Harry

If you're currently receiving Social Security, or if you're under 55 and you expect to ever receive Social Security, please read and re-post this. There are critical facts about the system and its returns, that you MUST understand. This is not a screed that's for or against. However, once you understand what SS actually is, how it's been mis-managed, and what it's costing all of us, I'm certain you'll want to see it deeply reformed. Let's start here. As you know, the SSA's Trusts are operating at substantial annual deficits and are forecast to run out of money by 2033 or 2034. But, if inflation is higher than expected, the Trusts could run out of funds by 2030. That's nothing compared to real problem with SS. The real problem is: SSA never invested any of our contributions. Instead, all of the money went into the government's general fund -- and was spent. The SS Trust account at the Treasury was credited with non-marketable Treasury securities, which paid SSA an interest rate based on the average yield and duration of all outstanding Treasury debt. In short, rather than investing on our behalf, the government took all of the money and gave our accounts a bunch of mostly worthless IOUs. The returns on these IOUs has been about 2% a year. Abysmal. Let me show you how this feckless behavior has impacted our lives. Let's assume that in 1971, when we left the gold standard, the SS Trustees realized (as they should have) that the government's IOUs were now only paper... paper that the government could (and surely would) print. So, instead of holding government IOUs, they put the existing reserve ($40B in 1971) and all additional net contributions into the S&P 500, matching the rebalances that have occurred since then. In other words, what if SSA had invested in stocks rather than into government debt? If those changes were made in 1971, and nothing else about SS changed, (payout ratios remained the same) the Social Security Trust Funds would have $50 trillion in them today, not $2.7 trillion (18x more). That's the difference between earning 11%+ a year from '71 until '25, instead of the meager 2% the Trusts actually earned. And so, you might say, so what? That didn't happen. Now we're screwed. Yes, but you really still don't understand how screwed. If you scaled the payouts proportionally to match the growing size of the fund (keeping the payout ratio the same as it was before) and you maintained the current 104%+ cost-to-revenue payout ratio that exists now, the value of the payouts would increase by 18X too. Today the average payout is $24,100, with an estimated total payout (over 20 years) of $482k. but, if the SSA had invested in stocks (S&P 500) instead of government bonds and if payout ratios were maintained as they are now, the average payout would be $442,300 per year, with an estimated lifetime value of $8.84 million. Obviously, this is hypothetical. But is based strictly on the actual math of the current system. Payout ratios should be vastly larger. And the reserves of the system should be too. The problem with SS isn't merely the law surrounding it. Flemming v. Nestor (1960) makes it clear that your 'contributions' don't belong to you; Social Security's payroll taxes are just that -- taxes. You have no legal right, whatsoever, to any return or any payout at all. You can argue all you want that you paid 'contributions' not taxes, but that entire idea was merely a lie the government told to sell you on paying the taxes without complaint. Additionally, like all government programs, the Social Security Administration is vastly too expensive ($14.2 billion a year in overhead) to administer). That's as much as Goldman Sachs, Morgan Stanley, and Bank of America spend on their IB staffs. I hope it's obvious to you that the SSA staff are not the same caliber of people Goldman hires. You could easily gut 95% of SSA's overhead using off-the-shelf technology and simply investing in a low-cost S&P 500 index fund. Finally, there's real problem we all face. SSA uses the government's CPI-U (consumer price index, urban consumer) to increase SS's payouts each year, supposedly to keep pace with the impact of inflation. These numbers are farcical. Or fraudulent, depending on how cynical you are about the government. Real world price indexes (like the Chapwood Index or the Case Schiller Housing Index), which measure the exact same item (the same house) or the same bottle of ketchup show that inflation has been over 10% for more than a decade, on average. More or less, since the financial crisis of 2008, the government has been printing money to pay its bills, including the SSA, and then lying about the inevitable resulting inflation. How do I know for sure? Simple, just measure the value of the average SS payout in gold eagle coins (1 troy ounce of pure gold, 31.1035 grams). In 2001, the value of the average SS payout ($10,493) was worth 38 gold eagles. But 2011 (just after the financial crisis) the average payout had risen ~40% to $14,743. That sounds pretty good... except by then, SS's average payout had fallen dramatically in the real world. That year's payout would only buy 10 gold eagles, a decline in real terms of nearly 75%. Surely, it couldn't get worse... but yes... after the Covid bailouts, it did. Much worse. By 2025, the average payout was $24k, up 63% in dollar terms. But, that amount only bought 6 gold eagles, a decline in real terms of 40%. Whether you want to believe it or not, the CPI is fake. That's most obvious when you study the real world value of the SS payouts. If you do, you'll soon discover the real return of the SSA's "investment strategy" since 1971 was actually negative. Every dollar you're paying into the current system is, like all taxes, being destroyed and wasted by the government. That might be necessary or worth it when comes to national security, highways, and other critical shared resources. But it absolutely not necessary or worth it when it comes to our retirement accounts. If we don't fix Social Security in the next five years, it is going to wipe out an entire generation of Americans -- Gen X. And there will be nothing left for Millennials or Gen Z either. The solution is utterly simple: take the SSA out of the government's hands. Pay a private sector institution, with legal fiduciary obligations, 95% less to administer a SS system that is privately owned (your actual property) and governed by a familiar set of rules. You and your employer would both be required to contribute (tax free) at a minimum rate of 6.5% a year. And you'd have to invest, for the long term, into one of a few high quality, broadly diversified index funds (S&P 500, QQQ, etc.) Or, if you prefer, you could also own short-dated corporate investment grade bonds. Employers could compete for talent by offer higher matching contribution rates (ie, employee pays 10%, employer pays 10%). Folks with more than 20 years remaining until retirement age (which really should be at least 68) would have the option of keeping the current system (bad idea) or opting into the new system. And, to ease the risk of the transition, the government could guarantee 80% of the value of the current system, so you wouldn't have to bear the full burden of the risks. It's win-win for everyone, but most especially for people under 40 who would see a massive increase in the value of their contributions. Would love to hear from anyone who thinks this is a bad idea. Would also love to hear from anyone who thinks they know how to get this accomplished with the current Administration.