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Finance Allah Shmoop What is Social Security Our people will

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FDR Franklin Delano Roosevelt established Social Security in nineteen thirty

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five as a reaction to seeing one too many old

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people destitute dying and begging for Bitcoin on the streets

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After you know the great stock market crash in depression

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that followed were basically Social Security is welfare insurance So

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that even the most modestly talented or worst savers for

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retirement or worst financial victims of some scheme brought on

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by you know them City slickers would have at least

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enough money to eat and have a place to live

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

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Security means meaning their social life is secured It was

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supposed to be or at least well it started out

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as a safety net this whole social security thing But

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then it became the retirement vehicle that people ended up

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relying on you know like a groupon for a free

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

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that sixth one free Almost makes staying an extra day

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at Disneyland with kids Sound like a good idea Well

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the act that established Social Security was also called always

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D or o A S T I which stands for

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old age survivors and disability insurance and notionally It was

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funded by payroll taxes That is an additional tax It

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was levied on everyone who saved up Hey check to

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pay for their retirement right The government would take a

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little slice out of your paycheck put it away and

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then kind of give it back to you after investing

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in decades later right And that would also pay for

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the retirement of others not just you even deadbeats who

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

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their whole life Yep In theory they would get Social

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Security to Pika is the most commonly known thief of

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cash from your paycheck and it stands for federal insurance

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contributions Tax should be fi cat Well Social Security generally

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worked for a long time anyway as this nation saw

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the poverty rate go from somewhere in the forty ish

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percent at its worst down to somewhere below ten ish

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percent today depending on how you define poverty Well under

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

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on street corners of this country begging for food Many

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

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

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other places that those who failed to find financial security

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along the way in society well you know can go

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to eat It is nothing like the nineteen thirties in

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America no matter what horror stories you hear So the

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notion of being able to hang on to your social

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status or even your material levels of wealth in your

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old age was kind of a new thing back then

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and in this FDR driven era knew was good Remember

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New Deal new era New York New ton The fig

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Yes they came out around this time as well Well

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the structure of Social Security is pretty simple in concept

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The individual pays in some amount each month called a

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

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that money for decades Eventually that money comps pounds away

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to become a big number and the individual gets monthly

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payments back to themselves after they reach a certain age

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Well the payments then continue until the socially securitized is

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here So the concept was simple and the key problem

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it tried to solve was the undecided and wanton disregard

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that so many Americans of the era had for their

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future Many had come from a World War one mindset

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where there may or may not have been a future

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or they were feeling the effects of America emerging as

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a super power and wealth And you know other good

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things that came from those confluences of good fortune Well

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basically Social Security was kind of positively forced savings It

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was done so that even the worst offenders of non

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saving Americans would have at least enough waiting for them

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in their retirement So they could you know eat and

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not live like this Well the key drivers financially however

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

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That is the government assumed a pretty high rate of

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investment return And instead what happened is that a lot

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of government entities hired government workers to invest that money

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And well bottom line is they did a lot worse

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than the very highly paid people on Wall Street Like

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if you were a highly talented money manager who could

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

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why would you become a government portfolio Manager and make

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one hundred fifty grand Right talent wins That was one

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reason that we have problems with soul security The investment

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returns have been poor Thie Other reason Well the government

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also assumed that people would continue to smoke which meant

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that most would die at a young age like late

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sixties early seventies and well in fact America kicked the

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but for the most part and from an average life

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span in nineteen fifty of about sixty seven or so

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for an American male Well Americans today live in average

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of eighty ish years depending on a whole bunch of

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things but a whole lot longer than they did in

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nineteen fifty when smoking was you know good for you

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So if Social Security payments were supposed to compound at

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ten percent as investments and they only compounded at well

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six or seven percent well that was a big problem

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After three or four decades of paying money into the

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system instead of having say five hundred grand to retire

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on well retirees only had three hundred grand And instead

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of living just three years after the Social Security distributions

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

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when they would then start dying on Mass at sixty

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eight issues so well Those three years of payout ended

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up being some twenty or thirty years of payout today

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and growing two thousand eighteen mark the first year that

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the combination of cash collected from young people paying into

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the system plus the growth of the invested money in

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the system was less than money taken out of the

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

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Social Security with current tax dollars from other sources or

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

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people paying five bucks to drive over the bridge that

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was supposed to go to repair the roads That money

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is now coming out of that fund and going tio

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

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soon like well you know people die sooner or young

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people who are still working pay in a lot more

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dough to the social security system The U S will

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go bankrupt paying out these entitlements to retirees at some

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point in the next decade or two Or three or

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four Something like that Well the good news a bunch

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of states like Illinois in California and a few others

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

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system to see how these kind of bailouts work So

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by the time the chickens come home to roost for

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

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