The costs of Social Security might be the straw that breaks the camel’s back. In this case, the camel is The United States Economy. Due in large part to irresponsible management of the Social Security Trust Fund, the account where social security tax dollars are deposited.
How did this happen? Let’s keep this in a real world scenario by using the example of a large family of five.
Five kids are all working. Each one chips in $500.00 per month to an account for their retired parents. The parents receive $2,500 each month to live on which is amble amount for them to eat and live. Several years later, three of the kids also retire. These kids didn’t not have children of their own. They can no longer afford to chip in $500.00 per month to the parents retirement account. Thus, the parents account shrinks to $1,000 per month to live and eat on. However, the three kids also need to live off of the $1,000 per month. Now five adults are living off of $1,000 per month to live and eat.
This example is much better than what has happened to Social Security in this country. Since 1935, workers have had money taken out of their paychecks to be put away in a Social Security savings account for them to retrieve when the worker retires. However, the government spent all the money on government programs. Since the Social Security Account is empty, Congress has borrows or prints the money to put money back into the Social Security Account for the benefactors to receive payments each month.
To illustrate what our government has done, lets use our family as an example again.
When all five children were working they put $500.00 per month into a retirement account for the parents to live on. Instead of giving the money to the parents, the children borrow $2,500 each month. They used the $2,500 per month in cash to pay for the loan payments which at first only cost a few hundred dollars a month. This way they had extra cash in the account each month. So they used the extra money to help other elderly couples in the neighborhood pay their expenses.
Soon, the interest payments on borrowing $2,500 per month grow to equal the $2,500 in cash the kids put into the account. Thus, the cash put into the account only paid for the interest on the loans. The bank stopped lending money and parents suddenly lost their $2,500 per month retirement checks to live on.
Where are we today with the Social Security System? Say three of the kids retire. They can’t afford put in $500 per month. Thus, the cash account that received $2,500 per month and was being used to pay off the $2,500 per month in loans payments is not going into a cash negative position. With three kids retiring, they can't put $500 per month into the account. The account and bank payment is now a negative $1,500 per month due to their retirement.
The bank will soon be looking to foreclose on the kids assets like taking their homes to pay off the loans. The situation is even worse. The parents have no money to live on. The three kids have no money to live on. The two remaining kids are going to retired soon as well with no money to live on.
That's good way to illustrate the state of our Social Security Account today.
The kids made a very bad mistake that effected their retirement. Taking out the loans to pay for other elderly neighbors is valiant and moral ideal, but their actions resulted in dire consequences in the long-term for themselves.
The United States Government is facing a similar scenario. They spent all the Social Security tax money on government programs. They borrowed money to pay for the recipients Social Security benefits. Today, the tax money taken in each year is now less because more people are retiring. Thus, Congress has to borrow more and more money to pay for benefits and interest payments.
This situation will add trillions of dollars to the National Debt, that is if we can borrow and print this much money. If we can’t, take a look at Greece today.
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