Tuesday, February 08, 2005

Meet the Natals

Consider Bobo's ideal couple, Roger and Mary Natal. Roger and Mary get married the day after high school graduation, on Roger's 18th birthday. Roger was born in 1974. Roger, due to his supreme intelligence and skills, skips college and begins working the day after their marriage at a generous $50,000 annual salary. He's on a good career track, and his salary increases by $2,000 every year. Mary does what Bobo says she should do, and starts cranking out babies, remaining a nonworking stay at home mother. She has 6 children over 10 years or so.

Sadly, on his 30th birthday, Roger dies in a tragic golfing accident. Most of their money went into their house and their SUVs, and Roger never bought any life insurance, but he did manage to save $1200 per year, putting it into a mutual fund which earned a fairly healthy 5% real annual rate of return. This money is still there for Mary and the brood, providing them with about $20,000 to live on until she gets off her slacker ass and finds a job.

Mary's rather distraught. She saw her husband's pay stubs every monthy, and saw how much money he paid into Social Security. But, she's heard all these news reports telling her how that money is just gone, that those benefits can't be passed onto Roger's heirs. Even the president has said such things, and we all know what a straight talker he is. In a moment of panic, due to her recent tragedy and sudden poverty, she calls the fine folks at the SSA. After being placed on hold for awhile, during which she was informed that Social Security would go bankrupt soon, she began hysterically sobbing to the person on the line, begging to have her husband's Social Security contributions back. He's paid about 45 grand into the system, and now it's all gone! It's not fair!!!!

After calming her down, the nice person at the SSA politely informs her that contrary to all of the bullshit she's been hearing, she is in fact entitled to receive Social Security benefits based on her husband's earnings and contributions. In fact, as long as she has dependent school-age children she's entitled to receive $1470 per month, adjusted for inflation. As her most recent child was born 2 years ago, that benefit should remain with her for 16 years.

And, not only that, each of her children is also entitled to receive benefits. Until age 18 or 19, depending on when they leave high school, each child also receives $1470 per month, up to a total family benefit of $3431.30. Sure, it's not quite as wonderful as the $20K or so in her husband's mutual fund account because, you know, they "owned" that and it made them feel good. But, still, $3400 per month lets her continue home schooling her kids.

And, Mary, being quite frugal, manages to save enough money that once her children are all grown, she only has to take a modest part time job. The job doesn't pay too much, and she never works enough to qualify for full social security retirement benefits. But, nonetheless, upon reaching retirement she discovers that she is, in fact, entitled to receive her husband's full retirement benefit of $1960 per month.

Thus ends the tale.

(all calculations approximate, except $1470 figure comes from plugging Roger's salary figures into their benefit calculator).

...let me just add that the point of this is not that the Bush administration has proposed getting rid of the Survivor Benefits. Though, contrary to the protestations of those on the Right the notional Bush plan would indeed presuambly cut guaranteed survivor benefits by quite a bit as the formulas are piggybacked onto the retirement benefit formulas.

The more important point is that any discussion of the Social Security system which ignores or downplays the insurance aspect of it is sorely lacking.