) October 12th, 2016 from iPhone

It’s a horrible set up. Is that how it’s set up? That’s the way it’s been presented to me. I am all for having a social security program, but I want the bulk of my money that I get when I retire to be from what I paid in, not some 25 year old working to support me. That set up demands that we keep growing our population, and there are reasons why that might not always be the best idea.

I was trying to think about the math. Let’s say I made $40k on average for 30 years. Lets assume on average I paid in 12%. $4,800 a year X 30 years = $144,000. $144,000 / 20 years (ages 65–85) is $7200 a year, or just $600 a month. That’s low, but some people don’t live until 85, so those fund are in the pot. Also, I didn’t account for any of the interest over time, which would increase the amount contributed quite a bit.

What do think? Are you ok with being so dependent on the younger population to pay for the older population?

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18 Answers

Call_Me_Jay's avatar

Social Security is not horrible. Poverty is horrible.

And for most people, the bulk of your retirement is separate. Social Security gives a modest income to people of modest means. It means you don’t eat cat food and live without heat in the winter.

Social Security (and Medicaid) brought a HUGE decline in poverty among the elderly.

“In 1966, 28.5% of Americans ages 65 and over were poor; by 2012 just 9.1% were. There were 1.2 million fewer elderly poor in 2012 than in 1966, despite the doubling of the total elderly population. Researchers generally credit this steep drop to Social Security, particularly the expansion and inflation-indexing of benefits during the 1970s.”.
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JLeslie's avatar

Um, I said I support Social Security. I’m asking about changing how it’s paid for, not whether we should have SS or not. I’m saying being dependent on younger generations is a problem.

I would never want to abandon having an SS program. I don’t trust the majority of the American population to save enough to plan for retirement. I also am against privatizing SS, so don’t worry, I’m a big supporter of the basic intention for having SS benefits.

Call_Me_Jay's avatar

Except for brief interruptions of war or plague, the population grows. This has been true on Earth for millions of years.

Also a small amount of inflation is desirable. Otherwise burying your money in a coffee cans is preferable investing in new activities. $600/month in current dollars isn’t going to buy much in the future.

It’s a rolling social contract among the olds, the current working population, and the next generation.

And it has been working longer than most of us have been alive.

Kropotkin's avatar

Social security isn’t dependent on the younger generation. Not directly anyway.

Social security is dependent on economic output, which has increased with technologial advancement and is increasingly the product of automation rather than direct human labour.

We don’t consume money—we consume resources and products. Money is the means of allocating this, but it’s never consumed. Money doesn’t get lost, it’s always spent and put back into circulation.

The government has the power to set budgets as it sees fit because it can create money, and by doing so can always allocate sufficient resources toward social security —as long as the level of economic output is maintained. It does not need any payments from young people.

JLeslie's avatar

@Call_Me_Jay Not in some countries. There are quite a few near zero population growth. Why do you think many parts of Europe give amazing maternity leave? Part of the reason is they need babies born.

@Kropotkin You don’t think that economic growth is destined to plateau?

The government has the ability to allocate, but that doesn’t mean budgeting for SS can’t become difficult. If the budget can’t pay for obligations like SS then it either has to sacrifice another program, print money (terrible idea) or raise taxes.

What I don’t really understand it know is if the government can only kitty a certain amount of money. Like, if there is a surplus how much can it carry over to the next year? To take us through down times. It seems to me when we have an economic slow down is when citizens are the most reluctant to pay more taxes, but that is when we need the most in taxes.

Strauss's avatar

Social Security payments are from the Social Security Trust Fund. The way I understand it, it operates in a way similar to many other insurance programs. Premiums are paid into the fund (in the form of SS taxes) by both employees and employers; claims are paid from this fund.

Call_Me_Jay's avatar

Like, if there is a surplus how much can it carry over to the next year?

As @Yetanotheruser says, it’s a separate fund.

Part of the 1983 Social Security reform was deliberately socking away money while the Baby Boomer were in their peak earning years. The prospect of uneven population and GDP growth was anticipated.

The details of the Social Security system are not set in stone. Conditions change, you tweak the laws to accommodate.

Lightlyseared's avatar

That’s the whole point of social security. If it relied on you just getting what you paid in then they would have just forced everyone to have a savings account but, the cost of living is going up quicker than the value of people savings so you’re screwed. The social security (or what ever your country calls it) deal is where everyone pays in when they can and everyone gets supported when they can’t. .

LostInParadise's avatar

Let’s consider the simplest case where population size remains constant and the costs for each generation of SS recipients is the same. Everyone can be considered as covering their own SS costs. It would still be the case that in any given year the taxes of the current generation of wage earners is paying for beneficiaries.

Dutchess_III's avatar

Well, I think it’s a good system. It’s like an insurance pool. The problem is, though, that there will be far more baby boomers to support than there are younger generations working.

Darth_Algar's avatar

Your Social Security payments aren’t directly dependent on the younger generation. It’s a trust fund. While your parent’s generation is drawing from it, your generation is paying into it. While your generation is drawing from it, your children’s generation is paying into it. When your children’s generation will be drawing from it, the generation after them will be paying into it.

Dutchess_III's avatar

@Darth_Algar You just contradicted yourself.

Dutchess_III's avatar

You said “Your Social Security payments aren’t directly dependent on the younger generation. ” Then went on to say that they are. If the younger generation doesn’t pay into this “trust fund,” the old folks don’t get SS money.
If they quit paying in, right now, the money would be gone very, very quickly.

Call_Me_Jay's avatar

The problem is, though, that there will be far more baby boomers to support than there are younger generations working

I addressed that above. Or Congress did, over 30 years ago. “Part of the 1983 Social Security reform was deliberately socking away money while the Baby Boomer were in their peak earning years”

Social Security Administration –
The pessimistic projection says the system is good for another 20 years without changing the taxes and benefit payments.

There is a need to make adjustments but it’s not dire or urgent. (I’m not holding my breath waiting for Congress to take care of it before the last minute, thought).

Darth_Algar's avatar

@Dutchess_III

No, what I said was that what you’re paying in basically be there when you retire. When you retire you will be drawing from funds that were paid in while your generation were working and paying into it. When your generation is drawing from it your children will be paying into it for their future retirement.

Kropotkin's avatar

@Dutchess_III There could be no payments at all. They would make no difference to the sustainability of social security. The “trust fund” is something of an accounting illusion that makes people think they’re putting money into some kitty that the government taps into to pay for things.

Except it doesn’t do that, or at least it’s not dependent on that. It sets a budget, and then allocates spending, with the required amount going on social security—typically the same as the year before with some adjustment for inflation and then any politically motivated cuts or increases.

What goes into the “trust fund” ironically increases the “national debt”—because it’s used to buy interest bearing government bonds—and this interest can always be covered because the Federal Reserve can always issue the required money, exactly as it does for the Federal budget.

I say ironically, as I imagine a lot of people look at the debt, and then bemoan at how we can’t afford anything and should cut back on social security—except that more than $5 trillion of the debt is owned by the social security fund and was effectively bought by working people.

As I’m trying to stress. All social security is is a proportion of the economic output in a given year. Economic output in a given year doesn’t depend on whether enough grandparents paid into some social security kitty 50 years ago, or whether there are enough young people around paying into it today. It’s down to economic productivity—and the allocation of SS is set by putting a number to it that represents some proportion of the nation’s GDP.

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