My Uncle Mike wants to retire next year.   He's been toiling in one Flint GM factory or another for 35-plus years, and he's about done with it.   Work— tinkering with cars, boats, and home remodeling tasks— can still give him a charge, but crawling out of bed every weekday morning at 5 to slap together torque converters wears on him.   He'd rather get more hunting and fishing time in, not to mention more time with his grandkids.

"My old lady says I gotta work another year," Mike says with a shrug.   "Or else I can't get a new boat." My Aunt Kathy isn't quite the taskmaster Mike makes her out to be, but she has a fine head for numbers, and she knows what kind of retirement her and Mike want for themselves.   Otherwise, they'd already both be sunning themselves for half the year out in the middle of Lake Michigan.

Mike is about a year shy of the double-nickel, pretty young for retirement.   He’s in excellent shape— doesn't drink, doesn't smoke cigarettes, and he's able to carry his 150lb outboard trolling motor down a flight of stairs into his basement every winter’s eve for storage.   He's paid into the Social Security pensions system since he was a teenager, when payroll taxes were 6%.   Most of that money went straight to retirees drawing direct benefits at the time.   Today, payroll taxes are 12.4%, a partial reflection of a trust fund set up in 1983, so Mike's kids and grandkids, and nephews, wouldn't have to worry about their Social Security later on.   Just like Mike isn't one to worry.

“You get old in your head,” Mike says. “Age is different. That comes whether you think about it or not.”

Mike's got a lot left in his tank, and his retirement should be a good one. He'll draw from his GM pension upon retirement, then from an IRA when he's 59.5 to compliment his GM pension.   Finally, at either 62 or 65, Mike will add Social Security as his third stream of income. As it happens, some company pension systems (like GM's and Ford's), and the Medicare system, are deeper into crisis than Social Security, though our government won't speak on this. So, maybe tackling Social Security's existential issues first is a way of trying to fix the obviously fixable before grappling with some real monsters. It's going to be challenging enough to keep a constant stipend stream flowing to a growing gaggle of seniors; God knows how much it's going to cost to keep them all medicated properly. Thus no one knows how to fix Medicare right now without doubling taxes— and killing our economy. Like our leaders, I'll leave that hornet's nest for future treatment.

Folks like Uncle Mike symbolize why Social Security is facing a long-term solvency crisis. Baby Boomers, some seventy million of them, are healthier than their parents, and certainly healthier than their grandparents (being weaned off Spam, succotash, and filter-less Lucky Strikes surely helped). They could spend up to a third of their time on Earth collecting social security benefits. In Uncle Mike's case, his retirement could last as long as his 35 years in the shop.

Unfortunately Boomers have not produced enough GenX'ers and PlayStation Babies. Boomers certainly lived up to their part of Social Security's social contract by paying for the retirement of their forefathers. Yet while working hard to build a hyper-tech society, Boomers tended to keep their families small. Aside from the grief this demographic wedge causes a pay-as-you-go pension system, the reproduction drop makes a lot of sense. We don't need hordes of large families to mind the farm. Children today are expected to move from birth through high school graduation without getting whacked by the measles or polio. Furthermore, the costs associated with raising children to where they'll compete successfully in modern society have skyrocketed. An 8th grade education and a strong back won't cut it anymore. Reactionary conservatives look at the demographic crunch and point to issues of selfishness-- the popularity of the Pill, and the fact that maybe disco dancing till 4 in the morning was more fun than wiping up baby vomit. In fact there are too many factors to list for the population decline of Western Society. Trying to weigh each one properly is futile. What we know for sure is that, in 1960, there were 5 workers for every retiree. Today it's ~3.4 to 1. In 2030, given generous immigration quotas, the ratio will be ~2.2 workers per one retiree. By assuming those generous immigrant inflows, it's important to remember that new Americans typically make less than the 7 th generation WASP, and thus contribute less in payroll taxes…so we can't go there for the panacea. I should add that manufacturing a homegrown population explosion to increase the worker-to-retiree ratio is off the table. Mom earth doesn't need to be made angrier, and anyone who suggests otherwise needs to be dragged off in manacles to the nearest inpatient rehab facility.

So, more old people, drawing benefits and living longer, against fewer working people, equals financial rupture for a pay-as-you-go trust system. No serious person can dispute this, not to dismiss the metric tons of unserious people milling about, but monolithic cultures are boring, and all I seek is a solid consensus.

Yet another major factor in this crisis is the nature of the pay-as-you-go concept itself. Such a system does not create savings, which means when inflation and or interest rates are above zero, money is essentially lost. With our demographic upheaval of worker to retiree ratios, pay-as-you go becomes a Ponzi Scheme. Someone is left holding the bag when the cash runs out; as things stand, that means everyone under 50.

As mentioned earlier, a Social Security trust was established in 1983 to fight the demographic crunch. Predictably, it has given the government a huge wad of cash to spend however they see fit, so long as enough IOU's are written to the trust fund. There is no actual trust fund with actual money in it. There is a virtual trust fund, one supported by IUO's, backed in government bonds— payable on demand to any skittish Asian capitalist who fears the dollar has become too weak for his liking.   To paraphrase Bubba Bill, there is no there there.   From the Office of Management and Budget (1999):

The [Trust Fund] balances are available to finance future benefit payments and other trust fund expenditures--but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

When Social Security starts paying out more than it takes in, whether it be 2012, 2015, or a few years later, the system will be running a deficit in real terms because the trust is virtual.   If you put $10,000 in the bank, take it all out for some home repair and maybe a few weekends in Vegas, that money is gone, IOU or no.   If you write an IOU to yourself to replace that ten-grand, and you stick to your word, you still have to come up with the money somewhere…that original 10k, again, is already gone.   The Social Security Ponzi Scheme thus was a not-so-elaborate method of shoveling trillions of dollars into the mouths of politicians and out onto their pet projects…original intention aside.

Where did those payroll taxes go?   Who knows?   Could be to Star Wars funding, Farm Subsidies, Tax Cuts, Tomahawk Missiles, appropriations within the infamous Black Budget…the possibilities are as vast and spooky as Karl Rove's imagination. We are left with the government's promise that the trust exists. Granted, if the government defaulted on a promise like this, there would be revolution in the streets and in the retirement towers. The people wouldn't stand for it.   At best, if tens of millions of seniors and near-retirees feel shafted, and these folks tend to vote, our next batch of leaders will make Ted Kennedy look like an arch conservative, which would mean financial ruin in a permanent way.   Uncle Sam will, one way or another, make good on those trust fund promises until 2042, but he'll either have to raise trillions in taxes or trillions in more debt to make it so.  

At this point, we should all agree that there is a problem.   Yes?

There is no one solution for saving and strengthening Social Security.   Wise tinkering and incremental changes should be cobbled together for the effect we want, which again, is a stronger and safer public pensions system. Fixing Social Security requires a holistic approach, and both sides of the partisan isle will need to honestly address some tough questions, check their sacks, and then swallow some potentially bitter medicine.

I think the biggest no-brainer, and important first step in reforming Social Security is raising the age for benefit eligibility, which won't bother Uncle Mike, but it'll affect me.   Fed Chief Alan Greenspan has been the only top Government dog to talk openly about the necessity for Americans to work longer, probably because he doesn't have to worry about votes. Greenspan, by the way, is 78, and looking quite spry. When Social Security was brought to life on August 14, 1935, it was designed to pay retired workers age 65 or older a continuing income after retirement. Most folks back then didn't even see their 65 th birthday. Today I know a dude at the Y who's 68 and can bench 225 eight times. It's a different world. Many Boomers can expect to be very active into their eighties, and my generation should be able to play a respectable round of golf till we're on the cusp of a hundy.

Politicians won't come out and say we need to boost the retirement age because they don't want to be voted out of office. If Dale Kildee, our quasi-Socialist Congressman from Flint, started jabbering about raising the retirement age to 72, effective tomorrow, he wouldn't be able to go within three miles of a bingo hall for fear of being stomped to death under the weight of slow-moving orthopedic shoes. That's the reality of things and no use fighting it, which is why the viable way is to raise the retirement age for people due to start retiring in ~20 years. This is on the table in Washington. Most of my friends are between 25 and 45, and are generally amicable to this. Work is not typically seen as an unceasing and horrible drudgery… something to be endured till the gold watch and Florida trailer home comes to fruition. Of course, when it comes to setting retirement ages, the nature of an occupation matters. It's not too tough a slog for a science teacher to work past 70, but it would put great strain on a bricklayer. Workers who break their bodies building or maintaining things should have some recourse. We can afford that. In our society the percentage of manual laborers declines all the time, but we'll always need them to some degree. Provisions for manual laborers ought to be factored in. Raise the roof, raise the retirement age to 70 or 72, effective ~2020. Officials need to get the message out, with variations on how to implement it, and find the best compromise. I have faith in the General Public to react well to reasonable demands, as long as said demands are presented reasonably.

Aside from raising the retirement age, we need to strike the right balance between raising payroll taxes (Oh, it hurts my fingers to type that) and repealing most of Bush's tax cuts to cover current and near-future expenditures while we gradually shift funds into private accounts. Fair disclosure here:   I hate the idea of raising payroll taxes, since it disproportionately hurts the working class, yet Social Security is primarily a working class safety net. Generally, I believe that the Federal Government is best when it provides solid and fair regulation of industry and commerce, national security, seed funds for vital new industries, and judicial wisdom of last resort.   That's it.   That's my ideal…but we are a light year from that. Prejudices aside, retirees and workers 55 and up were promised social security checks suffice to sustain them from a system they've already paid into all their adult lives. It would be morally repugnant to renege. The payroll tax hike should be small, like point-five percent. The rest of the shortfall ought to be made up by repealing most of Bush's tax cuts. While indeed Social Security is primarily a safety net for the working class…the wealthy make their bones through wise applications of the workers' labor. Therefore, high earners need to kick some back too. This again will prove to be as politically sticky for both parties.

Though the retirement age should edge upward constantly as science advances, the payroll tax hike shouldn't be needed for more than ~20 years, at most. This provides cover during the transition between the government-hobbled trust system and well-regulated and insured private accounts.   Again, it's my generation (the X'ers) getting screwed during this transitory period, but better us than our children. With that in mind, the future holds so much promise for the < 40 crowd. Elasticity of the aging process, as it applies to modern humans, is going through serious transformation. Advances in genetic medicine and a better holistic understanding of ourselves (self-awareness) are combining to enrich and lengthen our lives. Through advances in molecular and genetic science, we now know how the body ages, and we know how cancers develop. We know what environmental hazards and genetic mutations sicken us and how they sicken us. Most cancers, and Alzheimer's, will be defeated within 20 years. Gen X'ers and the generations that follow will reap the benefits. That alone, I think, justifies raising the retirement age and kicking in a tad more in taxes until every American has established a Social Security personal retirement account. And yes, I support the eventual creation of private accounts, with some conditions.  

I differ with the modern conservative when it comes to the application of government regulation over corporate behavior. In a fair capitalist system, good regulation is the voice of the people controlling the more predatory instincts of private enterprise and the fallouts from market competition. In the U.S. today, corporations collectively have as much, if not more power, than the government. That's fine. When all the power is vested in government, we have Communism or Fascism (depending on how the despot in question views wealth acquisition), which never works.   Conversely, when too much power is vested in boardrooms and country club settings, we risk a return to feudal times.   As always, we need balance.

I think the system ought look about like this:

Say I invest half my payroll taxes in a Schwab retirement program that has some risk, but comes with very moderately priced insurance to ameliorate that risk. The fund is expected to produce annual returns of ~8%, and is guaranteed by the aforementioned insurance to produce ~6%. From a growth perspective, this is not unreasonable. Despite a languishing European economy and threats of a deepening warfare culture, key economies throughout the world are poised for substantial growth in the foreseeable future— China, India, and Brazil chief among them, simply based on the will of their peoples to live like Americans…it's quite a motivator, for good or ill. Better still, Japan has finally unscrewed its banking industry and fought back the demons of deflation— though they are still touch and go with GDP growth...baby steps. Couple this with the fact that, whatever your dark assumptions about U.S. monetary policies, our terrible savings habits, and our innovative staying power, we are on the cusp of our third great infrastructure revolution— the prior two revolved around railroads and interstates.

The telegraph and steam engines preceded and supported the railway boom, and created thousands of towns along their routes. This in turn created a need for lumber, dry goods, doctors, lawyers, and lawmen. Telephones and automobiles preceded the interstate system, which created thousands more suburban and exurban towns, with millions of affordable houses, soon with televisions, and of course the drudgery of commuting (which eventually spawned new Volvo's with hi-def entertainment systems). Now, high speed data communications, just-in-time-shipping, the rise of good regional airports, and other virtual communications still in the laboratories, all mean that our talents will begin to disperse more evenly across the country. Small but culturally rich towns like Charlottesville, VA, or Bowling Green, OH, will sprout up everywhere. They will ofr course concentrate along the coasts, but proliferate nonetheless. Telecommuting, with occasional fly-ins to the corporate headquarters, will eventually be the norm.   Fuel-cell technology, and the supporting infrastructure, will be everywhere in 20 years, though I wish it would be five. Finally, the medical sciences will grow with gusto until humans morph into something different. The economic impact in both manufacturing and service sectors will be mind-boggling.

Of course there are risks. For one thing, we need a better-educated populace to meet the future properly. We are also not immune from another Great Depression, nor are the other advanced economies, not to mention the emerging ones. However, economics as a discipline has moved well from art to science since the market crash of 1929. It's wise to remember that economics is a favored study among the best in brightest in the modern university. Think of investing along the same lines. Capital, generally, is allocated and spent better now than in times past. I realize that gluttonous subdividers and corrupt souls still suck in resources at alarming rates. Ongoing business scandals prove that. However, we see these things like never before thanks to a multi-pronged media tool that can drill deeper into the underbelly of business and political culture than anything before it. Financial corruption as an illness of the human species is on the wane when compared to the towering abuses proffered by the Carnegie's and J.P. Morgan's of the Gilded Age. One of the methods those barons used to exert control was monopolies, and that's not going to be an issue when it comes to investing Social Security payroll taxes. Hundreds of organizations will compete to deliver the best return for your investment dollar, again, under the eyes of strict regulation and backup insurance. One great thing about the information age is that a good plan takes you further than ever. We, as a society need to make sure we're smart and informed enough to seize the opportunity.

Ideology is behind much of the current push for reform, ergo, Bush's face is on it. Modern conservatives believe that resources are better used through the hands of free markets and private citizens than through government institutions. That's a fair assessment. I've spent several years as an electronic intelligence spy in the military and I've spent several years in a corporate environment under a number of titles. Without question, and expense accounts aside, private enterprise works better. Well-regulated private enterprise works best. Humans get real greedy when their desires are left unchecked and unregulated. Bush doesn't quite think this way, he's anti-regulation, but his world view is rather narrow— from the Drudge Report:

Last Friday when promoting social security reform with 'regular' citizens in Omaha, Nebraska, President Bush walked into an awkward unscripted moment in which he stated that carrying three jobs at a time is 'uniquely American.'

While talking with audience participants, the president met Mary Mornin, a woman in her late fifties who told the president she was a divorced mother of three, including a 'mentally challenged' son.

The President comforted Mornin on the security of social security stating that 'the promises made will be kept by the government.'

But without prompting Mornin began to elaborate on her life circumstances.

Begin transcript:

MS. MORNIN: That's good, because I work three jobs and I feel like I contribute.

THE PRESIDENT: You work three jobs?

MS. MORNIN: Three jobs, yes.

THE PRESIDENT: Uniquely American, isn't it? I mean, that is fantastic that you're doing that. (Applause.) Get any sleep? (Laughter.)

Bush means well, he really does. Charlie Brown meant well, too, yet I wouldn't pick him to play center field for the Tigers or kick for the Lions.   My point is that whatever you think of Bush, reforming Social Security is more important than Bush's ego or the ego's of his detractors. We have an obligation to make this work, even if some folks don't seem to sweat it.

"Yeah, I know all them sayings,” Uncle Mike says. “The glass is either half full or it’s not. Social Security's either here or it ain't. They'll figure it out. You know, having too much on your mind is what makes you old.”

"Yeah," Aunt Kathy says, "He won't be talking like that if he can't afford gas for the boat."