The Great Depression was a terrible time for everyday Americans, but particularly devastating for the elderly. In response to this, and at the urging of President Roosevelt, in 1935 Congress passed the Social Security Act.

This completed the transition from Americans taking care of their own retirement in the first century of our nation’s history to complete dependence on third-party institutions (corporate pensions and now the federal government).

While the original intent was laudable, Social Security has morphed into an insatiable monster that’s systematically eroding our financial fitness (see “Social Security – A Promise Breaking?” FiduciaryNews.com, September 12, 2017).

When it started, Social Security was meant to provide retirees with a few years of supplemental income -- not to cover all their retirement expenses, but just a minor fraction. Many people like to cite how the worker-to-retiree ratio has shrunk considerably since the beginning of the Social Security program.

That’s not the important stat, though, this is: In 1935, Social Security benefits started at age 65, when the average American had been dead for 3 years (for women) or 7 years (for men). Today, benefits start at 62, giving the average American between 14 years (for men) and 19 years (for women) of Social Security benefits.

If we started Social Security today with the same assumptions used in 1935, the age benefits would start at 84 years.

To give you a sense of scale as to what this age difference means, according to the U.S. Census, there were 43 million people over the age of 65 in 2012. Of that, fewer than 6 million people were over the age of 85. Stated another way, today one Social Security retiree is supported by only 3 workers.

If the eligibility age were 84, each Social Security retiree would be supported by 21 workers.

Don’t get too impressed, though. In 1945, there were twice as many workers (42) for every Social Security recipient. So, yes, inflating the benefits age would help restore financial stability to the Social Security program, although it still wouldn’t be as solid as it was in 1945.

True, the program would be downright robust from a monetary standpoint. In 1945, the maximum taxable earnings was $3,000 with a tax rate of 2%. Today, the maximum taxable earnings is $127,200 with a tax rate of 15%. That’s a huge difference, and one of the primary reasons why the eligibility age hasn’t increased.

Unfortunately, the trajectory of this trend has been apparent for quite some time. The U.S. Chamber of Commerce conducted a study in 1950, extrapolating the then-current trends, and predicted the payroll tax would be 18% by 2020. They may not be far off.

Of greater interest was a column in 1946 from Congressman-turned-journalist that exposed the Achilles’ heel of Social Security. He outlined how the program could easily devolve into an unintended Ponzi scheme. Many today describe the Federal government’s retirement benefit as precisely that. While it’s pretty clear Social Security was not intended to be a Ponzi scheme, as the worker-to-retiree ratio continues to shrink, it doesn’t take a math degree (or a criminology degree) to see Social Security producing the same results as one.

Everyone agrees Social Security is in trouble. To date, however, the only politically correct “solutions” amount to nothing more than kicking the can down the road. Right now, it’s a slow-motion video of a car careening into an inevitable crash. With each lame effort, that video is speeding up.

The very real question everyone must ask themselves is this: Where will you be when that crash occurs?

Instant Insights /

Time to face the brutal truth about Social Security: Carosa

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