In the May issue of our print newsletter, Flourishing, I took a shot at the Social Security system, and, more particularly, at the philosophic fraud at its foundation. Here is a postscript to that article:

Of the $807 billion in income received by the combined OASDI trust funds in 2009, $667 billion was from payroll taxes. That was $8.0 billion less than the $675 billion paid out in benefits. The fund ended up in the black for the year, though, because it also received $118 billion in interest and $22 billion in income taxes on benefits. If you're a Social Security recipient, don't you just love paying income tax on the return of your own money? And, who do you suppose paid the interest?

According to the Congressional Budget office, annual operations of Social Security will return to a surplus in 2013 - meaning it will collect more payroll tax and taxpayer interest payments than it pays out in benefits - before turning negative again in 2016. When the 2010 Social Security Trustees report comes out later this month, we'll know if this date has changed and to what degree.

As you can see from the chart, Social Security financing is in a terrible state, but it's really worse than it appears. Take just a minute to think again about who is paying the interest on those so-called trust funds (we are), and who is on the hook for the $7 trillion trust fund debt (our children and grandchildren). And remember, also, that the U.S. government is running an annual budget deficit of nearly $1.7 trillion.

Now think about what that money could have accomplished if had been left to do its work in the private economy.

Finally, now that we're neck deep in deficit, virtually everyone acknowledges that the Social Security system must be reformed. Under even the rosiest of scenarios, the demographic and financial math just won't work. Soon, there will be only 2.1 American workers to support each Social Security retiree. However, a survey by the National Association of Social Insurance found that two out of three Americans favored strengthening the system over cutting benefits.

  

If you're already retired, please understand, I'm not attacking your Social Security retirement benefits - I'm just trying to tell you straight what the problems are. And, for those not yet retired, there is still time to repair or replace the system.

As I wrote in Flourishing, the long-range solution must be total or almost total privatization of Social Security, and it wouldn't be that difficult to do. For the last thirty years, Chile has made a privatized system work to the great advantage of both its citizens and its national budget. We could do the same.

In the meantime, future benefits will have to be reduced, or the ages for qualification raised, or taxes increased, or retirees with incomes above an as yet unspecified amount will receive reduced benefits; and/or all of the above.

My sweetie is retiring on June 1, and will start receiving her Social Security retirement benefit this fall. So, you know this is an issue close to my heart. You should also know that Family Wealth Management, LLC has just invested several hundred dollars in the latest interpretive literature on Social Security, and in updated Social Security calculators to help our clients make smart decisions about when to retire. I'll have much more to say about Social Security, KPERs and other retirement issues in coming months, so stay tuned. Until next week,

PATIENCE, DISCIPLINE, and CONFIDENCE in the FUTURE! mh