Wednesday, August 17, 2005

No Guarantee on Social Security

In a discussion with a friend yesterday, I mentioned the debate ensuing in the comments section of my last post and, in particular, the misconception that Social Security is guaranteed. The stated purpose of the Social Security Act of 1935 was to "provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes." In this single act, government took over the role of charity for all time. However, it made charity no longer charity, but an obligation, creating a debt on the part of all future workers and a claim on the product of future workers' labor by all current workers. Hence, the Social Security system itself is in constant debt.

Compare Social Security to a voluntary retirement program, such as a 401(k). I've heard the argument that a 401(k) is not as good as Social Security because it is a defined contribution plan, rather than a defined benefit plan. This argument is uninformed and simplistic at best. You can borrow against a 401(k), i.e. a 401(k) is deemed by creditors to be a valid security on their loan to you. Try going to the same creditor and ask to borrow against the Social Security you plan on drawing when you reach 65. It won't happen.

Social Security does not have as high returns as other investments and is at least as risky. Your Social Security payments depend on wealth that has not yet been generated by people who have no express desire to give their earnings to you. While some choose to rely on the empty promises of Social Security and claim the earnings of others to whom they have provided no product or service, it is a much less risky venture to invest your money yourself and bear the full costs and benefits of your investment.

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