In a follow-up to our recent webinar, Dr. Ron Paul answers your questions about Social Security. Is Elon right – is America’s most-beloved entitlement program an elaborate pyramid scheme? Can we, or should we, count on Social Security to be there when we need it?
By Ron Paul
In a follow-up to our recent webinar, Dr. Ron Paul answers your questions about Social Security. Is Elon right – is America’s most-beloved entitlement program an elaborate pyramid scheme? Can we, or should we, count on Social Security to be there when we need it?
At our recent webinar on Social Security and the future of the U.S. dollar, we covered a lot of ground. Unfortunately, Phillip and I didn’t have time to answer every question from our audience. The fine folks at Birch Gold Group asked me to write this column, where I’ll address the most pressing concerns you raised.
Now, please keep in mind I’m not an expert on Social Security! I can’t tell you what your benefits are going to be, or spousal inheritance rules or anything like that. Instead, we’ll focus on the big picture…
Is Social Security going away?
No. Not exactly.
Social Security isn’t going to disappear entirely – but not because it’s sustainable. Because Washington politicians are too scared to touch it. They call it the “third rail” of American politics for a reason!
The real question isn’t whether Social Security will exist, but whether the program will have a meaningful impact for you during retirement. A check in the mail means nothing if it buys less and less every month due to inflation. This is a crucial point most people don’t understand: even if the check gets bigger, its purchasing power is what matters.
Despite the built-in cost of living adjustments (COLAs) applied to Social Security payments, its purchasing power is shrinking. This is already happening, and it’s only going to get worse.
Is Social Security an entitlement?
Yes, Social Security is an entitlement program.
Now, some politicians don’t like that word, but let’s be honest – Social Security is a government-mandated program where people are “entitled” to receive benefits. Workers are taxed to fund the program, and those same workers expect to receive payments from the program in their golden years.
The problem is, the government never actually saved that money. It spent your contributions – on payments to current retirees, bridges to nowhere and wars on other continents.
So while you may be entitled to benefits, what you actually receive depends on the whims of the bureaucracy and, of course, the state of the dollar.
Is Social Security running out of money?
Yes. The system is fundamentally broken because it’s based on a flawed premise: that today’s workers can indefinitely support yesterday’s retirees.
There are two problems:
First, inflation. If we look at the annual inflation rate from the invention of the Social Security program in 1935 to 1971 (the year Nixon abandoned the gold standard), prices rose on average 3.09% per year. Over the following decade, money-printing and deficit spending drove the rate of inflation to an average of 8.25% per year! Unsurprisingly, annual cost of living adjustments (COLAs) had to be added to Social Security payments starting in 1975.
That simple change alone would’ve rendered the entire program insolvent by now. But even then, Social Security was “the third rail” of politics. So instead of fixing the inflation problem, the bureaucrats attacked the perception problem. Beginning in the 1980s, they started altering the way official inflation was measured specifically to save money on Social Security benefits payments.
I know this sounds far-fetched – so please, don’t take my word for it. Instead, see John Williams’s highly-detailed, thoroughly-researched explanation on the two rounds of inflation-measurement “adjustments” in the early 1980s and again in the 1990s. (Or take it from me – official inflation reports are just plain nonsense.)
Second, demographics. There are fewer workers paying into the system for every retiree drawing benefits. Back in 1955, there were eight workers per beneficiary. Just 20 years later, in 1975 the ratio had fallen to three workers – and today, the ratio is lower still…
Now, how did this happen? Here are a few reasons:
- When the cost of living goes up, families have fewer children. The birth rate has declined about 20% over the last 50 years.
- Advancements in medical technology over that same timeframe mean average life expectancy has increased by seven years – meaning retirees receive their benefits that much longer.
- Then there’s the number of beneficiaries to consider. In 1975, just under 15% of the population received checks – today, it’s about 18%. (That change is bigger than it looks, because the American population grew by 100 million.)
The result? More people than ever are getting Social Security – and the program is more expensive than ever.
When will Social Security run out of money?
The Social Security Trust Fund will be depleted in 2035.
But let’s be clear – this doesn’t mean payments will suddenly stop. What it does mean is that the program no longer has any “savings” to draw on, and will be forced to rely entirely on incoming payroll taxes every month. But that’s not enough to cover full benefits. The result would be automatic benefit cuts of about 20-25%… Unless, of course, the government covers the difference by printing more money. Which would devalue benefits even faster.
Is Social Security’s retirement age changing?
Almost certainly, yes. Every time Social Security runs into financial trouble, one option to delay bankruptcy is always to push the retirement age higher. They already raised it from 65 to 67. Best of all (from a politician’s perspective), this change doesn’t affect current retirees!
Expect more of the same. For younger Americans, that “full retirement” age could end up being 70 or more.
How can Social Security be saved?
In short: it can’t be saved in its current form. There are only three options to keep the program running:
- Raise Social Security taxes – Take more from workers today to keep the scheme afloat a little longer.
- Raise the retirement age – Push back benefits even further.
- Cut benefits – Reduce payouts to future retirees.
Most likely, Washington will try some combination of all three. Let’s not overlook the real issue here, though – it’s not just a matter of solvency, it’s a matter of purchasing power. No matter how the program survives, retirees will find that their benefits buy less and less over time. Because inflation is deliberately under-reported. And because our growing national debt devalues the dollar.
What can Americans do to prepare?
The best thing you can do is to realize that Social Security was never meant to be your retirement plan. Despite its popularity, it’s more useful to think of Social Security as just another government program. Subject to the same kinds of bureaucratic manipulation and special interest horse-trading as the defense budget.
Real financial security comes from personal responsibility – saving, investing wisely and insulating your nest egg from inflation. That’s why I’ve always advocated for sound money, so-called “alternative” savings strategies and taking control of your own financial future. (Birch Gold can help you with the last two items on that list.)
The bottom line: Social Security isn’t disappearing. Just as it’s changed over the decades since it was launched, it’s continuing to shift in response to new political and economic pressures. What’s becoming undeniable to me is that no American should depend on Social Security. If you want to retire comfortably (or even retire at all), you need to prepare now.
Washington created this problem, and isn’t going to fix this problem anytime soon.