Back in the 1990s Allen Greenspan warned Congress about it and pleaded that something be done before it was too late.  Nothing was done.

Before him, back in the 1980s Paul Volker warned Congress about it, and pleaded that something be done before it was too late.  Nothing was done.

Before him, way back in the 1970s, Arthur Burns worried about it, and said something needed to be done before it was too late.  Nothing was done. 

Sidebar

It’s was even recorded on March 16, 1971, on tape number RC 361.  The same Oval Office taping system that eventually forced Richard Nixon from office, documented him complaining to Treasury Secretary John Connally that Arthur Burns was over-stepping his authority.  Ironically, Nixon agreed with Burns that there was a problem and something ought to be done, but our most megalomaniacal president wasn’t about to let an underling comment on areas of policy!  Burns would have to deal with Nixon and Nixon would deal with Congress!!

End Sidebar

After all these warnings over all these years, Ben Bernanke has just warned Congress… that it’s already too late and something should have been done about it… Ten years ago!… Or twenty years ago!… Or thirty years ago!

“It” is Social Security.  And these men were all Chairmen of the Federal Reserve – Bernanke being our current Chairman. 

“Oh, not to worry,” you say.  “Bill Clinton assured us the Social Security ‘lockbox’ is secure.”

Well, Bill Clinton lied... and I don’t mean just about Monica Lewinsky.  He lied about Social Security.  He lied about the lockbox.

How do I know?  That’s easy…there is no lockbox!  Never has been!  The money taken from you went into the general fund – and Congress spent it.  Oh they replaced the money – with Treasury IOUs.

It works this way.  When there was only one retiree for every 16 workers the Social Security system had excess funds and this would have been the time to invest them, creating an actual account for everyone paying money in.  But Congress, being Congress, spent the money, substituting it with “special” Treasury securities – the IOUs.  It’s kind of like paying off your MasterCard with your Visa.

But as the number of retirees per worker increases the excess funds disappear, until in 2040 the system will be broke.

The Congressional Budget Office describes it this way:

“Trust fund holdings, as internal liabilities between government accounts, are not assets of the government.  Nor do they represent money owed to program recipients individually…  A federal trust fund is basically an accounting device that measures the difference between the income designated for a specific program and the expenditures made to its beneficiaries.  The accumulated difference, or balance, often represents a reserve of future ‘spending authority’ for the program, but it is not a reserve of money for making payments.”  [Emphasis mine]

In accounting terms, it’s known as an “unfunded future liability”.  In layman terms, it’s known as “mortgage tomorrow for a benefit today”.  In political terms, it’s called business as usual.

Toward the end of President Bush’s first term, I wrote a piece on the priorities I thought he should address during his second term – Social Security reform being near the top.  In it I said that Bush only had one shot of about six months to push legislation before the mid-evil media started calling him a lame duck and the Demos would feel free to kick sand in his face for the next three and a half years.  I wrote a nice letter to him and enclosed a copy of the piece for his perusal. 

Now I don’t know if he read my letter, however he did follow my advice.  But in typical Bush fashion, he failed to fully develop his reform plan, and he failed to communicate his proposal to either the freeborn American public or to Congress. 

When his vague proposal for private saving accounts had few details, the demos had a field day.  They labeled it a “risky scheme” and that is what it has been known as every since.  Bush then suggested that the investments could be made in guaranteed Treasury bonds, but the media never made that widely known.  A risky scheme is a risky scheme, and this one was DOA. 

Bush made a few more half-hearted attempts to resuscitate it, but it was too late.  He retreated back into the Whitehouse, and wasn’t heard from again for two years when he decided that the war in Iraq was going poorly and announced the “surge”.  Social Security reform was left to the next Republican President.

“Well that’s a helava note,” you say.  “What do we do now?” 

You mean besides electing a Republican president in 2008?  Okay, here is my eight-point plan for young workers.  If you’re an older worker like me, hold on… it’s going to be one heck of a ride!

Congress won’t let Social Security just go away.  But there will be changes.  Either the benefits will be reduced (or increases cut which amounts to the same thing), Social Security taxes – excuse me, contributions – will be increased, retirement age will be extended, or a combination of all three.  One way or another, the level of benefits your government has promised you just won’t be there.

1.)  Keep writing letters to Congress to fix Social Security, but plan your retirement as if they won’t.  Consider your contributions as just another tax – they certainly aren’t an investment.

2.)  Take advantage of any 401(k) plans your employer offers.  If your employer offer matching funds up to a certain amount, make sure you contribute at least that much and more if you can.

3.)  Contribute the max to an IRA or a Roth IRA (I like the Roth if your income’s not over the limit).  But for young workers, who need the deductions, a traditional IRA may be best – the good thing is that you can make that decision each year.

4.)  Take advantage of what Albert Einstein called the most powerful force in the universe – compound interest.  Maximize your contributions to your 401(k) and IRA as early as you can in your working life and let this powerful force build up your retirement nest egg.

5.)  If you change jobs, roll over your 401(k) to maintain its tax-deferred status, and keep it in a separate “rollover IRA” to shield it from any possible future judgments.

6.)  Don’t borrow from your 401(k).  “But if you do” plan how and when you will repay the loan, then do it as soon as possible.

7.)  When deciding on what funds to invest in, remember “safe” funds don’t mean safe from inflation.  The younger you are, the more risk tolerant you should be.  (If inflation is 3% and your investment is getting you 4% that’s not exactly what Einstein had in mind!)

8.)  Write another letter; then keep writing more letters to Congress, to the President, to political candidates to fix Social Security.  Let them know that if they want your vote, they’re going to have to address the problem.  Tell them you want control of your own money – in the form of personal accounts the government can’t touch.  The longer they wait the harder and more painful it will be.