Changes needed for Social Security
There’s an old saying, "If it ain’t broke, don’t fix it." I can’t think of a single program ever created that was more broke than the American Social Security Program. Technically, it’s not bankrupt, but it will be soon. Everyday that passes America grows closer to being a nation that will have to default on its promised payments to our nation’s elderly. However, it’s not too late to change it.
President Bush proposed giving people the choice of privatizing a small portion of their social security payment. However, Congress quickly rejected this plan in early 2005, and mum has been the word on social security since. One of the reasons that Congress rejected this was a genuine concern that if people’s retirement is put into the stock market then it might disappear in a stock market crash. But the real reason that Congress rejected the proposal was a hesitation to relinquish federal government power over people’s retirement. The politicians in Washington, Republican and Democrat, love power and appreciate having the billions of dollars that social security provides at their disposal. After all, Congress has dipped into this important trust fund dozens of times, and there is no law on the books to stop them from pillaging every Americans’ retirement further.
As a solution to Social Security, I have formed a reasonable plan that all but the power hungry Washington bureaucrats should be able to get behind. Under the Adams Social Security Reform Act of 2007 (doesn’t it have a nice ring to it) all individuals currently collecting social security will continue with no change. They have been promised by the federal government, and America must always keep its promises. Likewise, all individuals 50 and over will continue to pay into social security with no change, and will receive the benefits they were promised when they retire.
However, individuals between the ages of 35 and 50 will be given the choice of maintaining their place in the current Social Security System or opting out into this new safely privatized account. As for individuals 25 to 35, they will be forced to opt out of social security because the system must be phased out over time. When these people opt out of social security they will get back every penny that they have invested into the system. However, all the money will be transferred straight into their private retirement fund. As for individuals 25 and younger, the government will place $2,000 in each individuals’ private retirement fund, whether or not they have paid any into the present social security system.
Since the current social security system is scheduled to maintain an annual surplus until the year 2035, the government can afford the money that they will be giving back. Additionally, individuals above the age of 25, who have not paid any money into the social security system, will receive $2,000 in their retirement account.
Under the present social security system individuals automatically paid the first 6.5 percent of their income into social security. The employer for that person also pays 6.5 percent. In short, social security is a 13 percent tax that yields only a very small return for almost everyone. There has to be a better system.
My proposal: every working individual that has opted out of social security must invest a minimum of 3 percent of their salary into their private retirement account. Their company must match the employee’s contribution up to 5 percent, and companies can offer to match more as an incentive. This plan gives employees 3.5 percent more of their salary back in their hands, and they still have control over the other 3 percent. Employers will love this plan because no longer do they have to match the 6.5 percent, now they are only legally obligated to match a maximum of 5 percent. Banks will be required by law to create a retirement account, free of charge, for every individual that requests one. However, banks too will love this plan because this will put the retirement money in their safes instead of the government’s coffers.
I know all the readers are probably worried that individuals at poverty level jobs for most of their life will not benefit from this plan. Nothing could be farther from the truth. An 18-year-old in 2007, making $15,000 per year with a 5 percent raise every year (to keep up with inflation and the cost of living), works for 47 years and retires at the age of 65. This person decides they like to have a good time with their friends instead of save money, so he opts for investing the minimum 3 percent of his salary into his retirement account and his company matches the 3 percent as they are legally required to do. CNN retirement calculator calculated that he will retire with $457,000 and will make $36,561 the first year in interest at 8 percent. That $36,561 is adjusted for inflation meaning that figure matches the value of dollars in 2007. Ironically, the interest on his savings alone is greater than what he made in his final year working.
But before we decide that this system is better than social security, let’s see what social security has to offer this lower class man. Assuming social security still exists in 2056, then at the age of 67 (not 65 because one has to be 67 to collect full social security benefits) he will be collecting $7,133 per year. It’s nothing to sneeze at, but it’s less than 20 percent of what the Adams Social Security Reform Act of 2007 would have net him.
I know that this is a whole lot of numbers for a Colonnade column, but do the math for yourself and you will see that the 13 percent investment you make into social security every year is probably the least returning investment you make. Additionally, when a person dies, only a portion of their social security will go to their spouse. Under my reform, the spouse and loved ones get to keep the whole account.
It is ridiculous that the power hungry (and money hungry) bureaucrats in Washington force Americans to pay into a terribly flawed system, when they could invest less than half of that amount every year and reap benefits of several times what the government can provide.
Posted by Colonnade Archives
on Nov 16 2007. Filed under Opinion.
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