Fixing Social Security
By
Timothy Lutts, Chief Investment Strategist and Editor of
Cabot Stock of the Month ReportFrom Cabot Wealth Advisory 4/7/08
Sign up for free Cabot Wealth Advisory e-newsletterSome people talk back to the TV newsreaders when they disagree with what they hear. Some, I've heard, even throw things.
Me, I don't watch TV news, but I read a lot of newspapers, and sometimes I talk back to the writers...in my head.
Last week, for example, the Wall Street Journal's lead headline read, "Americans Delay Retirement As Housing, Stocks, Swoon." My first thought was, "That's not the type of headline the Journal would have run before Rupert Murdoch bought it. The style is a little "hotter" than before, a tad more sensational. And I don't mind that. But implicit in the headline, and in the article that followed, is the notion that there's something wrong with delaying retirement...and I've got a problem with that.
In short, I think most people retire too young, and I think extending the age at which Social Security kicks in could help solve a whole raft of problems.
We've known for decades that baby-boomers would overwhelm the Social Security and Medicare systems as they aged. That truth, in fact, was reinforced two weeks ago when the trustees for both programs gave their annual public warnings.
The Medicare program is already in the red, spending more on benefits than it takes in, and by 2017, Social Security will be in the same boat.
The solution, of course, is to either find new sources of income (raise taxes) or to find ways of lowering the payouts. But decades of politicians have found it convenient to avoid making the tough choices required to fix these problems, so here we are.
Raising taxes would help increase the program's solvency, but might slow the economy's recovery. Raising the retirement age, however, would not only help the Social Security program, it would also help the economy, by keeping productive people at work longer...and demographically, such a move makes a lot of sense.
The Social Security Act, remember, was signed into law by President Franklin D. Roosevelt in 1935, as one of many measures designed to help people through the Great Depression.
At inception, the retirement age was 65, and the system was funded by a 1% tax on both employers and employees. Today the tax is 7.65% (!!), and the age at which you can get full benefits has been increased two years, to 67. But in the 73 years since the program's inception, life expectancy for a newborn has increased an astounding 18 years, from 60 to 78!
Back then, the average 60-year-old could expect to live to 72. Today, the average American turning 60 can be expected to live to 83!
Another big change is the growth in private retirement accounts, which can be tapped at a younger age if the holder desires, thus delaying the "need" for Social Security. Furthermore, there are a number of alternatives to full employment.
Many older workers are happy working part-time. Others do contract or consulting work, which gives them more control of their own time. Still others practice job-sharing, or work in seasonal occupations, alternating months of labor with months of leisure.
Additionally, research has proven that people who are active contributing members of society live longer and feel better than those who retire from the rat race. Yes, finding your niche as you age means adjusting, but I have no doubt that the productively engaged semi-retired live more fulfilling lives than those who try to fill every day with such self-centered pursuits as golf or fishing.
Finally, there's the matter of your private retirement investments. The reason you're reading this is that you don't want to be dependent on Social Security down the road; you hope to be responsible for your own future. There's no question it's a far brighter prospect.
And that's something we at Cabot are more than happy to help you with. Successful investing is not an easy business, but if you are open-minded, if you can accept that frequent small failures are the price you must pay for finding big winners, and if you enjoy learning about the world and thinking about the future, there is no better avocation.
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