Social Security Gift Cards

I do not know of many federally elected officials who do not realize that Social Security and Medicare funding are of concern. However, there is a remarkable difference in how this concern is ranked. For some, it is a question of just turning the steering wheel slightly and everything will be lined up, for others it is more a question of stopping the vehicle and pulling over to the side of the road. The difference? Our respective understandings of the magnitude of the problem.

Here is one of the better explanations I have seen of how we should consider the future liability of Social Security. It comes from the comments section of this article at National Review (which is well worth reading in itself):

Means-testing, raising the retirement age, and cutting back benefits are tools that delay the inevitable. The reason we have an unfunded liability of that size is that Social Security (as is Medicare) supposed to be there for ALL Americans. However, when Americans consume it and get off of it are at different variables.

I’ll give you an extreme case: my late grandmother recently died and has been on Social Security and Medicare up until her death. Her age? 101. Now, I don’t expect many people will live to be 101, but the average age of women is 78 and men is 75. If the retirement age is set to 65, then that means women will get 13 years of Social Security and Medicare benefits and men 10 years of benefits. We all will age, but we will all die at different intervals.

If there is a proper business analogy, I would liken Social Security and Medicare to a gift card. Businesses that offer gift cards must count each as a liability on its balance sheet because the business cannot count the money made on the gift card as revenue until it is redeemed for a purchase and it can take many years for a person to spend a gift card. Until it is spent, the business must keep the the monies spent on the gift card separated from other revenues. In some states there are an expiration date on the gift cards which after that date passes, the company keeps the money.

Social Security and Medicare acts in very much the same way. As long as a person is living, the government should consider each and every American as a “liability” that it has to fund when they reach retirement age. If the person dies before reach the retirement age, then the government can in effect “keep” the money and use it for some other purpose. If that sounds like a winning policy for you, then continue to support these programs, but don’t be under the notion that somehow tinkering with these programs with increased retirement ages, means-testing and reduced benefits will prevent their eventual collapse.