Election 2012

If You Think Social Security is Farked, Take a Look at Your Retirement Account!


Via Instapundit comes this Zero Hedge piece which reprints wisdom from Nick Colas and Sarah Miller of ConvergEX about retirement savings. And the lack thereof.

From Tyler Durden's intro to the piece (all emphases in original):

The state of Americans' retirement accounts is dismal is how ConvergEx's Nick Colas begins his critically important-to-read note on the reality that millions face. According to an early 2012 study by the Employee Benefit Research Institute, Colas notes only 58% of us are currently saving money for retirement – and 60% of those that are have less than $25,000. Thirty percent have less than $1,000. Needless to say, it's a far cry from the 8x-10x final earnings suggested by most retirement planners. So why are we so far behind? Americans aren't exactly known for impressive savings habits, but that alone does not explain our poor preparation for retirement. Rather, a general lack of financial literacy, including basic understandings of savings growth and retirement income needs, superseding financial obligations, and basic behavioral finance biases keep us from putting cash away. But if we keep up at this pace, you can expect the ongoing political debate about Social Security to take on new and more strident tones.

Read the whole thing here.

The debate about Social Security—and the need to get rid of the whole goddamned program—has yet to get started in earnest. So far, the conversation has been mostly about which pols can say the most good things about a system that systematically robs the relatively poor and relatively young for the benefit of the relatively wealthy and relatively old.

As Veronique de Rugy and I pointed out in our "Generational Warfare" article in the August-September issue of Reason, folks retiring on Social Security since 2010 can bank on getting less out of the system than they put in. For instance, a man who earned the average wage over his career and retired in 2010 will have paid about $300,000 in Social Security tax. He can expect to get just $266,000 out in benefits. Because they tend to live longer, women earning the average wage get back more of their contributions but they too are already in a hole that's only going to get bigger. 

Things will only get worse from here when it comes to Social Security, which is funded by 12.4 percent in payroll taxes that are split between employer and employee on every dollar of earned income up to about $107,000, far above what most households, much less individuals, ever earn (a temporary break knocks 2 percentage points off the employee contribution). That money, of course, goes to pay today's retirees (and the Supreme Court has ruled that the government has absolutely no obligation to provide you with a Social Security check ever.

In 1940, there were 159 workers per Social Security beneficiary. Today, there are fewer than three. Absent mega-economic growth that has never been seen, benefits will need to shrink and shrink and shrink. And the very dough you might be using to build your nest egg never even sees your pockets on its way into the accounts of today's retirees who are, on average and in relative terms, fabulously wealthy.

Defenders of Social Security—a ragtag bunch of folks that includes Barack Obama, Mitt Romney, and every other major-party pol you can shake a cane at—like to talk about the plan as a trans-generational pact that has allowed Gramps to be self-sufficient and independent and all that, some of which is true. And they stress by minor tweaks to the system (by which they mean higher payroll taxes and smaller benefits) the system can last for another 1,000 years or whatever. Which is exactly what you want to hear from your retirement advisor, right?: That you can expect to pay more for less in the future!

Even the rosiest (read: most spurious) cost-rejiggerings can't address the fundamental unfairness of a system that robs Pete Jr. to pay Paul Sr. If we want to guarantee an income to old folks that would keep them out of poverty, then just give them all checks for the minimum amount necessary to do that and stop with the mumbo-jumbo about Social Security as something other than a generational rip-off whose time has come and gone. Let's own the fact that whatever your federal income tax rate is, you're coughing up 12.4 percent on top of that to gold-plate the golden year of the wealthiest segment of households in terms of median net worth.