Is Social Security Just a Pipe Dream?

04/13/2009 9:17 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

Here’s a quick quiz for you. Which is more likely to contribute to your retirement lifestyle:

  1. Your 40l(k) or IRA, which has recently been decimated by the stock market, or
  2. Social Security?

If you answered “a,” you’re one of the minority, it seems. Of course, MoneyShow.com readers are a special group. But even many of you are disillusioned after watching your stock market investments melt away in retirement accounts. All I can say is that’s nothing compared to the meltdown of the submerged iceberg that represents Social Security.

This recession has brought the Social Security crisis even closer. The recent rise in unemployment translates into a sharp drop in payroll “contributions.” The problem of the future is now in the present.

As soon as Congress “fixes” the banking, housing, and automobile crises, they’ll be forced to turn their attention to Social Security. Most likely, Social Security will become a “needs-based” payout to low-income, elderly recipients—not a return of the “investments” you made with all those FICA deductions from your pay check every month. (Here’s another quick quiz: What does FICA stand for? The answer is Federal Insurance Contributions Act!  But your “contributions” are anything but voluntary!)

If you believe in the Social Security trust fund, you must also believe in the tooth fairy! 

Since the late 1980s, the government budget has been combining the “actuarial surplus” in the so-called Social Security trust fund—with the continuing requirements of government spending. 

Thus, this year’s $1.3-trillion budget deficit—or whatever it turns out to be—is consuming almost every bit of that “surplus” that was supposed to be paying baby boomers’ retirement benefits!

It’s estimated that next year’s “operating surplus” will be only about $3 billion. (In an era of trillions, that’s downright skinny.) And it makes anything left in your 40l(k) or IRA look far more appetizing. At least any future gains in your own retirement account will belong to you. Or will they?

What do you think will happen when we’re finally forced to face reality about Social Security? Do you think you’ll get your benefits? Please join the conversation.

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