Thursday, July 10, 2008

Social Security is Overfunded

My carpool conspecific sometimes remarks that Social Security won't be around when he retires. I've heard many young people say this, and I reckon its the product of right wing propaganda about what disastrous financial shape the Social Security Trust Fund is in. It will be broke by 2042! Unfunded liabilities are $11 Trillion Smackeroos! What's the solution? We might as well get rid of it and throw a lot of money at bankers and stockbrokers and insurance companies that will run the "privatized" retirement accounts. How will this help the solvency of the Trust Fund? Look over there, it's the Goodyear Blimp!

I've recently learned that the $11 Trilion figure is based on some interesting assumptions. First, it is a projection of the shortfall through an infinite number of years. $11 Trillion will be needed to shore up the Trust Fund between now and eternity. Secondly, the life expectancy assumed was 150 years for retirements on average of 83 years. I suppose if you're trying to book a reserve for eternity, you'd have to account for future improvements in medical science that may extend life. But if 120 becomes the new 60, which is already the new 50, why wouldn't you also assume that people's productive lives would extend beyond age 67? If most people expect to live to be 150, I'm pretty sure that a reasonable retirement age for them would be 100 or even older.

I think you also have to take into account the certainty that humans will eventually have no need to work. An army of robot slaves will fulfill our every need, and we will live lives of leisure and artistic pursuits. Robots don't retire; they get recycled. Once you take this into account, and assuming that this happens by 2250, my calculations show that the Trust Fund is quite healthy. Heck, future generations might even owe us money! I don't feel so bad about those deficits now.

1 comment:

b-psycho said...

I remember back when "privatization" was being discussed. Someone on Hit'n'Run described the actual proposed program as "the accounts aren't yours like your car is, they're yours like the cubbyhole you were assigned in kindergarten" -- and they were right. It deserved to be opposed, I just wish it were for more realistic reasons.

The true problem with Social Security is two-fold, and largely political in nature: increases in life expectancy have dragged it from its original purpose as elderly welfare to a middle-class entitlement, and its funding structure is contradictory, though the political climate will never shift enough to correct it. It's amazing that they chose a sharply regressive tax to fund a program that in practice now subsidizes the retirement of people who made enough money to save plenty on their own. I don't support it, but if someone sincerely asked me how to save it, I'd suggest abolishing the payroll tax and shifting funding to another one, like a carbon tax or part of capital gains, and then index benefits so eligibility is based on income, returning it back to the purpose it was SUPPOSED to fulfill.