Monday, September 19, 2011

Saving Social Security--Part II

We are not going to save Social Security by continuing the same games and expenditures as have been and are currently going on.  There are more questions at the moment than there are answers as to how to save Social Security. In this post we will attempt to offer some solutions to this massive problem.
Some of the candidates for POTUS have recently or in times past called  Social Security a Ponzi scheme and in many ways it is the truth. 

Charles Krauthammer, one of the most intelligent men of recent times had this to say about Social Security.

"Even a mandatory Ponzi scheme like Social Security can fail if it cannot rustle up enough new entrants. You can force young people into Social Security, but if there just aren't enough young people in existence to support current beneficiaries, the system will collapse anyway. When Social Security began making monthly distributions in 1940, there were 160 workers for every senior receiving benefits. In 1950, there were 16.5; today, three; in 20 years, there will be but two. Now, the average senior receives in Social Security about a third of what the average worker makes. Applying that ratio retroactively, this means that in 1940, the average worker had to pay only 0.2 percent of his salary to sustain the older folks of his time; in 1950, 2 percent; today, 11 percent; in 20 years, 17 percent. This is a staggering sum, considering that it is apart from all the other taxes he pays to sustain other functions of government, such as Medicare whose costs are exploding. The Treasury already steps in and borrows the money required to cover the gap between what workers pay into Social Security and what seniors take out. When young people were plentiful, Social Security produced a surplus. Starting now and for decades to come, it will add to the deficit, increasingly so as the population ages. Demography is destiny."

Last post it was shown how the Treasury borrows or steals as some say, and then repays in IOU’s which are basically worthless since they too are already spent before they are deposited in the piggy bank. With fewer workers making few contributions there will be less to "steal" and no way to repay what has been taken even with worthless IOU's which will be worth less. Of course the current administration seems to believe that printing more money will solve that problem along with raising taxes while cutting the very tax that funds Social Security.  It is delusional to think that a program can continue to exist when being operated in such a manner.

So what is the answer? Could it be privatization of the program?  Of course the Liberals scream that the Right wants to take away Social Security and throw all the old people under the bus even at the mention of privatization or even changes to the system. They fear change much less privatization because both would lock the door on the safety deposit box and stop their incessant robbery of the funds to spend on useless programs and failed programs instituted under LBJ in his failed War on Poverty and under Obama and his failed Stimulus program and worthless ObamaNOcare plan.

Privatization or partial privatization works and no one gets thrown under the bus. In this post it will be shown how this can be done and has been done and debunk the lie of the Left that Seniors will be hurt, left in the cold and grandma thrown under the bus.

There are three pillars that must be used to insure a sustainable program.

1.     A safety net consisting of means –tested Government age pension system. (We have age pension system but as of yet no real means-test system but for now let us assume that we do.)
2.     Private savings generated through compulsory contributions to a upscale or super type system. Currently compulsory contributions are required by Social Security system but one could hardly consider them savings since they are immediately “stolen” by the treasury.  In this system the employee would contribute a set percentage of their income through their employer to a private savings plan.
3.     Voluntary savings through this upscale or super type system.  Employees would be allowed to contribute to this plan outside of the compulsory contributions.

The safety net, while workers would be responsible for savings for their own retirement, would remain in place  to ensure that no one would be worse off under privatization. In effect, every retiree would be guaranteed an age pension equal to 25 percent of the average workers wage.
The means testing, which is currently being looked at by both sides of the aisle would guarantee that most future seniors would get a full age pension depending on the date such a program is passed.  The means testing would not effect those who are of retirement age or nearing retirement age currently. More in depth look at this in future discussions.

What about employer’s contributions?  Employers would contribute a modest 9% of an employees ordinary time earnings. It would not be paid on overtime, bonuses, commissions above salary, or shift differentials.
The employers would be required to make the contributions to the upscale or super system at least every three months.  These contributions are invested over the period of the employees’ working life and the sum of the compulsory and voluntary contributions, plus earning, less taxes and fees is paid to the person when they choose to retire.  The sum most people receive is predominately made up of compulsory employer contributions.

When could one access their funds?:   Since this fund would be money invested for one’s retirement, strict governmental rules would have to be in place to prevent early access to preserve benefits except in very limited and restricted circumstances, including severe financial hardship or on compassionate ground such as medical treatment not available through Medicare.

What do workers contribute to the plan?  Workers contribute a minimum of 9% of their income. This is compulsory and they may make other voluntary contributions, which will be discussed at a later date.   Some of the benefits which will be discussed more in depth next time are: The mandatory savings could be augmented by tax favored voluntary contributions. By doing so the employee would have accumulated a much large nest egg from which to draw a secure and comfortable yearly income plus the safety net guarantees that all retirees will receive an income that at least matches the income they would have received under the original Social Security plan.

The compulsory system would turn America into a “shareholder” society even under modest economic growth. Under a buoyant economy more workers would become more involved in the voluntary system and take much more interest in their future.
Those making under a certain monthly wage, say $450 to $600 per month, those under 18 and those over age 70 would not fall under the upscale or super version of the savings guarantee plan. That eliminates the argument that such a program would hurt the young who must or desire to take part time work. It also does not inhibit those over the retirement age from working if they so desire and being penalized as they currently are if they make over a certain amount of income.

Individuals  can choose to make voluntary contributions to the fund and receive tax benefits for doing so.

Next: What are the benefits of such a plan.  


Anonymous said...

Sounds like FERS

Chuck said...

One of the things we can do to save Social Security is to stop paying out SSI for idiotic things.

One is now disabled if they are an alcoholic or drug addict (thank you Bill Clinton). I treat a lot of patients in the ER that are homeless and drinking on our dime because of their "disability". We coach children on how to feign disabilities so mom can get an SSI check.

Use it for what it is intended would be a good start

GM Roper said...

Ticker, this is an excellent "wake up" post for Americans. Sadly, I don't think America will wake up to the financial meltdown that will hit SS in the all to near future. I suspect that my daughter who turns 40 early next year won't see a dime of Social Security.