Why I Burned My Social Security Card
“Social Security may not be worth anything when the recipient gets it, but he is going to get his benefits paid.”
— Senator William Proxmire (1979)
Today, October 19, I reached the “retirement” milestone of 65 years of age. Fortunately, my health is good and I still play basketball, golf and other sports, and feel young as ever. I have no plans of retiring. I hope to write Forecasts & Strategies for at least another 20 years!
As I approach my sunset years, as they call it, I’d like to think that my investment strategy has improved with age. At least that’s what the Hulbert Financial Digest seems to indicate — My newsletter, Forecasts & Strategies, has beaten the market six out of the last seven years. And we are beating the market this year.
How? By focusing primarily on income-producing investments. Studies have shown that dividend-paying stocks beat the market with less risk. The most important lesson of investing is that Wall Street exaggerates everything. (See my book Investing in One Lesson.) You can’t eliminate risk in the stock market, but you can reduce it by emphasizing dividend-paying stocks.
The Coming Bankruptcy of Social Security
Sixty five is the age when Americans traditionally retire from work and sign up for Social Security and Medicare.
As an ardent supporter of self-reliance and limited government, I have felt for a long time reluctant to accept Social Security payments when our government is so deeply in debt. Back in the early 1980s, I burned my Social Security card at the New Orleans Investment Conference as a protest against a bad retirement system.
There are a lot of problems with Social Security. It’s a poorly developed, defined pension plan that discriminates against working wives and low-income workers. It imposed high taxes (15% payroll tax) on the middle class and the working class. It keeps them from saving. And the Social Security Trust Fund is a poor way to invest the money (in Treasury securities rather than the stock market).
Mitt Romney and Paul Ryan have the guts to say that Social Security and Medicare are bankrupt, with trillions of dollars in unfunded liabilities. Social Security alone faces an unfunded liability of $8.6 trillion. But so far no president has been willing to really address the massive problems these two government programs face in the near future (next 20 to 30 years).
Fundamental changes need to be made. Like private companies, the government needs to convert Social Security into a defined contribution plan like a 401(k). Businesses have done it, but government is afraid to make the change.
Otherwise, runaway inflation is the only way out. I well remember Senator William Proxmire saying in the late 1970s, that young people who reach Social Security age will be paid. “We have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid.”
I was one of those young people he was talking to. And now that I’ve reached 65, I can sign up for Social Security and get around $1,800 a month.
Taking the Social Security Pledge
Fortunately, I’ve been lucky and don’t need to take Social Security to live on. I’ve worked hard, saved, and invested to build up my net worth. I’ve paid off my home mortgage, and I have both a company pension program and an individual retirement account. Like many wise Americans, I’ve followed the golden principles of “industry, thrift and prudence” advocated by Benjamin Franklin in The Way to Wealth.
I’ve asked a variety of friends and colleagues what they do with their monthly Social Security check. Many depend on Social Security for their livelihood. Others say they don’t do anything special with the money. It’s deposited directly into their bank accounts, and they spend it as they do any other income.
This started me to thinking: Can Social Security payments be used for a good cause?
In the early 1970s, my uncle W. Cleon Skousen, a political conservative, told me that when he turned 65, he would refuse Social Security payments because he didn’t believe in a government-imposed pension system. But in 1978, when he turned 65, he couldn’t resist the extra monthly income of $650. After all, he had earned it during his working years. It had been deducted from his paycheck and set aside for him (theoretically, at least) in the Social Security Trust Fund. It was his. So he went down to the Social Security Office in Salt Lake City and signed up.
But he didn’t just spend the money for daily living expenses. He decided to sign the monthly Treasury check over to his favorite cause, his National Center for Constitutional Studies. His personal mission was to teach Americans about the Constitution and how to preserve it. Through NCCS, he traveled the country giving Constitutional seminars to patriotic Americans.
I think he made the right decision. I’m sure his foundation made better use of the money than the federal government would have by wasting it on some boondoggle.
Put Your Social Security Check to Good Use
Following in my uncle’s footsteps, I’ve decided to sign up for Social Security. Since I don’t need the money to live on, I’ve decided to invest my monthly government check into a variety of good causes. Based on my past earnings, I should receive a check of around $1,800 a month, automatically transferred into my bank account.
Too often wealthy retirees don’t know what to do with Social Security. They sign up and deposit it into their bank accounts and don’t know what to do with the money.
I suggest they take the Social Security Pledge. If you are wealthy enough, use part or all of your Social Security proceeds to invest in a favorite cause or two. Invest 10% or 100% of your monthly Social Security check in your favorite charity, foundation, church, or synagogue, or other good cause.
To take the pledge, go to www.socialsecuritypledge.org. I’ve set up this website so you can take the pledge and identify your favorite causes with links. I hope you will do so.
Bill Gates and Warren Buffett have the Giving Pledge, where billionaires sign up and pledge to give away the majority of their fortune to charity. But the Social Security Pledge is better, because you can do it while you’re alive and it affects more people.
You don’t have to limit yourself to giving to non-profit organizations that are tax deductible. You can give your Social Security check to any organization, public or private, or to individuals. You can donate it to your favorite political party. You can even give the funds to a student scholarship — for your grandchildren, for example. Or somebody who has a medical need.
Investing in Free Enterprise
Another possibility is to invest your government check in free enterprise. Buy shares in individual stocks or mutual funds through a brokerage account. If you’re a retiree, look for high dividend-paying stocks like Main Street Capital (NYSE: MAIN), which yields 6.1%; Aberdeen Asia-Pacific Income Fund (NYSE: FAX), which yields 5.3%; or Eaton Vance Floating Rate Income Fund (NYSE: EFT), which yields 6.6%.
Banking technology has made it simple and efficient to invest in good causes. Use an online banking service, such as www.everbank.com. Make a list of how much money you wish to give to each organization or cause, so that donations equal your monthly Social Security check, or whatever amount you feel comfortable giving. Then inform your online bank of the names and addresses of the organizations and how much you wish to donate to each. Your online bank will do the rest by automatically sending them a check every month. You can change the organizations and amounts whenever you want. It’s that simple.
The potential is huge for the Social Security Pledge to help charitable organizations, enterprises, and movements grow.
John Wesley, the Founder of the Methodist Church, once gave a popular talk called “The Sermon on Wealth.” According to Wesley, the mission in life was three-fold:
Work all you can.
Save all you can.
Give all you can.
The Social Security Pledge is a great way to live up to John Wesley’s sermon.
Good Investing, AEIOU,