The Road Taken · In my own words
Legacy System Flaws
“Innovation is not about new ideas, it’s about getting rid of old ideas.”
Old ideas made Social Security’s Old-Age and Survivors Insurance Trust Fund (OASI) dysfunctional. Social Security won’t tell you how or why. We will.
The Road TAKEN · OASI
WHERE THE FLAWS CAME FROM
YOU pay a high price for old, flawed ideas thrown together in 1935.
To fix OASI, Supercharged Social Security is “about getting rid of old ideas” from 1881. Germany created the world’s first old-age social insurance program by using 1881 ideas from Chancellor Otto von Bismarck. More than a half century later, Congress used them as a model to create Social Security. That costly mistake helped make OASI dysfunctional.
Inevitable flaws that created dysfunction need to be replaced.
- Flaw 1Pay-as-you-go funding (PAYG)(taxes from today’s workers pay today’s retirees’ benefits)Social Security sets ZERO dollars aside for you until just days before your monthly benefit is paid. This scheme provides no time or way to make money grow for you or anybody.
- Flaw 2Government-bonds-only investment(It’s not growth investment – by law the fund may hold only no-growth Treasury IOUs)Receipts not paid out for benefits & expenses go into so-called government bonds. They provide no asset growth and lose purchasing power during inflationary periods. That helps our Treasury, but not YOU.
- Flaw 3Benefits never vested for all seniors(work fewer than ten years and you can collect nothing at all)Failure to vest benefits for ALL newborn Americans, and those who work less than 10 years, leaves too many seniors with NO benefits.
- Flaw 4Lack of transparency hides the flaws from you(with better transparency, the system could have been fixed long ago)If more people knew that we pay TRILLIONS more than the benefits our parents get to spend, we’d either demand change from our lawmakers, or we’d deserve crap benefits instead of good ones when we retire.
As a result of these flaws, our national retirement system:
- is exorbitantly expensive, making it harder for workers to save for retirement. Supercharged Social Security would replace PAYG with early-as-possible funding. For newborns, at or before birth.
- fails to grow any money paid in, guaranteeing OASI will cost more than the benefits it pays out. Supercharged Social Security would have replaced govt. bonds with a stock-market index that could have grown $1 in 1935 to more than $13 thousand by 2025!
- failed to reduce elder poverty to zero, helped keep poverty at 8.7% or more since record keeping began in 1959, and working-age poverty at 8.3% or more.
- has remained dysfunctional decades longer than necessary. This website reveals the best-kept secrets of Washington & Wall Street. They show how some have harmed OASI drastically, while others could make life vastly better for YOU, your family & friends.
Want more details? Continue below:
FLAW ONE · PAY-AS-YOU-GO
Procrastination funding (Pay-As-You-Go, or PAYG)
Problem: YOUR payroll taxes are confiscated so OASI can pay benefits to today’s retirees within days. They’re not set aside and invested to grow for you.
OASI’s PAYG FICA benefit funding scheme (FICA is the Social Security tax taken out of every paycheck) is called an inter-generational transfer system. The working generation pays weak benefits to the retired generation. Nothing is set aside for individual workers. This scheme made it inevitable that, from each FICA dollar paid in, beneficiaries could expect less than $1.00 in benefits. That placed a heavy tax burden on low- and middle-income workers. A reverse inter-generational compact would have been much smarter.
FLAW TWO · GOVERNMENT BONDS ONLY
Government bonds (opens in a new tab) gave OASI weak, expensive benefits.
By law the fund may hold only Treasury IOUs. That law must be rewritten.
Government bonds create big problems for OASI and YOU:
- The law forces OASI to put its unused cash into government IOUs called “bonds.”
- They provide ZERO asset growth to pay future benefits.
- That makes the cost of those benefits exorbitantly expensive.
- Those bonds are not marketable.
- Marketable bonds could be sold to pay benefits during government shutdowns.
- They lose purchasing-power value during periods of inflation.
- In the 56 years between 1925 and 1981, SBBI (Ibbotson’s “Stocks, Bonds, Bills, and Inflation” yearbook) showed 20-year government bonds failed to keep pace with inflation. That’s much longer than most careers.
- They’re NOT safe investments.
- The big lie: Former Commissioner of Social Security Shirley S. Chater said, “They are considered the safest of all investments.”
- But inflation makes bonds risky. When redeemed, their purchasing power has shrunk.
- The interest bonds pay to OASI (about 10% of its total) comes from taxes on YOU.
- Federal taxes you pay (any & all kinds, not just on income) provide bond interest.
- That interest is one of your OASI hidden costs.
Think you stop paying into Social Security when your FICA stops? Fuggedaboudit!
Government bond interest comes from all the kinds of federal taxes YOU pay. So you never stop paying until AFTER your estate is settled. Excluding FICA, bond interest from taxes becomes part of OASI’s “Total Income.” In effect, your taxes become part of your benefits. It’s like money from your right pocket going into your own left pocket.
It didn’t have to be that way.
Nothing in the Constitution prevented Social Security from investing for future retirees in a fast-growing stock market index. The Trust Fund might have invested spare cash in “the stock market.” By merely replacing bond purchases with the stock index, the trust fund could have grown to $106 TRILLION (before fees and expenses) by year-end 2025 – more than four times OASI’s cumulative total benefits!
That number bears repeating
With spare cash into the market for 1937-2025, OASI’s Trust Fund balance could have been
$106 Tr.
(instead it held just $2.3 tr. in Treasury IOUs)
FLAW THREE · OASI EXCLUDES SOME SENIORS FROM BENEFITS
With OASI, work ten years, or get nothing.
Pay FICA zero to nine years & 11 months, the system would owe you nothing. That could dump your retirement benefit costs onto the welfare system.
Our legacy retirement system’s poor design totally excludes some seniors from benefit eligibility. You must pay at least a minimum amount of FICA for 10 or more years. Otherwise, you won’t qualify for a penny of regular retirement benefits.
Here’s another best-kept secret of Washington. Continuing to exclude seniors from benefit eligibility just dumps their retirement costs & benefits onto the welfare system. It also makes politicians who rail against welfare (but support the exclusion) look like hypocrites.
For those who do qualify, the legacy system has NO minimum-benefit guarantee. Many seniors get LESS than poverty-level retirement benefits. If you die before you can retire, OASI’s meager death benefits would be a joke compared to the FICA you and your employers are likely to contribute.
The “three-legged retirement stool” is another lie. The stool also has a 4th leg.
You’ve been told our national retirement system has three legs: Social Security, employer pensions, and personal savings. But that ignores the 4th leg: welfare. It’s unacknowledged, perhaps because federal, state, and local taxpayer-funded elder welfare is super expensive. That 4th leg partially bails out the 8.7+% of all seniors a Social Security plan like Supercharged Social Security could have sheltered from poverty completely.
The REAL retirement stool:
- Social Securitycounted
- Pensionscounted
- Savings & investmentcounted
- Welfare: Leg 4cost & benefits not counted
THE NUMBERS, 1937–2025
How bad is the dysfunction?
Really BAD!
Check out the numbers hidden in OASI’s own ledger (opens in a new tab), 1937-2025
| Total income – it’s what came in out of our pockets | $26.5 Trillion |
|---|---|
| Gross benefits | $24.2 Trillion |
| Less: Taxation of benefits | $0.8 Trillion |
| Net benefits: beneficiaries’ spending money from Table 4a1 | $23.8 Trillion |
| Amount by which cost exceeded spendable benefits | $2.7 Trillion |
- Our cost for each $1.00 beneficiaries got to spend
- $1.11
- Benefits from each $1.00 of our cost
- $0.90
SSA hides these totals. Why? They would reveal Social Security’s dysfunction. But you can verify them. Just download OASI’s Table 4a1 data at ssa.gov (opens in a new tab) and add up the columns, as we did.
But WAIT!
Really BAD gets even WORSE! Huge costs are hidden in Table 4a1, estimated from other sources including ssa.gov tables. They make OASI even more dysfunctional.
| Net benefits: beneficiaries’ spending money (from above) | $23.8 Trillion |
|---|---|
| Less estimated hidden costs | $5.0 Trillion |
| Est. TRUE net benefits – what beneficiaries REALLY got to spend | $18.9 Trillion |
| Amount by which cost exceeded spendable benefits | $7.7 Trillion |
| Our total cost for each $1.00 beneficiaries got to spend | $1.41 |
| Total benefits from each $1.00 of our cost | $0.71 |
Cost per spendable dollar = $1.41?Benefits per dollar of cost = $0.71?
That’s no way to run a retirement plan.
Hidden costs really cut into spendable benefits. We estimate that the IRS took income taxes estimated at about $989 Bil. on workers’ “phantom FICA income” (gross pay you never get to spend but still pay income tax on), and $1.8 Tr. in income taxes on retirees’ total gross benefits. There’s no Treasury-bond interest fairy. The interest we paid was $2.2 Tr. That number is not secret, but the fact that its cost comes from YOUR taxes is not well known. So total estimated “hidden costs” was $5.0 Tr. That would increase “True total cost” to about $31.5 Tr.
HIDDEN COSTS JUST ADD TO OASI's FLAWS
For example, Phantom FICA income.
Pay you never see, but you still pay income tax on it.
FICA is our biggest Social Security cost. It’s taken $26.5 TRILLION from us thru 2025! And more than $1 tr. for each year beginning 2023.
Let’s say you’re employed with gross pay of $60,000 a year. “Phantom FICA income” is part of your gross pay that’s a tax taken out of your pay. You can’t spend it, so it’s “phantom” income. If you pay income taxes, the IRS taxes that tax, which makes it double taxation. And taxes you pay to the IRS provide no direct benefit to Social Security beneficiaries.
| Line item | OASI | DI | HI | Total |
|---|---|---|---|---|
| FICA tax rate | 5.30% | 0.90% | 1.45% | 7.65% |
| Phantom income cost | $3,180 | $540 | $870 | $4,590 |
| Federal income tax on it, at a 15% rate | $477 | $81 | $131 | $689 |
OASI is the retirement part of Social Security, DI is Disability, HI is Medicare Hospital Insurance. State income tax varies.
Do these numbers seem unbelievable? Well, don’t take our word for it. President Ronald Reagan said, “Trust, but verify.” Just download the retirement fund’s tables (open in a new tab) and add up the columns yourself.
FLAW FOUR · LACK OF TRANSPARENCY
It has helped politicians avoid fixing a system that hurts YOU.
We could write a book about this topic, but we'll keep it brief.
Lack of sums in Table 4a1 shows Social Security’s lack of transparency
Analysts and individual investors take for granted that annual reports show totals at the bottom of every income and expense column. So it was a huge red flag to discover that Table 4a1 hid its totals.
Why? I believe those totals are among “the best-kept secrets of Washington.” Social Security would be embarrassed to publish totals that show costs exceed benefits. Failure to publish them is just another reason Congress has not yet fixed OASI’s dysfunction.
Congress has known since 1950 that pension equity investment (putting pension money into stocks) could help retirees. Why Social Security’s pension can’t invest is one of Washington’s best-kept secrets.
Before 1950, most states prohibited pension equity investments. Then in 1950, General Motors’ President Charles E. Wilson successfully lobbied Congress to override that restriction and let GM’s pension invest in the market. Hindsight proved Wilson (and stock-market history) right. The post-1950 rise in the market has been enormous. Yet Congress still hasn’t seen fit to let Social Security participate. Our reps owe us an explanation.
More evidence: In 1974, Congress created the Employee Retirement Income Security Act (ERISA (opens in a new tab)), which created IRAs. They can invest in equities. Yet with no really good explanation why since 1974, Congress has failed to let Social Security invest. To protect Social Security contributors and beneficiaries is a sham excuse. Arguably, what lawmakers really wanted to do was protect retirement-industry political contributions that encourage them to create & tweak IRA-type plans. Those contributions MIGHT be at risk IF equities provided OASI benefits that were TOO good. But two times poverty income (as proposed by Supercharged Social Security) would NOT make benefits “too good.” Combined with the “Supercharged Social Security secret sauce” (FICA phase-out), it could create trillions of new dollars to go into IRA-type plans. So instead of losing contributions, lawmakers and Wall Street could actually benefit from amending Social Security with a plan like Supercharged Social Security.
Congress has long known PAYG was a dumb idea. Replacing it with early-as-possible Supercharged Social Security-type funding could help workers & future retirees immensely.
Lawmakers missed another great opportunity to fix the system when they enacted ERISA. It outlawed PAYG funding for private pensions, so why not also outlaw PAYG for Social Security? The answer is another of Washington’s best-kept secrets. Politicians probably thought – incorrectly – that would reduce political donations.
ERISA also made five years the maximum period for private-sector plans to vest. (Employers can choose to vest sooner.) In contrast, OASI’s ten-year vesting is unfair. Here’s another best-kept secret of Washington. Smart Reps knew that, because of PAYG funding, quicker vesting would drain OASI’s assets faster. So Congress in ’74 hurt future retirees by kicking the proverbial vesting can down the road to future Congresses. It’s long past time to vest at birth.
WHY THE SYSTEM HAS STAYED THIS WAY
What's kept OASI flawed?
OASI is a poster child for dysfunctional retirement systems.
Politicians could have fixed its problem long ago by “supercharging” Social Security. Instead, they concocted a “propaganda stew” out of myths, misinformation, disinformation, and lies, while hiding important truths, to convince you nothing was seriously wrong. A prime example came from an AARP Bulletin article, June 2011, by James Roosevelt Jr., grandson of president FDR. He said “Social Security has not only been the most effective government program, it has been the most responsible,” and “could not be better managed.” (See full article & comments.) PDF, opens in a new tab Other pundits have repeated the “successful” lie so often it has become a false “truth.” So year-after-year, as long as the system remains unfixed, they can continue to ask YOU for political contributions to help them “fix the system.” That joke is on YOU.
WHAT OASI HAS COST US
OASI's flaws help keep U.S. poverty above 8%.
Politicians and pundits tell you Social Security reduces poverty. Nonsense! Costs that exceed benefits INCREASE poverty.
What they don’t tell you is this: a plan like Supercharged Social Security could have eliminated poverty for seniors by the late 1990s, and greatly reduced poverty among workers. Since at least 1959, partially due to OASI’s flawed PAYG/GBO design (pay-as-you-go funding and government-bonds-only investment), the poverty rate has never been less than 8.7% for seniors, and never below 8.3% for the FICA-paying age group.
Dysfunctional OASI?
Poverty provides more evidence.
Benefits are so weak, they’re less than poverty level for millions of seniors. Thru 2025, the squandered opportunity to invest FICA for workers plus weak retirement benefits contributed to an average poverty rate of 12% for seniors since 1959.
SO WHAT NOW?
“Preserve” dysfunctional OASI? Or fix it with Supercharged Social Security?
YOU decide.
Not only do politicians get contributions to “fix the system.” CEOs of organizations like The National Committee to Preserve Social Security and Medicare get them too. Truly fixing OASI with Supercharged Social Security, instead of “preserving” the dysfunction, could put NCPSSM’s CEO out of a cushy job. But virtually no other Americans would be hurt by Supercharged Social Security. So why “preserve” OASI instead of replacing it with Supercharged Social Security, which could give us $1,000+ in lifetime retirement benefits for each dollar contributed?
“Modest changes” to “preserve” won’t fix a system designed to make more benefits require even greater tax costs. We really need the right kind of radical change: Supercharged Social Security.
Now you know what went wrong.
See what the fix would have been worth – to YOU.