Social Security can't be fixed with 1936 thinking

By Mary Mostert

Speaking of Social Security, which was created in 1936 when the unemployment rate in America was 25% and most workers covered by it were factory workers, President Bush said in his State of the Union speech: "Our society has changed in ways the founders of Social Security could not have foreseen. In today's world, people are living longer and, therefore, drawing benefits longer. And those benefits are scheduled to rise dramatically over the next few decades."

Democrats in Congress booed and Rep. Nancy Pelosi, the minority leader in the House, said of his plan, ""When the president goes out there to beat the drum for his privatization to undermine Social Security, I think he will be greeted throughout the country by people who are affected by it every day of their lives."

Democrat James Roosevelt Jr., whose grandfather, President Franklin D. Roosevelt, signed the Social Security Act into law, claimed his grandfather "was adamant that Social Security was an insurance program ... not an investment plan." As an insurance plan, it needs to operate on sound actuarial principles — which it certainly is not doing these days.

If Pelosi really thinks that large numbers of people are enthusiastic about social security as it now exists, is SHE in for a surprise! There are some very serious flaws in the system not only for the younger generation, but those of us who are old enough to be drawing social security.

In 1936, because of the 25% unemployment rate, the primary goal of Social Security was to get older workers out of the work force so those jobs would go to younger men. It didn't even cover women or farm workers at first. The retirement date was set at 65, which was considered actuarially sound, since, at the time, the average life expectancy in America was 61. By making the retirement date four years later than the average life expectancy, it was thought the proposed social security tax of ½ of 1% each for employer and employee was adequate. Since the first retirees would put no funds, or practically no funds into the treasury, it was assumed that the retirees would be paid with deficit financing and the contributions of their children's generation.

It was set up that way because the goal was actually twofold in 1936 — (1) to get older workers out of the job market so younger workers could take their jobs and (2) to help the retirees children who would have the burden of raising their children while helping to care for their parents.

It worked fairly well in the early days of Social Security since about half the people did not live long enough to collect any money. My mother paid into the system for 18 years, but never collected a dime, since she died at age 51. My former mother-in-law paid into the system for less than one year, prior to reaching age 65, then collected social security for 32 years. Neither my father, who was not a citizen of the United States, nor my husband's father, who also died young, ever collected Social Security.

So, the system worked. But, as the President said, things have changed. The life expectancy increased to its present 74.63 years for males and 80.36 years for women, while people are allowed to retire and collect Social Security as young as 62 years.

If Social Security used the same actuarial charts used in 2005 that were used in 1936 when the retirement date was pegged to the life-expectancy rate, the ages of becoming eligible for Social Security for men would be approximately age 79 and for women it would be age 85.

This would probably not be widely popular. So, for James Roosevelt to talk about continuing to view Social Security as "insurance" is simply totally absurd. It USED to be a form of insurance — when it was pegged to insurance actuarial charts. Today, it is simply primarily a government welfare entitlement plan for everyone — even those who don't NEED government assistance.

Another problem with the system today that has destroyed the "insurance" aspects of it involves changes in our culture. The program was set up so the children of the retirees would furnish the funds given to their parents. That worked fine — and will continue to work — until the baby boomer generation begins to retire. My generation, the parents of the baby boomers, had large families following WWII. After decades of "zero population" efforts on the part of the no-growth crowd, many baby-boomers had either no children or only 1 or 2. As the President pointed out, "Instead of sixteen workers paying in for every beneficiary, right now it's only about three workers. And over the next few decades that number will fall to just two workers per beneficiary. With each passing year, fewer workers are paying ever-higher benefits to an ever-larger number of retirees."

That, of course, brings up another question. If the purpose of Social Security was to help the "middle" generation take care of aging parents while raising their own children, why should adults who have NO children get Social Security anyway? They didn't produce children that had to be fed, clothed and educated. Those without children did not have the expenses of raising them. The childless could have used the approximately $100,000 it takes per child these days to get them through high school to invest for their retirement years.

That would be a much better system anyway than paying millions of dollars to run a government bureaucracy with money we pay into Social Security. By the time you retire value of the money put in has dropped so it is worth less than half what it was when the government took it.

Many times over the years I have heard people in my generation say, "I have outlived my savings and I can't survive on Social Security." Now is the time to fix the system and it can't be done with 1936 thinking.

© Mary Mostert