French workers are engaged in a massive
strike today. The walkout and protests are directed at President Macron. He is
pushing a plan to address years of accumulating pension deficits. No one likes
to have their promised benefits cut— but deficit spending and underfunded
pensions cannot last forever.
The current report for Social Security is
grim. To begin, if you work in the private sector, your pay into this system. Social
Security tax is the tax levied on both employers and employees to fund the
Social Security program.
In 2019, the Social Security tax rate is
12.4%, divided evenly between employers and employees, on a maximum wage base
of $132,900.
With that in mind: Social Security can pay
full benefits for 16 more years, the trustees’ annual report shows, but then
faces a significant, though manageable, funding shortfall.
Accordin to Kathleen Romig, “What the 2019
Trustees’ Report Shows About Social Security,” https://www.investopedia.com/terms/s/social-security-tax.asp:
"While most of Social Security’s benefits
are funded by the payroll taxes collected from today’s workers, the program has
also accumulated nearly $2.9 trillion in trust fund reserves over the past
three decades. During that period, Social Security’s income exceeded its costs,
and the program invested the surplus in interest-bearing Treasury securities.
Over the next 16 years, those reserves will make up the difference between
Social Security’s income and costs."
What does this mean? We are kicking the can
down the road, just like France—at some point, taxes must be raised, or
benefits cut—or if neither (my bet), the Social Security Administration will be
force by 2034 to pay out reduced benefits.
Will Americans
strike like the French are doing today? That’s highly
unlikely. The only mass strikes that make me think it’s not impossible are the recent
teacher strikes in red states (West Virginia, Oklahoma, Arizona, Kentucky, and Indiana).
But those walkouts were organized by teacher unions—and only about 6% of
private sector workers (i.e., those who pay into Social Security) have unions.
My humble advice: Take more money
out of your paycheck today in anticipation of this looming pension disaster.
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