Is Social Security an Entitlement?

Background

Alan Simpson, Senator from Wyoming, Co-chair of Obama’s deficitcommission, called senior citizens “the Greediest Generation” as hecompared Social Security to a Milk cow with 310 million teats”. Thefollowing is a response1 from a unknown fellow in Montana:

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“1. As a career politician, you have been on the public dole forFIFTY YEARS…

2. I have been paying Social Security taxes for 48 YEARS (sinceI was 15 years old. I am now 63)…

3. My Social Security payments, and those of millions of otherAmericans, were safely tucked away in an interest bearing accountfor decades until you political pukes decided to raid the accountand give OUR money to a bunch of zero ambition losers in return forvotes, thus bankrupting the system and turning Social Security intoa Ponzi scheme that would have made Bernie Madoff proud…

4. Recently, just like Lucy & Charlie Brown, you and yourilk pulled the proverbial football away from millions of Americanseniors nearing retirement and moved the goalposts for fullretirement from age 65 to age 67. NOW, you and your shillcommission is proposing to move the goalposts YET AGAIN…

5. I, and millions of other Americans, have been paying intoMedicare from Day One, and now you morons propose to change therules of the game. Why? Because you idiots mismanaged other partsof the economy to such an extent that you need to steal money fromMedicare to pay the bills…

6. I, and millions of other Americans, have been paying incometaxes our entire lives, and now you propose to increase our taxesyet again. Why? Because you incompetent bastards spent our money soprofligately that you just kept on spending even after you ran outof money. Now, you come to the American taxpayers and say you needmore to pay of YOUR debt…

To add insult to injury, you label us “greedy” for calling“bullshit” on your incompetence. Well, Captain Bullshit, I have afew questions for YOU…

1. How much money have you earned from the American taxpayersduring your pathetic 50-year political career?

2. At what age did you retire from your pathetic politicalcareer, and how much are you receiving in annual retirementbenefits from the American taxpayers?

3. How much do you pay for YOUR government provided healthinsurance?

4. What cuts in YOUR retirement and health care benefits are youproposing in your disgusting deficit reduction proposal, or, asusual, have you exempted yourself and your political cronies?

It is you, Captain Bullshit, and your political co-conspiratorswho are “greedy”. It is you and they who have bankrupted Americaand stolen the American dream from millions of loyal, patriotictaxpayers. And for what? Votes. That’s right, sir. You and yourshave bankrupted America for the sole purpose of advancing yourpathetic political careers. You know it, we know it, and you knowthat we know it.

And you can take that to the bank, you miserable son of abitch.

Always say what you mean !! Always mean what you say !! NEVERCOMPROMISE ……… “____________________________________________-

The above letter makes many claims but offers no numbers to helpus to decide who is right. Below is a more substantive angry emailI received that attempts to quantitatively “expose” the “SocialSecurity Scam”.

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Remember, not only did you contribute to Social Security butyour employer did too. It totaled 15% of your income before taxes.If you averaged only $30K over your working life, that's close to$220,500.

If you calculate the future value of $4,500 per year (yours& your employer's contribution) at a simple 5% (less than whatthe govt. pays on the money that it borrows), after 49 years ofworking you'd have $892,919.98.

If you took out only 3% per year, you'd receive $26,787.60 peryear and it would last better than 30 years (until you're 95 if youretire at age 65) and that's with no interest paid on that finalamount on deposit! If you bought an annuity and it paid 4% peryear, you'd have a lifetime income of $2,976.40 per month.

Washington has pulled off a bigger Ponzi scheme than BernieMadoff.

Entitlement?? NOT!!! I paid cash for my social securityinsurance!!!! Just because they borrowed the money, doesn't make mybenefits some kind of charity or handout!!

Congressional benefits ---- free healthcare, outrageousretirement packages, 67 paid holidays, three weeks paid vacation,unlimited paid sick days, now that's welfare, and they have thenerve to call my social security retirement entitlements?

They call SS and Medicare an entitlement even though most of ushave been paying for it all our working lives and now when it'stime for us to collect, the government is running out of money. Whydid the government borrow from it in the first place? Imagine ifthe *GOVERNMENT* gave 'US' the same support they give to othercountries.

Sad isn't it?

99% of people won't have the guts to forward this.

I'm one of the 1% -- I Just Did.

Discussion

The above email asserts that any claim that Social Security paysretired people who worked all their adult lives more than theircontributions to the system actually merit, is bogus. Theirmathematical argument in support of this assertion is asfollows:

1) The combined contribution to Social Security by workers andtheir employers is about 15% of before tax income.

2) If a worker averaged as little as $30K per year in hisworking life, the combined contribution to the Social Securitysystem on his behalf would be about $4,500 per year (i.e.3,000*.15) and $220,500 after 49 years of work.

3) The future value of $4,500 per year after 49 years at aninterest rate of 5% per year (less than what the govt. pays on themoney that it borrows) is $892,919.98.

4) $892,919.98 distributed at the rate of 3% per year,$26,787.60 (i.e. 892,919.98*.03) would last more than 30 years(until 95 if you retire at age 65) without interest paid on the onthe final amount on deposit!

Assignment

Your group has been hired by the AARP to write a report thatlooks into the merit of the above analysis. Your report should:

1) Address the mathematical consistency of the assertions madein steps 1) through 4). If you find any inconsistencies pleasestate and explain them.

2) One member of the AARP group reaching out to you recentlyretired at age 65 after 40 years of work where he averaged roughly$30,000 per year. His Social Security Taxable Income is given inTable 1 on the next page. Using the assumptions about SocialSecurity made in the email analysis, calculate the current value ofhis Social Security Contributions and whether it can support 30years of annual Social Security Income of $26,787.60 (withoutinterest paid on the current amount of deposit). If not,

a) Explain the difference between this portfolio and the one inthe above analysis.

b) Assuming a 5% return on current monies in the Social SecurityAccount and a 30 year payout period, how much annual payout couldthis portfolio support?

3) Look up how much Social Security would actually pay each ofthe 2 people described above.

4) Based on all of the above, what is your conclusion as to themerits of calling Social Security and entitlement.

5) The above email claims a 15% combined contribution to SocialSecurity by both employee and employer and 5% yearly interest rateon money in the fund.. Check to see whether these numbers arehistorically correct. If not, using the correct values recalculatethe numbers for the AARP member in Table 1.

6) Based on current interest rates, is an assumption of 5% onSocial Security funds realistic? If not, recalculate using what youconsider to be a realistic interest rate.

In the concluding section of your report, based on all of youranalysis and fact finding, state yo

Table 1

Social Security

Year Salary

1972 $ 4,121.40

1973 $ 4,680.00

1974 $ 5,400.00

1975 $ 6,480.00

1976 $ 7,920.00

1977 $ 8,069.40

1978 $ 9,180.00

1979 $ 9,900.00

1980 $ 10,620.00

1981 $ 13,740.00

1982 $ 15,540.00

1983 $ 17,075.40

1984 $ 19,440.00

1985 $ 21,420.00

1986 $ 22,680.00

1987 $ 23,760.00

1988 $ 25,200.00

1989 $ 26,280.00

1990 $ 27,000.00

1991 $ 28,800.00

1992 $ 30,780.00

1993 $ 32,040.00

1994 $ 33,300.00

1995 $ 34,560.00

1996 $ 36,360.00

1997 $ 36,720.00

1998 $ 37,620.00

1999 $ 39,240.00

2000 $ 41,040.00

2001 $ 43,560.00

2002 $ 45,720.00

2003 $ 48,240.00

2004 $ 50,940.00

2005 $ 52,200.00

2006 $ 52,740.00

2007 $ 54,000.00

2008 $ 56,520.00

2009 $ 58,500.00

2010 $ 61,200.00

2011 $ 64,080.00