Little-Acorn
08-16-2010, 12:50 PM
Social Security has already passed the point where it is paying out more than it is taking in via "contributions". And it's just a matter of time before it runs out of money completely, going bankrupt.
Some have said that our only alternatives are (a) increasing SS taxes, (b) reducing benefits, thus hurting people who planned their retirements with the expectation of getting those full benefits, (c) getting rid of SS entirely, thus hurting people receiving benefits even more.
Can we avoid ALL pain caused by Social Security's coming failure? Probably not. But here's a suggestion of how to handle it with the least pain possible:
1.) All payments into Social Security stop now. Today. No one will ever have another penny taken out of his paycheck, for SS.
2.) People who have paid into SS all their lives and are now retired, will continue to get the same SS benefits as they would if no changes were made, for the rest of their lives as current SS rules call for. People of middle age who have worked and paid into SS for decades, but are still a few decades from retirement, will get the SS benefits at retirement that they would have gotten, if SS did not change but they stopped paying into it now. When they turn 65, they will get reduced benefits, lower than if they had paid into SS until they retired, as is also called out in current SS rules. People just entering the job market who have not yet made any SS payments, will never get a single SS benefit in their lives.
3.) Everyone will see their paychecks increase, usually by about 15%. (7-1/2% they used to have withheld for SS, and the matching 7-1/2% their employer used to pay to SS for them). They can use this extra money, to invest in a well-established private retirement fund. There are many that exist, paying anywhere from 5 to 10% interest for such long-term investments. People who have paid into SS and will retire in 20-plus years, and who will be getting reduced SS benefits when they do, will augment those benefits with the benefits from their own fund, which of course will also be smaller than if they had invested in the fund for the entire 40-plus years of their career. Younger people just starting out, will do all their retirement investing the their private fund, which will pay all their benefits when they retire.
(NOTE: Such retirement funds pay, on average, anywhere from 5 to 20 times as much as SS for a similar investment period. Fact.)
4.) Since the money to pay SS benefits to present and future retirees must come from somewhere (Govt has already spent all the money it took in from them, it's gone), a new tax will be levied on everyone, to provide those funds for the present and future retireeswho have paid into SS. And it will have a sunset provision: It will be adjusted to take in EXACTLY what the retirees will get this year, and next year, and etc. Since no one lives forever, eventually this tax will go out of existence as people who paid into SS, pass away. Eventually all will be gone, and so will the tax.
As I said, there is NO plan that is free from drawbacks, including this one. That tax will be a burden. Good news is, it will go away eventually, and everyone who has paid into SS will get what has been promised to them, nobody gets suddenly cut off. Private funds can fail... but they seldom do. And it is practical to get insurance against that possibility. But it is worth noting that none of the major funds that have been around for long times, have ever failed to deliver profits higher than those SS recipients have received over equal periods, even periods that included the Great Depression, the Carter recession of 1978-1982, and every other economic downturn we've had.
Should there be a law FORCING people to invest in a retirement fund (or two or ten)? Maybe... but I suggest that that be done on a state level rather than Federal. A one-size-fits-all policy here would be very bad. Individual states can decide how much coercion they should impose on their citizens, even on an obviously beneficial matter like retirement investment. Citizen input for such legislation, is much more effective and immediate at a state level, than at a Federal level.
How does this plan sound? As I said, it is not without drawbacks. But it has the benefit of positively eliminating the dead end of Social Security, which will enter bankruptcy within our lifetimes.
Some have said that our only alternatives are (a) increasing SS taxes, (b) reducing benefits, thus hurting people who planned their retirements with the expectation of getting those full benefits, (c) getting rid of SS entirely, thus hurting people receiving benefits even more.
Can we avoid ALL pain caused by Social Security's coming failure? Probably not. But here's a suggestion of how to handle it with the least pain possible:
1.) All payments into Social Security stop now. Today. No one will ever have another penny taken out of his paycheck, for SS.
2.) People who have paid into SS all their lives and are now retired, will continue to get the same SS benefits as they would if no changes were made, for the rest of their lives as current SS rules call for. People of middle age who have worked and paid into SS for decades, but are still a few decades from retirement, will get the SS benefits at retirement that they would have gotten, if SS did not change but they stopped paying into it now. When they turn 65, they will get reduced benefits, lower than if they had paid into SS until they retired, as is also called out in current SS rules. People just entering the job market who have not yet made any SS payments, will never get a single SS benefit in their lives.
3.) Everyone will see their paychecks increase, usually by about 15%. (7-1/2% they used to have withheld for SS, and the matching 7-1/2% their employer used to pay to SS for them). They can use this extra money, to invest in a well-established private retirement fund. There are many that exist, paying anywhere from 5 to 10% interest for such long-term investments. People who have paid into SS and will retire in 20-plus years, and who will be getting reduced SS benefits when they do, will augment those benefits with the benefits from their own fund, which of course will also be smaller than if they had invested in the fund for the entire 40-plus years of their career. Younger people just starting out, will do all their retirement investing the their private fund, which will pay all their benefits when they retire.
(NOTE: Such retirement funds pay, on average, anywhere from 5 to 20 times as much as SS for a similar investment period. Fact.)
4.) Since the money to pay SS benefits to present and future retirees must come from somewhere (Govt has already spent all the money it took in from them, it's gone), a new tax will be levied on everyone, to provide those funds for the present and future retireeswho have paid into SS. And it will have a sunset provision: It will be adjusted to take in EXACTLY what the retirees will get this year, and next year, and etc. Since no one lives forever, eventually this tax will go out of existence as people who paid into SS, pass away. Eventually all will be gone, and so will the tax.
As I said, there is NO plan that is free from drawbacks, including this one. That tax will be a burden. Good news is, it will go away eventually, and everyone who has paid into SS will get what has been promised to them, nobody gets suddenly cut off. Private funds can fail... but they seldom do. And it is practical to get insurance against that possibility. But it is worth noting that none of the major funds that have been around for long times, have ever failed to deliver profits higher than those SS recipients have received over equal periods, even periods that included the Great Depression, the Carter recession of 1978-1982, and every other economic downturn we've had.
Should there be a law FORCING people to invest in a retirement fund (or two or ten)? Maybe... but I suggest that that be done on a state level rather than Federal. A one-size-fits-all policy here would be very bad. Individual states can decide how much coercion they should impose on their citizens, even on an obviously beneficial matter like retirement investment. Citizen input for such legislation, is much more effective and immediate at a state level, than at a Federal level.
How does this plan sound? As I said, it is not without drawbacks. But it has the benefit of positively eliminating the dead end of Social Security, which will enter bankruptcy within our lifetimes.