DEAR MR. BERKO: Both my wife and I are 53. I earn over $105,000 as a diesel mechanic, and she earns $67,000 editing children’s books for several publishers. We have only $77,000 in two individual retirement accounts. We are putting three children through college and grad school while making car payments, making mortgage payments, paying real estate taxes and paying a fortune for health, auto, home and life insurance. After taxes and partially supporting two ailing parents, there’s little left to save for retirement. And the stability of Social Security is a very scary concern for us. By the time we’re 67, we will have paid over $600,000 into Social Security. We’d rather have that in our pockets. We often hear Social Security is going broke, and it’s hard to disagree. This frightens us because we are depending on the projected income to retire without being a burden to our children. Please tell us in simple English why Social Security is in trouble. Can it be fixed without raising taxes or the retirement age again? – RS, Port Charlotte, Fla.
DEAR RS: It can’t be fixed without raising taxes and the retirement age; therefore, Congress is seriously discussing a means test for Social Security. Today you can expect about 70 percent of your future monthly benefits.
I remember listening to my parents and their friends in the 1950s arguing that Social Security was a communist conspiracy to control the American worker and, by extension, the economy. There were heated words and name-calling that exceeded the boundaries of respect. SS was proposed by Franklin D. Roosevelt as a contract between the government and workers. But at some point during the mid-1960s, it segued into an entitlement, and its contract status became meaningless. However, both protagonists and antagonists were correct. SS has been a blessing, a life raft and a safety net for many of the 39 million of our nation’s retirees. But Congress can’t keep its sticky fingers from the honey pot. It extended benefits to 21 million more Americans to purchase their votes. Today the Social Security Administration pays billions for disability assistance, food and nutrition assistance, needy family assistance, housing assistance, and low-income energy programs. The SSA also pays benefits to drug addicts and alcoholics who can’t work, as well as immigrants who are here illegally and figured out how easy it is to game the system. The list of congressionally approved non-retired payees continues growing and has nothing to do with the original intent of the Social Security Act, defined by Investopedia as “a law enacted by President Franklin D. Roosevelt in 1935 to create a system of transfer payments in which younger, working people support older, retired people.” Those 21 million non-retirees cost Social Security an extra $263 billion last year. Therefore, Social Security’s balance sheet, once triple-A, is barely triple-C-minus because Congress won’t stop selling benefits for votes. It’s hard-wired in congressmen’s DNA. There are too many Republican and Democratic congressmen and not enough U.S. congressmen.
So though Social Security was conceived as a safety net for retirees who are unable to accumulate enough money to support themselves, since 2009, the SSA hasn’t collected enough taxes to cover the needs of those non-retirees. The SSA covers the shortfall by using interest it has collected on bonds held in its trust fund. But by 2018, the SSA will begin liquidating those Treasurys. And between 2030 and 2033, the final tranche that will have been accumulating for decades will have to be sold to pay benefits. Though there won’t be any bonds remaining, the SSA will continue collecting payroll taxes from those in the workforce. Those taxes should be enough to cover 67 to 72 percent of your promised benefits, providing Congress keeps its gloppy fingers out of that cookie jar and providing Medicaid and Medicare won’t be raided to assist Syrian refugees.
You have 14 years till retirement. Right now, start downsizing all your obligations, especially the three kids in college. Then start saving for the coming winters like a duo of squirrels, but use the same tree. You should be able to generate significant annual savings, and if you invest those savings properly, you should be in good stead 14 years hence.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.