Congratulations! You have exciting times ahead, taking an excellent publication and making it better. Naturally, lots of people will suggest business topics to investigate and to write about. What is my topic? Social Security.
We employ 29 people and administer about 2,000 plans, most of which are sponsored by local companies, such as Exchange Bank, Friedman Bros., G & G Market, Sonoma-Cutrer Vineyards, Redwood Regional Medical Group, St. Joseph Health Foundation and Mahi Networks.
We don’t sell investments or give investment advice. We are the paper pushers and number crunchers, somewhat like accountants. We are actuaries.
One of our biggest concerns is Social Security, which is a ticking time bomb of massive proportions. Forget all the rhetoric about "saving Social Security." Politicians of both parties have committed grievous fiscal sins with it, the biggest Ponzi scheme in the history of the world. And the situation is really much worse than people think.
The "unfunded liability" of Social Security is $17 trillion. In other words, some actuaries have estimated that promised benefits to current workers, current retirees and current disability recipients, considering inflation adjustments to benefits and expected mortality/longevity, is $17 trillionÑroughly four times the national debt. And this amount is "unfunded" because no money has been set aside to pay these benefits.
There is no "trust fund," as required for private pension plans. The money that comes in from workers/employees each month is paid out each month, except for a surplus, which has been usedÑstolen, reallyÑto make the federal budget look balanced. Surplus Social Security taxes are "invested" in government bonds, which means our real money is gone and the tin box has IOUs in it. These bonds are not "real" because Social Security can’t sell them. They are just promises to pay, and promises to pay are not "trust funds."
When government actuaries say that Social Security is "solid" for the next 20 or 30 years, they are not basing their calculations on money that has been prudently set aside to pay benefits. They are counting on steeply rising payroll taxes. Without numbing you with the actual math, let me just assure you that payroll taxes have hugely increased in the last years. They go up each year with a silent, deadly adjustment to the "taxable wage base" on which full Social Security/Medicare taxes are paid. They are scheduled to go up more as they raise the percentages, which currently are 15.3 percent of $76,200 wages, plus 2.9 percent Medicare taxes on all earned income above $76,200.
In other words, the government actuaries are counting on workers to pay vastly higher taxes in the future.
Our small firm paid $152,000 in Social Security/Medicare taxes last year. I figure the local HP/Agilent entity paid $27 million. Think of what the combined amount must have been for all of Sonoma County? Over the years, many self-employed people have told me their FICA taxes are more than their income taxes.
Why? Because this has become the stupidest retirement system imaginable. People are encouraged to rely on the promise of Social Security, even though it was never intended to be more than a modest supplement to private savings and private retirement plans. People do not realize that Social Security is not a property right. It can be reduced or eliminated tomorrow, with no legal consequences—though there would be plenty of political deaths. In order to buy the votes of senior citizens, Congress has raised benefits, added disability payments, and added inflation adjustments (which have consistently overstated actual inflation). Many current retirees will receive up to 10 times what they overstated paid in taxes, while baby boomers won’t even get back their own taxes, let alone employer-matching taxes. It’s a bad deal and a lie.
An older economics professor said he was worried that younger workers would find "something else" to do with him, and with other senior citizens, when FICA taxes hit 30% of their pay.
