Politicians who are principled enough to point out the fraud of Social Security, referring to it as a lie and Ponzi scheme, are under siege. Acknowledgment of Social Security’s problems is not the same as calling for the abandonment of its recipients. Instead, it’s a call to take actions now, while there’s time to avert a disaster. Let’s look at it.

The term was derived from the scheme created during the 1920s by Charles Ponzi, a poor but enterprising Italian immigrant. Here’s how it works. You persuade some people to give you their money to invest. After a while, you pay them a nice return, but the return doesn’t come from investments. What you pay them with comes from the money of other people whom you’ve persuaded to “invest” in your scheme. The scheme works so long as you can persuade greater and greater numbers of people to “invest” so that you can pay off earlier “investors.” After a while, Ponzi couldn’t find enough new investors, and his scheme collapsed. He was convicted of fraud and sent to prison.

The very first Social Security check went to Ida May Fuller in 1940. She paid just $24.75 in Social Security taxes but collected a total of $22,888.92 in benefits, getting back all she put into Social Security in a month. According to a Congressional Research Service report titled “Social Security Reform” (October 2002), by Geoffrey Kollmann and Dawn Nuschler, workers who retired in 1980 at age 65 got back all they put into Social Security, plus interest, in 2.8 years. Workers who retired at age 65 in 2002 will have to wait a total of 16.9 years to break even. For those retiring in 2020, it will take 20.9 years. Workers entering the labor force today won’t live long enough to get back even half of what they will put into Social Security. Social Security faces Ponzi’s problem, not enough new “investors.” In 1940, there were 160 workers paying into Social Security per retiree; today there are only 2.9 and falling.

Some politicians claim that Social Security has a huge trust fund and is in good health. An uninformed public and a derelict news media don’t challenge that lie. Back in August, politicians were in a tizzy over raising the federal debt limit. In an effort to frighten seniors, President Barack Obama said in a CBS interview, “I cannot guarantee that those checks go out on Aug. 3 if we haven’t resolved this issue, because there may simply not be the money in the coffers to do it.” Here’s how we reveal the trust fund lie: According to the Social Security Administration, it has a trust fund with $2.6 trillion in it. If those were real assets, then the Social Security Administration could have mailed checks out regardless of what Congress did about the debt limit. The reality is that the Social Security trust fund consists of government IOUs that have no real value at all and probably are not even worth the paper upon which they are printed.

I believe that a person who is 65 years old and has been forced into Social Security is owed something. But the question is, Who owes it to him? Congress has spent every penny of his Social Security “contribution.” Young workers have no obligation to be fleeced in order to make up for the dishonesty and dereliction of Congress. The tragedy is that most seniors just want their money and couldn’t care less about whom Congress takes it from.

Here’s what might be a temporary fix: The federal government owns huge quantities of wasting assets — assets that are not producing anything — 650 million acres of land, almost 30 percent of the land area of the United States. In exchange for those who choose to opt out of Social Security and forsake any future claim, why not pay them off with 40 or so acres of land? Doing so would give us breathing room to develop a free choice method to finance retirement.

http://www.crisismagazine.com/2011/social-security-disaster

A new Gallup polls shows  that retired people rely heavily on government payments, but those who are  not retired say they will use other money to fund their lives after they leave  work.

Investors who have yet to retire look to retirement accounts, such as 401(k),  IRA, and Keogh accounts (74%), and stocks or stock market mutual fund  investments (40%) as major funding sources when they retire, according to the  latest Wells Fargo/Gallup Investor and  Retirement Optimism Index survey. Social Security ranks sixth at 28%. In sharp  contrast, current retirees say they depend on pension plans (49%) and Social  Security (48%) as their top sources of income; retirement accounts rank third at  38%.

What the poll does not show, and it should not since questions about the fate  of Social Security were not asked, is the extent to which there will be a  pitched battle among workers to salvage full benefits as they retire.  Politicians in general consider the subject taboo and a swift road to losing  their jobs in Congress.

But, it may be that more and more Americans have become resolved to the  realities of the nation’s finances. It is not a matter of debate that  entitlement plans have grown faster than most other federal costs. It is not up  for debate that without extraordinary GDP growth  or deep military budget cuts the national debt could swell so large by the end  of the decade that debt service alone will be $1 trillion a year.

The period may have begun when the national debate over the fate of Social  Security will no longer be entirely one-sided. If that is true, the county’s  economic future may not look quite as grim.

Methodology: Results for the Wells Fargo/Gallup Investor and Retirement Optimism Index survey are based on telephone interviews conducted  as part of Gallup Daily tracking, with a random sample of 1,000 or more  respondents, aged 18 and older, living in all U.S. states and the District of  Columbia, selected using random-digit-dial sampling from Feb. 1-8, 2011

Douglas A. McIntyre

Wednesday, May 4, 2011

He’s all over the Internet, eloquently setting straight people who want to  reduce Social Security benefits or who suggest that delaying eligibility is the  right retirement planning approach. “It’s easy for people with  current jobs and full stomachs to advocate cutting Social Security. They just  ignore what a drastic problem this would be for people who are living on Social  Security and not much else,” he says.

The most recent issue to get his dander up is what he sees as a stealth move  to cut Social Security by limiting cost of living increases. The proposed  measure — called “chained COLA” — would reduce the benefit under the  current formula by three-tenths of 1 percentage point every year.

“This utterly arbitrary new element suggests that the name of the game is  simply to reduce each year’s COLA and to do it by what they regard as  unnoticeably minute amounts,” Bernstein says.

But small amounts add up. After five years of chained COLA, benefits  would be 1.5 percent behind price increases; after 10 years, 3 percent. After 20  years, the benefit reduction would be 6 percent, Bernstein calculates.

Supporters argue that the chained COLA provides a more accurate measure of  inflation. “That’s malarkey,” Bernstein says.

He contends that the CPI as determined by the Department of Labor actually  underestimates the cost of living for older people because it doesn’t accurately  reflect the cost of health care. And the chained COLA would make that problem  worse, he says, because it presumes that people avoid inflationary costs by  choosing to spend their money differently. But that’s hard to do with health  care. “Do people choose to have macular degeneration, arthritis, declines in  hearing? Of course not,” he grumbles.

Bernstein, who has been a recipient of Social Security since he was 70 when  he retired from teaching at the Washington University in St. Louis School  of Law, and who still teaches an occasional class at the community  college near his home in Massachusetts, isn’t at all certain that there is even  a problem with funding for Social Security. He poohs-poohs the notion that  anyone has a crystal ball accurate enough to predict what the economy will be  like in 25 years, when Social Security’s actuaries say the reserves will decline  to the point where there won’t be enough to pay more than about 75 percent of  what’s owed.

“Even 25 years ago did anybody foresee the revolution that the computer would  have on the economy? To say what’s going to happen in another 25 years and  thereafter when the shortfall is supposed to come and attach any degree of  certainty to it is totally unwarranted,” he says.

And if a shortfall does happen, what then? Bernstein has the answer: “The  shortfall is 2 percent of payroll. If employers would pay 1 additional  percentage point of payroll and employees would pay an additional 1 percent of  payroll. Bye-bye shortfall.”

By David Dayen

Duck Durbin says that it would be “extremely difficult” to round up 60 votes for any changes to Social Security.  But in a way, the Social Security benefit is being cut already.  For the past two years, there have been no changes to the cost of living adjustment, despite increases in the core costs for seniors, especially in health care.  Now, this is expected to remain true for the third straight year, with an increase in Medicare premiums wiping out the meager COLA.

About 45 million people — one in seven in the country — receive both Medicare and Social Security. By law, beneficiaries have their Medicare Part B premiums, which cover doctor visits, deducted from their Social Security payments each month.

When Medicare premiums rise more than Social Security payments, millions of people living on fixed incomes don’t get raises. On the other hand, most don’t get pay cuts, either, because a hold-harmless provision prevents higher Part B premiums from reducing Social Security payments for most people.

David Certner of AARP estimates that as many as three-fourths of beneficiaries will have their entire Social Security increase swallowed by rising Medicare premiums next year.

I’d expect this to continue.  Medicare extended its solvency nominally through the Affordable Care Act, but the savings may come by cost shifting onto beneficiaries.  So if the premiums increase, it would be likely that they would rise higher than inflation, which is basically how the COLA is calculated.  So over time, the Social Security benefit would remain static, while core costs for seniors would increase.  And these are people who have seen their pensions turned into 401(k) plans, and who have seen the net worth of those plans plummet during the stock market crash.  The other legs of the retirement stool have been kicked out from under them.  And now their Social Security benefit is basically losing value.

This is a decision we’re apparently prepared to make as a country, to deny seniors the ability to have a half-decent retirement.