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Babyboomers Can't Rely on Uncle Sam

  • The Social Security system is going bust, and the only way to save it is to privatize the system.
By Paul Croke

Despite repeated announcements from Congress and the government that Scial Security is on solid footing, it turns out that those in the baby boomer generation can expect returns of just 1.2 percent.

This figure is significant. People who were born before 1935 can expect to get all their money back plus an annual rate of return of 5 percent.

If the boomers, those born after 1995, would be allowed to drop out of the system and invest in an individual retirement account, they would have accumulated, according to income averages, over $1 million, as opposed to the $500,000 they would have paid into Social Security, which is getting ready to take such cost-cutting measures as raising the retirement age and maybe hiking the payroll tax.

Also benefitting more from Social Security than the boomers are poor people. A low income family in their late 30s can expect a return of 3.5 percent, while a high income two earner family of the same age is looking at the negative returns.

Another loser in the Social Security game is black men, who can expect a negative return on their contributions. Since they generally die befor they can draw out of the system the money they put into it.


The Social Security Trust fund is a misnomer. There is no fund, and there's certainly no trust. The money goes directly into the general revenue, having been "borrowed" from Social Security, and replaced by IOUs.

Since Social security is "off-budget," meaning it can't be counted as revenue, but borrowing from the fund offsets the budget deficit to the tune of some $3 to $5 billion a year. Putting Social Security on budget would reflect the true dimension of the budget deficit, somewhere near $600 billion a year.

Suggestions that people be allowed to make either a token contribution or none at all, if they set up their own retirement accounts regulated by the government, are being voiced more and more frequently.

Dr Martin Larson, the dean of tax writers and a longtime columnist for this paper, suggested more than 10 years ago that his was the way to go. Now this voice of common sense is being heard repeated in the pages of the Wall Street Journal and the New York Times.

These voices assure us that pressure for privatization of at least some part of Social Security will grow, especially as it becomes more of a welfare program than supplementary insurance against a loss of wages when one retires.

According to the Journal, all this talk about rates of returns makes the system's defenders nervous. In part, they fear people will stip supporting it if they see how income is shifted from the affluent to the poor. The term "Social Security" has a certain magic in public discourse; the word "welfare" does not.

So Martin Larson's advice is more timely than ever. He recognized the problem long before the papers and politicians have started talking about it. The last thing we need right now is another massive social engineering project dedicated to shifting wealth from the middle class to the poor.