Social Security Not a Pension

 [AUTHOR'S NOTE: This ran in the Sunday, April 3, 2011 Valley News Letters to the Editor page.]
Ezra Klein's March 30 article on Social Security characterizes the program as "one of the stingiest national pension programs in the developed world".  He goes on to state: "At the heart of Social Security is a simple vision: The richest country the world has ever known can guarantee its citizens a decent retirement."  The problem with these claims is the fact that Social Security was never intended to be the main source of retirement income but rather social insurance. The reality has always been that Social Security is not a retirement plan and is not currently funded with the long-term in mind.

The Social Security Act was passed to provide limited benefits to combat poverty and unemployment; alleviate the burdens of widows and fatherless children; and provide a benefit for the elderly, retirees and the disabled.

A private pension works by accumulating a lifetime of worker contributions, investing them, and paying out a benefit upon retirement.  In contrast, Social Security is a conduit system whereby current worker payroll taxes are collected and paid to today's retirees.  Social Security cannot prefund by investing in marketable assets such as equities, because federal law prohibits it from investing in assets other than those backed by the U.S. government.  Excess collected funds purchase non-marketable US Government debt (the Social Security Trust Fund) and become part of the overall US deficit or debt-financed spending.  This government debt is backed by "the full faith and credit" of the US government.

Due to Baby Boomer retirement, Social Security benefits paid will exceed payroll taxes collected within approximately 10 years.  At this point, the Trust Fund securities will be redeemed drawing down the Fund.  While some argue the Fund is merely an accounting trick, others cite the US debt securities as obligations of the US government which the government must pay.

Due to its stated mission and funding mechanism, Social Security should not be anyone's primary planned for source of retirement income.

Christopher Rhim
Norwich