The Unconventional Teacher

As part of the college and career counseling side of my job, I have a weekly meeting with each of my high school seniors. We use the 30-minute time slot to discuss a myriad of subjects – goal setting, study tips, college life, financial aid, communication, job interviews, stuff like that – and it also gives me an opportunity to gauge how each student is doing overall (home life, relationship stuff, etc.).

Oftentimes, these meetings can be quite insightful, as I explained previously in Top 10 Things Your Students Want You To Know. This past week was no exception, as the topic of discussion turned to payroll, taxes, and generational welfare.

One of my seniors got her first paycheck of the year (with the 6.2 tax rate reinstated, versus the 4.2 rate that was temporarily in place), and she was appalled to see the lower amount.

“[Mrs. Teach],” she said, “I got a measly $127 this week! I don’t know why it is so low, because I usually get more.”

Another student sitting nearby mumbled, “That’s because of the stupid increase in taxes.”

“What increase?” Student #1 asked, as she furrowed her brow and turned to face her classmate.

Student #2 sighed, looked up from her computer, and said, “You know, the increase in the old people tax. The one we pay so all those retired people can take vacations and drink wine and all that shit.”

And so it began. A class discussion about social policy, politics, and the future repercussions of a country hooked on welfare entitlements.

We’ll come back to the discussion in a moment. First, let’s provide some context and data.

The U.S. Census Bureau considers a “Baby Boomer” to be someone born between 1946 and 1964. Almost 80 million American children were born during that time, which means by 2030, the over-65 segment of the population will encompass 20 percent of the populace.

That’s 1 in every 5 citizens. Ever seen the enormous amount of seniors living in Florida? That’s what the entire country will look like.

We’ll probably see a lot more of these, too.

According to the Congressional Budget Office – does anyone else agree that term sounds like an oxymoron – Congressional Budget? Ha! – Anyway, according to the CBO, Social Security spending topped $725 billion in 2011, more than any other item in the entire budget that year (and technically more than they took in, because they are running on a deficit).

Full disclosure: That figure accounts for ALL the 56 million recipients (disabled, dependent children, and retirees), but retirees account for a whopping 36 million of those recipients, so it’s fair to say the large majority of the Social Security funds went to those aged 65 and older.

So where does all that money come from? (Scary side note, by the way: The average citizen has no idea where the government gets its money from. They think there is a magical pot of money somewhere or something.)

With Social Security and Medicare, which was the reason for my student’s outrage, entitlements are largely funded by payroll taxes through something called the Federal Insurance Contributions Act (FICA) (other taxes and creative financing come in to play, but the large majority of funding comes from the taxpayer).

Under FICA, 12.4 percent of a workers’ earned income is paid to current Social Security beneficiaries. Workers in 2013 contribute 6.2 percent towards the total 12.4, and employers pony up the rest. FICA also taxes from workers and employers an additional 2.9 percent of income to pay for Medicare.

You can also look at it like this (although it is quite depressing). Basically, if you earn $43,000 per year (the average 2011 wage according to government statistics), you are paying out almost $3,300 per year to other people so they don’t have to work. In other words, you are busting your ass for an entire month for something that will never directly benefit you. (Not to mention the OTHER taxes you are required to pay.)

Sad and true.

“But, it WILL benefit you,” some of you might say. “Someday, you will get to receive retirement benefits, too, so stop worrying about it!” To this, I reply: Don’t bet on it.

At 33 years old, I will be able to “retire” and collect benefits in the year 2046 (under current retirement rules which consider 67 to be normal retirement age for anyone born after 1960). Except it’s not that simple, and the returns we are seeing now are not what my generation, or future generations, will receive.

Social Security and Medicare operate on a pay-as-you-go basis, which means there isn’t a fund somewhere where taxpayer contributions are deposited, waiting for future withdrawal. Instead, current taxpayers are paying for current beneficiaries. Which means as more Baby Boomers retire, more workers are immediately needed to cover monthly expenses.

That’s where one of the biggest problems exists.

When the Social Security program was first created, there were a lot more workers paying in to the system, and not many taking out. By 1950, there were about 16 workers for every retiree. Today, that figure has dropped to 3 workers for every retiree. It is expected to drop to 2 workers in the next 20 years – right when we need more funding for the increased amount of entitlements.

Which leads to another issue: People are living longer. The average life expectancy in the United States in 1900 was just over 47 years. By the 1950s, it had jumped to 68 years. In 2009, it was 79 years. Remember, this is average – so there are some dying much younger, and some dying much older.

Let’s say you start working at age 18 (which is increasingly difficult – teen unemployment is at its highest levels since World War II). If you retire at age 57 (the average age of retirement according to a recent study by MetLife), you will have worked (and paid taxes) for about 39 years.

What if you live to be the ripe old age of 85? This is increasingly likely. Statistics show that if you make it to 65 and are generally healthy, you can add about 20 years to your life expectancy. In our above scenario, by starting work at 18 and ending at 57, you will work for 39 years of your life and not work for about 46.

Is that even fair? Should it be someone else’s responsibility to pay for you to be unemployed for more than half of your life?

Good. Then pay for it yourself.

You’ll often hear the retirees scream about Social Security “is not welfare,” because they “paid in all of they money they are taking out.” Ummm. Not so. Reason Magazine explains this better than me, so here is an excerpt:

“A single man earning the average wage ($43,500 in 2011) who retired in 1980 would have paid a total of $96,000 in Social Security taxes and received lifetime benefits of $203,000, or about 211 percent of contributions.

A single man earning the average wage but retiring in 2010 faces a vastly different situation: He would have paid $294,000 in taxes to receive benefits of just $265,000, or about 90 percent of contributions.

For the same person retiring in 2030, taxes of $398,000 yield $336,000 in benefits, or just 84 percent of contributions.

The calculations for Medicare underline the point that everybody is getting more out of the program than they are paying in. Consider a single woman earning the average wage who turned 65 in 1980. She has paid in $8,000 but will take out $81,000 in benefits, or more than 10 times her contribution.

The same woman turning 65 in 2010 will have paid $58,000 in taxes to receive $185,000 in benefits, or a threefold return.

A single woman retiring in 2030 will have paid $87,000 to get $275,000.”

Besides, just so you are aware, even the Supreme Court has declared that Social Security is not a “right” you are entitled to, nor is it a contract made between you and the government. Congress can change the laws at any time, and can pick and choose if and when you receive a dime.

All right. Now that we’ve painted the basic background of the picture (not enough people paying in, people living too long, seniors feeling entitled to retire earlier and earlier, and people receiving the benefits regardless of need), let’s go back to our original conversation.

My high school students overwhelmingly have a negative view of Social Security and Medicare, particularly in regards to retirees. I can’t say I blame them.

It’s one thing when grandma and grandpa work hard, save, are responsible with their money and scrape up enough to retire with a few years left to reflect upon life and enjoy the grandkids.

I don’t begrudge someone the little extras of going to a movie or out to dinner every once in awhile. I understand the desire of an occasional vacation or recreational activity. But that’s not what I see out there on a consistent basis.

I see a group of people who benefited from the frugal living of their parents’ generation, yet did not necessarily incorporate those lessons into their own lifestyles.

I see people who were born in one of the greatest economic boom times in our country’s history. A time where college degrees weren’t required in order to get entry-level jobs; where finding a job wasn’t that hard, and being laid off wasn’t a constant worry.

I see a generation of individuals who railed against “the man,” who spouted mantras of “communal living” and “sharing is caring,” but ultimately only followed those beliefs when THEY were the ones on the receiving end.

I hear a generation of retired people talking about how “selfish” the next generations are, while at the same time, are demanding a bigger and bigger monthly check from a smaller and smaller amount of already overtaxed and overburdened workers.

And finally, I know an increasing number of retirees who feel entitled to fancy meals, unlimited around-the-world adventures and larger and more luxurious homes and vehicles.

Social Security and Medicare are no longer a means to help out poverty-stricken, unable-to-work seniors, but instead have become a supplement to a living-beyond-your-means lifestyle.

How long will the younger generations continue to enslave themselves for a system that exploits and alienates them? Not long.

When asked what they would do if taxes continued to be increased  (which they’ll have to be in order to maintain payouts), most students summed up their answer with two words: “I quit.”

Have you ever heard the saying, “You can’t get blood from a turnip?” Well, you can’t take taxes from someone who doesn’t work, either. It was an interesting conversation with my teenagers, to say the least. And I didn’t know what to say at the time, deciding instead to listen and reflect.

However, later that same day, almost as if the universe wanted to provide some cosmic comparison of the vast difference between the mindsets of young and old, I overheard the following conversation:

Lady #1 (in her 50s): You know [so-and-so, a mutual friend] has a son at college now. Doesn’t that make you feel old?

Lady #2 (in her 60s): Wow, I didn’t realize he was grown up already. You know what made me feel old? Turning 60.

Lady #1: I don’t know. I used to think 50s and 60s were old, but now that I’m here, they aren’t old at all. I have more money, more patience, and more time for the things I want to do.

Lady #2: I know what you mean. My house is paid off. I have a retirement check (she works part time at my school and is retired from the school system), and I can travel whenever I want. 

Lady #1: Sure is better than our parents had it.

Lady #2: Definitely, and I’m glad. I watched the people in my parent’s generation toil and slave at work until they were too old to do it anymore. When they retired, they were sick or disabled and they often died just a few years later.

Lady #1: I can’t imagine having to work until you are in your 70s. I know a guy who just retired at 52. Now he is free to travel the world and have some fun.

Lady #2: Yeah, we worked hard and now we get to enjoy the fruits of our labor.

Ugh. Point proven. This issue has its tentacles in many other facets of society. In future posts, we’ll take a look at the increasing irrelevance of a college degree, the dismal rate of teen unemployment, and shift of society from production-based to service-based industry.

In the meantime, tell me what YOU think. Are we headed down the road of generational warfare? If so, what can be done?