Aviation: Are Our Retirements At Risk?
Are our retirements at risk? What is really going on with Social Security? Should we not even be concerned about this because many of us have 401(k)s?
In this newsletter series, we’ve talked a great deal about the economy, jobs, regulations, and much more. One of the things that we have not discussed is retirement and in particular Social Security.
Social Security insurance has been a hot topic in one way or another since, “President Franklin D. Roosevelt signed the Social Security Bill into law on August 14, 1935, only 14 months after sending a special message to Congress on June 8, 1934, that promised a plan for social insurance as a safeguard “against the hazards and vicissitudes of life”. (Social Security Administration, 2023)
Many, however, have wondered about the viability of the program. Younger workers are concerned that the program will not be around for them to be able to get the money they paid in. While those workers that are about to or have already retired are concerned that the value of that payout is being eroded by inflation. That being said, there is somewhat of a feud between older and younger workers, where younger workers believe that they are paying into a system that might not be there for them when they retire yet they have to keep paying for those who have already retired.
Whatever the arguments are for Social Security, this poses real concerns for those who are currently paying into it, many are wondering if they will even have Social Security after leaving the workforce. On the other hand, many of us don’t even think about it that much but it will be affecting us in one way or another.
While many of us who operate in the aviation industry have 401(k) plans and may not think twice about Social Security insurance, it is worth noting that 401(k)s are only as good as the strength of the overall economy. This is because funds that are placed in 401(k)s are reinvested into the economy, when the economy is doing great 401(k) portfolios look great. However, when the economy is doing poorly (which we believe is going to be happening over this decade) then 401(k) portfolios take a big hit. We saw some of this during the great recession of c. 2008.
In this two-part issue, we share some insights into challenges with Social Security insurance, what are some of the future problems we can expect, some of the difficult and painful actions that might be required to fix the problems that are related to the scheme, and how workers have been responding to these proposed solutions so far. We know this week’s issue is somewhat long, however, but we highly recommend reading it in full.
For related readings, please see also: ‘Aviation: Jobs Jobs Jobs!’, ‘Aviation: Making Ends Meet’, ‘Why is it More Expensive to Give Thanks?’, ‘Lowering Real Wages | Increasing Debt’, ‘Labor: Should I Participate?’, ‘Jobs “Boom” : Is it really?’, and ‘Aviation: Can We Be Frank About The Jobs Market?’,
Part One — The Social Security Crisis
On January 10, the French government announced plans to raise the retirement age from 62 to 64. The change would mean that after 2027, workers in France would have to work 43 years to qualify for a government pension, instead of 42 years. French workers promptly took to the street in protest decrying even this very small reduction government welfare.
Like many countries in Western Europe and North America, France faces a major demographic problem in that its population is aging and demanding ever larger amounts of public pension funds. Meanwhile, the younger working-age population is shrinking as birth rates continue to fall. So, the French state is looking for ways to stay relatively solvent.
For Americans who follow our own old-age social benefits systems, this problem will seem quite familiar. Although the US regime is not in as dire fiscal straits as the French one, the US’s federal government nonetheless faces huge and growing obligations to current and future pensioners. This will only grow more urgent as the population continues to age and as the numbers of prime-age workers stagnates.
Indeed, the Social Security scheme is an excellent example of how government programs, once established, gradually become far more costly — in real per capita terms, not just aggregate terms — as time goes by. Many recipients now spend decades collecting benefits on a program that had been sold as a program only for people who were too old, exhausted, and injured to work at all. Meanwhile, fewer and fewer workers are called upon to foot the inflated bill.
At the center of this mission creep for Social Security is the fact that Social Security benefits originally began at age 65. Yet, at that same time, the life expectancy at birth was below 65. (It’s much higher now.) Many people lived well past 60 back then, of course, but not nearly as many as do today. In other words, a far smaller fraction of the work force collected Social Security, and for a shorter period. Today, however, more workers live long enough to collect Social Security, and they now receive payments for longer. That’s a sure way to inflate the cost to taxpayers of old-age benefits. (It’s also a sure way to encourage able-bodied workers to leave the workforce, thus tilting the economy more toward consumption rather than production.)
Even if we ignore the moral problems presented by transferring huge amounts of income from current workers to pensioners, the realities of demographics in the twenty-first century mean the minimum “retirement age” should really be at least 75. Too long has a shrinking pool of workers been forced to fund pensioners who start collecting government benefits in their 60s and can now expect to be on the dole for 20 years or more. Moreover, this phenomenon is growing. Social Security increasingly forces today’s workers to shoulder an ever-greater burden on their ability to earn a living and support their families. The days of subsidized extended vacations for able-bodied 65-year olds must come to an end, but until that day comes, the damage can at least be limited by raising the age of eligibility.
The Original Justification for Social Security
When it was being sold to the public in 1935, those promoting Social Security took advantage of sentiments that people over age 65 were essentially too old to work, and thus would soon fall into poverty. This certainly would have seemed plausible at the time. Most jobs in 1935 involved significant amounts of physical labor whether we’re talking about cleaning laundry, waiting tables, farming, mining coal, or building houses. Work was also more dangerous — as historical work injury data makes clear — and workers were more likely to sustain injuries that would render one unable to work. For example, a 65-year-old simply could not safely perform much of the work required at a steel mill. (As shown in this 1944 video on the steel industry.)
Especially important to efforts at presenting Social Security as fiscally prudent was the fact that with a minimum age of 65, the number of Social Security beneficiaries would also be limited by the realities of life expectancy. In 1940, for example — the first year that pensioners could receive benefits — life expectancy at birth was only 61 for men and 65 for women. Indeed, even if we eliminate the toll of childhood diseases on life expectancy, the numbers do not change dramatically. In 1940, total life expectancy for persons over 15 years of age was 68. Moreover, in 1940 the percentage of the population surviving from age 21 to 65 was only 54 percent for males and 61 percent for females. But what about those who actually made it to age 65? In 1940, a male at age 65 would, on average live another 13 years. A female would live another 15 years. So, when looking at the work force in 1940, we can eliminate nearly half of the men and about 40 percent of the women as likely future Social Security recipients. About half of those who actually made it to 65 would then collect benefits for no more than 15 years.
Now let’s contrast that with life expectancy realities in our own time.
Life expectancy at birth today is 78 years, and for those who reach age 15, it is 80. for both men and women, more than 75 percent of the population reaching 21 will survive to age 65. That’s an increase of 50 percent for men, and around 30 percent for women. For those reaching age 65 in 2022, males will live another 18 years on average, while females will live another 20 years.
These growing commitments from Social Security are further aggravated by the fact that while the retiree population is growing, growth in the work force is stagnating. Since 1960, the total number of Social Security recipients has increased by 364 percent. Meanwhile, the prime age population (age 25–54) has grown by only 90 percent. Put another way, in 1960, there were 4.6 prime age workers per Social Security recipient. In 2020, that number was 1.9.
Now let’s look at this in dollar terms. Per prime-age worker, inflation-adjusted dollars spent on SS amounted to $9,590 in 2022. That’s up from $4,814 in 1980, or an increase of 99 percent over the period. During the same period, inflation-adjusted weekly earnings for workers increased 16 percent. Part of this discrepancy is due to the fact SS payments are consistently — as mandated by law — bumped up by cost-of-living adjustments to account for price inflation. Wage workers enjoy no such guarantees.
Social Security benefits are rapidly outpacing both population growth and earnings growth. In the aggregate, the program is more generous (toward pensioners) than ever.
To stanch some of the bleeding from today’s workers who get an increasingly raw deal on this, the time has come to stop the ever-upward creep in how much Social Security recipients collect.
[Read More: “How to Eliminate Social Security and Medicare” by George Reisman]
As noted above, we see that, on average, men and women collect Social Security for a period that has grown by five years since 1940 — an increase of 38 percent for men, and 33 percent for women. To even put a dent in this, the minimum age for SS needs to rise to 70. Yet, even this is much too low given how turning 65 in 2022 is nothing like what it was in 1940. Ever since it was first put forward, Social Security has assumed that reaching the age of 65 is also closely associated with disability. That may have been a good assumption in 1935 when work was more often dangerous, likely to produce disability, and medical care was much less adept at addressing these disabilities.
In 2022, however, the word “disabled” hardly describes the majority of Americans in the 65–74 age range. Indeed, only one quarter of this population reports having any disability at all. The share of Americans from 65–74 who report poor health has been declining, as has the proportion of workers in physically demanding jobs. It’s unclear why 100% of these workers would require government income subsidies. In any case, workers who are actually disabled would qualify for disability benefits even if the age is raised. Moreover, a male worker today who reaches age 75 can still expect to live another 11 years. A female can expect to live even longer. Raising the age to 75 still wouldn’t eliminate a taxpayer-subsidized “official” retirement, but the change certainly would reduce the length of time today’s workers toil in a state of indentured servitude to today’s pensioners.
One thing raising the age has going for it is that it’s been done before. A 1983 change very gradually increased the full-benefits age from 65 to 67. That’s much too little, and even an increase to age 75 would be a mild reform. Other reforms, up to and including abolition, should include means-testing pensions and totally defederalizing and decentralizing the program. But it’s also easy to imagine the tidal wave of opposition from activists who vehemently oppose even a very mild reduction in Social Security payouts. Raising the age won’t make Social Security just, prudent, or wise. But cutting federal spending is always the right thing to do.
Part Two — A Response To Critique Of Part One.
After French protestors took the street to complain about the increase in the retirement age, I read quite a few jokes in social media about how protesting in France is the local pastime.
That may be true, but let it not be said that Americans don’t feel very, very strongly about their own national pension program. I say this because in response to my article last week on raising the Social Security age, I received more furious responses than I have for any other article in many years. Here’s one example from a man whose initials are MF:
What are you, just nuts??? Having paid in to SS for over 40 years and experiencing big gov losing my records for some of my most productive years, so my stipend has been reduced; And after my wife and I planned for retirement and saved while contributing to SS, my wife died 2 months after her 65 birthday never having received a single payment from SS after paying in for 42 years. There are no spousal survivor benefits. All the contributions she paid in are gone. Age of qualification isn’t the issue. Corruption, graft and top heavy bureaucracy, while incompetents administer at the front line are the problems. Either wise up, do your research or stay away from topics you seem totally ignorant about.
Here’s one from reader RG:
I didn’t make the promise [to pay a pension at age 65] the guvvmint did. … You are a useless f**k wasting computer ink. Get your head out of your a** and breath the gathering doom. My father fought in France in WW2 and Korea, didn’t live long enough to collect his benefits nor my mother-in-law. F**k you again.
A less emotional reader suggested that instead of reducing Social Security payouts — as I suggested — the better plan would be to “to do away with the social security program and give me the money I contributed over the past 45 years, with interest of course.”
These sorts of responses all share a common thread. Many are under the impression that they have some sort of promise or agreement with the federal government about pension funds. The supposed agreement is that money these former workers “paid into” the Social Security “trust fund” will be paid back to them. Some seem to even believe that the money is stored somewhere, earning interest, and can be returned.
Well, I have bad news for everyone who sincerely believes the government lie and thinks they have some sort of claim to today’s tax revenues due to a “promise” from the feds decades ago: there is no promise, no agreement, and you have no legal claim to money that was “paid in.”
It’s Not Insurance. There Is No Trust Fund. Your Money Is Gone.
This is because Social Security is not “insurance.” It’s not a “trust fund.” It’s just a tax and a welfare program. The money current pensioners paid in was spent on other people years ago. It’s gone.
The legal realities behind Social Security were well summarized by Charles Rounds twenty years ago:
Social Security is not an insurance program. A Social Security “account” bears no legal resemblance whatsoever to a bank checking or saving account. Social Security bestows no contractual rights or any other type of property right on workers.
In other words, Social Security as it is currently structured has nothing to do with legally enforceable promises or guarantees. There is no “trust fund” as that term is commonly understood, no funded segregated accounts, no IOUs or bonds stored in some lockbox, or anywhere else for that matter. Social Security is neither solvent nor bankrupt.
In Flemming v. Nestor, 363 U.S. 603 (1960), the U.S. Supreme Court set the record straight. Social Security is actually nothing more than an umbrella term for two schemes that are legally unrelated: a taxation scheme and a welfare scheme.
Workers and their families have no legal claim, grounded in the Fifth Amendment or elsewhere, on the FICA tax payments that they make into the U.S. Treasury, or that are made on their behalf. Those funds are gone, commingled with the general assets of the U.S. government and fully available for purposes unrelated to Social Security. Being mere welfare recipients — not creditors or holders of equitable property rights — workers have hopes or expectations of future benefits, but no enforceable rights to them.
Nestor stood on the shoulders of a previous case, Helvering v. Davis, 301 U.S. 619 (1937). In Davis, the Court had confirmed that Social Security is not an insurance program. During the Helvering oral arguments, the Chief Justice had anticipated Nestor when he speculated from the bench that Congress would have the authority to abolish the welfare component while keeping the taxation component in place.
Thus, it is inappropriate either for the left to call Social Security “solvent” or for the right to call it “bankrupt.” A welfare program funded by general tax revenues cannot go bankrupt because its sponsor is a governmental entity with the power to tax and print money, not to mention reduce or eliminate altogether future benefits. The terms “solvency” and “bankruptcy” are appropriately applied to human beings, corporations, trusts, and the like. But not to Social Security. Social Security is not an entity.
This is why raising the retirement age for Social Security has nothing to do with what is “paid in.” The federal government could abolish Social Security altogether, yet keep the Social Security tax in place.
People tend to get really worked up about this because they believe on some level that they are “owed” a return on their Social Security taxes. The special status of the Social Security tax in the minds of many people is illustrated by the fact that people rarely claim to be owed the money they “paid in” to other tax schemes such as the income tax, or the gasoline excise tax, or tariffs. In reality, though, these are all just taxes of exactly the same sort with no tie to any specific type of spending. Congress and the President have total control over how to spend all of it. They always have.
It’s Impossible to “Pay Back” Social Security Revenues to Those Who “Paid In”
The angriest readers do get at least one thing right. They correctly see that raising the retirement age for Social Security is indeed a reduction in benefits. That, of course, is why they’re so angry in the first place. They understand that raising the age means a reduction in spending that they’re likely get less of “their” money.
Oddly, though, one can often find people who claim to be for “small government” or lower taxes, but still insist they want “their” money. Unfortunately, it is not possible to “pay back” the people who paid the tax in the past. “Restitution” would amount to nothing more than taxing current taxpayers to benefit past taxpayers. In other words, the government can’t return the money it stole in the past. It’s impossible. The money’s gone. Taxing today’s workers to pay off pensioners is just creating a new group of tax victims. There’s nothing fiscally sound or moral about such a scheme. It’s just more state-controlled wealth redistribution.
The right thing to do with Social Security is what is also the right thing to do when it comes to all federal programs: reduce both spending and taxation. Merely cutting the Social Security tax doesn’t solve anything because that only increases deficits, and thus increases taxation via price inflation while requiring more taxation and spending to pay interest on the growing debt. The only real answer lies in cutting spending, and one way to do that is to raise the age to receive benefits. That’s something many Social Security recipients apparently don’t like to hear.
Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor’s degree in economics and a master’s degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.
These articles were originally published in the Mises Wire on Jan 26, 2023, Feb 01, 2023,with the titles “Raise the Social Security Age to (at Least) 75” and “Social Security Taxes Aren’t “Your” Money”, respectively. The views expressed are the author’s, and do not constitute an endorsement by or necessarily represent the views of On Aviation™ or its affiliates.
Thank you for reading this week’s On Aviation™ full article. Do you believe that there is a serious problem with the Social Security program? Please share your thoughts in the comments below and remember to continue the conversation on our Twitter and Instagram.
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