Social Security Tax

Finance Allah Shmoop What is Social Security Our people will

FDR Franklin Delano Roosevelt established Social Security in nineteen thirty

five as a reaction to seeing one too many old

people destitute dying and begging for Bitcoin on the streets

After you know the great stock market crash in depression

that followed were basically Social Security is welfare insurance So

that even the most modestly talented or worst savers for

retirement or worst financial victims of some scheme brought on

by you know them City slickers would have at least

enough money to eat and have a place to live

Other than you know under the freeway that's what Social

Security means meaning their social life is secured It was

supposed to be or at least well it started out

as a safety net this whole social security thing But

then it became the retirement vehicle that people ended up

relying on you know like a groupon for a free

hotel night where if you paid for five you've got

that sixth one free Almost makes staying an extra day

at Disneyland with kids Sound like a good idea Well

the act that established Social Security was also called always

D or o A S T I which stands for

old age survivors and disability insurance and notionally It was

funded by payroll taxes That is an additional tax It

was levied on everyone who saved up Hey check to

pay for their retirement right The government would take a

little slice out of your paycheck put it away and

then kind of give it back to you after investing

in decades later right And that would also pay for

the retirement of others not just you even deadbeats who

chose to not work and just live in Mom's basement

their whole life Yep In theory they would get Social

Security to Pika is the most commonly known thief of

cash from your paycheck and it stands for federal insurance

contributions Tax should be fi cat Well Social Security generally

worked for a long time anyway as this nation saw

the poverty rate go from somewhere in the forty ish

percent at its worst down to somewhere below ten ish

percent today depending on how you define poverty Well under

any definition however we don't have millions of people standing

on street corners of this country begging for food Many

of them aren't covered by Social Security but under the

same brother's keeper vibe We have soup kitchens now in

other places that those who failed to find financial security

along the way in society well you know can go

to eat It is nothing like the nineteen thirties in

America no matter what horror stories you hear So the

notion of being able to hang on to your social

status or even your material levels of wealth in your

old age was kind of a new thing back then

and in this FDR driven era knew was good Remember

New Deal new era New York New ton The fig

Yes they came out around this time as well Well

the structure of Social Security is pretty simple in concept

The individual pays in some amount each month called a

few hundred bucks in today's dollars and the government invest

that money for decades Eventually that money comps pounds away

to become a big number and the individual gets monthly

payments back to themselves after they reach a certain age

Well the payments then continue until the socially securitized is

here So the concept was simple and the key problem

it tried to solve was the undecided and wanton disregard

that so many Americans of the era had for their

future Many had come from a World War one mindset

where there may or may not have been a future

or they were feeling the effects of America emerging as

a super power and wealth And you know other good

things that came from those confluences of good fortune Well

basically Social Security was kind of positively forced savings It

was done so that even the worst offenders of non

saving Americans would have at least enough waiting for them

in their retirement So they could you know eat and

not live like this Well the key drivers financially however

didn't fulfill the original vision of the acts Promulgate er's

That is the government assumed a pretty high rate of

investment return And instead what happened is that a lot

of government entities hired government workers to invest that money

And well bottom line is they did a lot worse

than the very highly paid people on Wall Street Like

if you were a highly talented money manager who could

make today's dollars tens of millions of dollars a year

why would you become a government portfolio Manager and make

one hundred fifty grand Right talent wins That was one

reason that we have problems with soul security The investment

returns have been poor Thie Other reason Well the government

also assumed that people would continue to smoke which meant

that most would die at a young age like late

sixties early seventies and well in fact America kicked the

but for the most part and from an average life

span in nineteen fifty of about sixty seven or so

for an American male Well Americans today live in average

of eighty ish years depending on a whole bunch of

things but a whole lot longer than they did in

nineteen fifty when smoking was you know good for you

So if Social Security payments were supposed to compound at

ten percent as investments and they only compounded at well

six or seven percent well that was a big problem

After three or four decades of paying money into the

system instead of having say five hundred grand to retire

on well retirees only had three hundred grand And instead

of living just three years after the Social Security distributions

kicked in I'ii from eight sixty five on you know

when they would then start dying on Mass at sixty

eight issues so well Those three years of payout ended

up being some twenty or thirty years of payout today

and growing two thousand eighteen mark the first year that

the combination of cash collected from young people paying into

the system plus the growth of the invested money in

the system was less than money taken out of the

system by old people Translation We're starting tohave to fund

Social Security with current tax dollars from other sources or

set another way We're taking bridge and toll money for

people paying five bucks to drive over the bridge that

was supposed to go to repair the roads That money

is now coming out of that fund and going tio

this guy Or set another way If something doesn't change

soon like well you know people die sooner or young

people who are still working pay in a lot more

dough to the social security system The U S will

go bankrupt paying out these entitlements to retirees at some

point in the next decade or two Or three or

four Something like that Well the good news a bunch

of states like Illinois in California and a few others

Well they'll go bankrupt first and they'll test the court

system to see how these kind of bailouts work So

by the time the chickens come home to roost for

Social Security while the financial future of this country will 00:06:37.142 --> [endTime] be clear yeah clear as mud