If you are young you need to read this. If you have very young children you need to read this as well. It is a complex issue but there is work to do.
You know what is really sad is if you ask any 20, 30, or even 40 year old if they feel social security will be there for them when they retire they will promptly tell you; no way. This is no different than asking you to pay for a home for 20 or 30 years and at the end of that time period that house is not really yours and you can get no money from it should you try and sell it. The big difference is you have a choice whether to buy a house or not, you have no choice when it comes to social security. If you work, you will contribute.
Once again we are at the mercy of elected officials to inform us of the fiscal condition of social security. That’s really sad in and of itself. The socialist (democratic) party is telling us that it fully solvent and will be for many years. Of course they will tell you this because that is another way for them to control your destiny.
The republicans on the other hand, predict imminent failure and insolvency in short order. Of course it is their job to depict the socialist to be fiscally incompetent and denying reality.
Who is right?
Well, It depends on who you trust the most. I know that is hilarious because trust and politicians don’t belong anywhere near each other. There is one exception, trust me, they will tell you what you want to hear for your vote.
There are two major parts of social security (1) the retirement section and (2) the disability section. I want to discuss the retirement section with this article. Of the two, the retirement section is the most fiscally sound; at least that is what I could determine with my research. Social Security disability is the part that is in fiscal disarray. The funding for disability benefits are in dire straits, so much so that it has been suggested that the government transfer funds from the retirement section into the disability section. Guess what, you are robbing Peter to pay Paul. What will this accomplish? This accomplishes nothing but kicks the can down the road so they will be out of office when the can cannot be kicked anymore.
What could be done? Remember when George W. Bush proposed privatizing Social Security? He was promptly castrated by the press and the socialists. Grandpa and Grandma were pictured being thrown off the cliff. They were pictured eating dog food in a cold damp and dark house with a rat waiting on the scraps. Really incredible. Anyone who even brings this up is promptly lashed and beaten.
Let’s just look at some numbers.
I went to the social security website and I entered the following: a person born in 1989 who for the majority of their working life earned 36,000 dollars a year. This means this person will pay in a total of 206,000.00 dollars over their working life. If they retire at 67 this means they will collect 1366.00 dollars a month for the rest of their life. 1366 * 12 is 16,392.00 a year.
So let’s compare depositing the same average amount for 49 years in an account that averages a 5% return. Where can you get 5%? Well if you invest in 70% stocks and 30% in fixed income over a 49 year period you should average much better than 5%. More like 7 to 9%. Yes there will be lower years but we are in this for the long term. 206,000/49years is 4204.00 per year contribution. This would mean depositing 4204.00 a year for 49 years at 5% compounded interest. If you did this, you would have 855,000.00 at age 67. I am getting close to retiring so I have been trying to decide what is best for me. As a general rule, if you want your money to last the longest in retirement you should limit your withdrawals to 4% per year from your savings. For this amount, it would be 34,200 per year or 2850.00 per month. Let’s see 2850 per month versus 1366 per month. I’m going with the 2850.
Ahhh yes you say, but social security is guaranteed by the government. Yes, and who runs the government, the politicians.
Well, if it is privatized then investors will be at the mercy of the evil wall street bankers and other fund managers. And where do you think the politicians get a lot of their campaign funds from?
What does this mean? Guess what, bankers and other fund managers are in business to make money. If they don’t, they won’t be in business long. And if they go out of business the investors lose everything. That is why it must not go all private but semi-private.
A quick attempt on an administrative architectural layout from me would look like this. The funds would be managed by a board of directors comprised of 12 members. They would be nominated and confirmed by the House and Senate finance committees. One third or 4 members would be replaced every 3 years on an annual basis. This means you would have a totally new board every 9 years. These board members must come from financial firms and must not have been affiliated with any of them for a minimum of 2 years before serving on the board. There must be no conflicts of interest. There would be 3 funds savers could choose from. Tier 1, 2, and 3 funds; tier 1 being the most conservative and tier 3 carrying the most risk. Young savers might want to opt for tier 3 that would offer the highest return for the highest risk; while tier 1 would be for old geezers like me the most conservative having the lowest risk for a loss. I would envision Tier 1 being comprised of 70% stock and 30% fixed income. These stocks would be from huge multinational companies that have the lowest risk for failure. Should any company want to be considered for this program they would have to be evaluated by the board and placed in a tier. Some may not qualify for any tier. What designates what company gets placed in what tier would need to be evaluated by these financial experts. It must not be discretionary whether a company is in or out. There must be strict guidelines for qualifications for each tier. Once per year savers could designate what tier they want their future investments to go into. They can also move their past investments into a new tier during this election period. If a saver wanted to split up their future and past savings among the tiers this is also allowed but their percentages must total 100%. None of these funds would be guaranteed by the federal government. Social security numbers would still be used to identify account owners. When savers retire, they could designate what percentage they want to withdraw every year and they would be paid monthly based on that percentage election. And yes, savers could leave what is left of their accounts to their survivors. I realize this sounds complex but with the computing power we have now, this very achievable, especially if the private sector is tasked with setting it up.
One could go on and on with the rules of the new system but by now I know you have had enough. I know I have. The point is that I think for our nation we must begin to look at some system that realistically provides a retirement income that a person can live on. A system that is independent from politicians and their greedy hands.
Remember, social security looks 75 years in the future to determine its fiscal health, so if we decide to transition to a private system it will be a long process. No person who contributes to the existing system should lose their money. It would be phased in over time and some savers would have the traditional social security plan as well as the new private system. Over time, savers would receive less from the traditional social security system and more from the private system until everyone is converted to the private system. See what I mean, it will take decades to do this. It is achievable, and if I was a 20 something year old I would be asking when can we get started instead of paying into a system that I have no hope of being there when I get ready to retire.