Who Owns Your Social Security? (hint: it’s not you)
The U.S. Supreme Court ruled that retirees do not have an ownership claim to future unpaid Social Security benefits. Because you do not have a property right to your mandatory contributions, you may never be able to benefit from them. In over 30 countries, however, personal accounts are increasing long-term security and ensuring retirement benefits.
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“You (insert citizen name here) agree to and are legally obligated to pay insurance taxes on your wages to support old-age income needs. We (the U.S. Government) may or may not pay you anything when you retire. Deal?”
Social Security does not come with property rights. Who said so? The United States Supreme Court. A 1960 Supreme Court case came to the following conclusion: “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands” (U.S. Supreme Court, in Fleming v. Nestor, 363 U.S. 603, 1960). This means that retirees do not have an ownership claim to their unpaid benefits. In the end, it is up to the discretion of the government to determine how much, if anything, a retiree receives in Social Security benefits.
There is more. Even without any ownership of your Social Security, you are required to contribute to the Social Security insurance pool via FICA. FICA is the Federal Insurance Contributions Act, which shows up as a line on each worker’s paycheck statement. FICA includes 12.4% for Social Security and 2.9% for Medicare, evenly shared by the worker and the employer. $153 of every $1,000 earned are contributed to help pay for someone else’s retirement needs.
You do not always get what you pay for, and Social Security is a prime example. FICA was conceived as an insurance scheme. Insurance is a shared riskmanagement tool. By paying a premium, you are secure in knowing that should you suffer the risk, you will be compensated. In this case, the premium is FICA, to help support individuals in old age.
Taking the concept of insurance on a slightly different route, government developed social insurance programs, which require that everyone pay into the insurance pool and that all contributors receive benefits, since they all equally share the risk. However, this social insurance program by design leaves contributors without any legal claim to compensation. Therefore, it is not actually an insurance program.
Imagine that having saved reliably every month for 30 years, you try to write a check from your savings account. The check is denied. Why? Because in small print, the contract says you do not own those savings—the bank does. In this example, your contributions are voluntary, and you are without legal recourse to access your funds. In the case of Social Security, you are forced to pay FICA.
You cannot opt out of FICA payments, even on the condition that you agree never to file for Social Security, and instead contribute to an IRA or other retirement account. Simply by being employed you agreed to pay into this insurance pool. And the Supreme Court decided that you do not have any property right to your contributions. You may never be able to draw on your forced savings account.
Because you paid FICA every month for years, and because it was allegedly designed as an insurance scheme, the belief that government must provide Social Security benefits to you is reasonable and legitimate. Unfortunately, believing is not enough. Your Social Security payments are contingent on a promise from the government, which wants to maintain flexibility in the program in order to keep it operational. This means that at any time, the government can change the rules of the game, and regardless of how much you have contributed to Social Security, you may not receive anything.
A practical solution is to establish personally owned retirement accounts. Your payroll FICA taxes would go to fund your own retirement account, to which you have a property right. In over 30 countries, personal accounts are successful in increasing long-term security and ensuring retirement benefits. Chile, Switzerland, Sweden, the Netherlands, Poland and the United Kingdom are among the many examples of well-managed, effective and secure personal account models.
The central fact of Social Security is this: You do not own it. Perhaps the government has an ethical obligation to pay you? Sure, but are you willing to risk your retirement security on the promise of the government?
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