Thursday, March 17, 2005

Social Security: A blended solution

Can we all agree that there is a problem with Social Security? Here's what FDR said about Social Security:

First, the system adopted, except for the money necessary to initiate it, should be self-sustaining in the sense that funds for the payment of insurance benefits should not come from the proceeds of general taxation.
In other words, what people put in should cover the cost of the then-labelled 'old-age' insurance. Other taxes should not be used to cover the cost of this insurance. The realities of the 30s made this very plausible. People weren't living as long as today, and so the number of people tapping into the system was much less than today. Hence the formula used to keep Social Security self-sustaining in the 30s doesn't work. Nor is it reasonable to think that there are enough workers in America to keep it self-sustaining sans major tax increases. Even that will only be a temporary solution because people are getting older and as medical technology advances AND the cost of healthcare rises-we can only expect people living on the system to use up more and more resources. So we're stuck in a quandary. Do we raise taxes to try and keep as many citizens at the same level of benefits as have been for decades? Do we implement a privatization scheme which adds more risks and rewards to the equation? Do we scrap the whole system? Difficult questions, but I think the staple of any new legislation will need to include the following: a. Maintainence of the same level of benefits, to a degree. This is critical. People who have put into the system up to now should have vested SSI payments coming to them. In other words if you are 45 right now and if you stopped putting into the system today, whatever monthly payment you are entitled to at age 65 is the minimum you will receive once you reach that age (adjusted for inflation, of course!). b. Privatization of some kind. Using the 45 year old man as the example, implementing a new 'compulsory' system whereby you are allowed to invest in a plethora of 'safe' and 'risky' funds. You are brought into the Social Security office and an assessment of you financials is done. Afterwards, the advisor gives you their analysis and your options. The choices would include:
1. A plan which mirrors the current Social Security system. In effect, had the system remained the same, this is what you would receive. 2. A plan that involves more risk, and potentially greater reward. You are allowed to invest up to 2/3rds of your 'compulsory' monies into this account. The other portion is placed into a federally backed fund. 3. A plan that is more safe, and potentially less rewarding than option 1 or 2. You invest into a low interest bearing government fund. A fund that invests in only the most stable stocks of the last one hundred years or some low-risk combination. You could be allowed to invest up to 100% of you 'compulsory' monies into this fund.
In this manner, anyone aged 15 to whenever could implement an investment program based on their needs, risk aversion, and current status within the social security system. The federal government would bear a great burden for the next 10-20 years but as younger generations - who've invested into the system less - start getting older, the burden on the federal government should become less. I stress the word should. As mentioned, healthcare and age are rising. Without some form of adequate social security insurance, millions of Americans will find themselves on the wrong side of poverty for much of their elderly life. However, we must face the realities that our economy cannot sustain the current system. We must find a way to create a fluid system that will take us from the current system and bring us to one where the burden on the federal government isn't so monumental. Blanket age cut-offs won't work as every individual's story is different. Complete privatization doesn't work because it unequally favors the rich. A blended system is required, but will partisan antagonism keep us from that solution?


Anonymous HutSutRaw said...

Starting this year I am not paying into the system because I know that the Government will not do what needs to be done to fix this. I am self-employed so I chose to opt out.
Here are a couple of stats:
Present - 2015: SS has a surplus. That surplus is loaned to the Federal Gov't.
2015 - 2037: SS spends more than it collects so the Federal Gov't pays back the money w/ interest.
2037-2075: SS runs an annual deficit totaling 30 trillion (w/ a "T") dollars.
By 2030 there will be 2.1 workers to 1 retiree. In 1950 it was 16.5/1. It is impossible for us to stay on this course, and the Democratic party is downplaying this because they want to use this as a political issue to run on. Besides the senate does not pay into the system, they have their own form of retirement. Why? Because they know that the SS system was just a Ponzi scheme in the beginning.

3/18/2005 12:02:00 PM  

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