There is a lot of talk about government programs these days, especially entitlement programs, in light of the crippling debt that Washington is heaping on us all and the programs they intend to spend that money on.
I can’t remember a time in my life when I actually believed that Social Security would survive long enough for me to start cashing checks. Even before my political views shifted dramatically from Democrat tool to Libertarian-Conservative Constitutionalist, I knew that money taken from my paychecks to fund Social Security would never be seen again.
Considering my current political views, and my respect for both the Constitution (interpreted literally and in line with authorial intent) and the long-forgotten concept of Natural Law, I would actually support the complete eradication of all entitlement programs, especially at the Federal level. I’m open to shifting them to the states, and allowing people to vote first at the ballot box and then with their feet whether they want such programs or not.
That said, I hold no illusions that my wishes will be fulfilled in the national political arena. Even with the rise of the Tea Party, and a strong chorus of calls for fiscal responsibility and minimalism in government, few seem to be willing to address the sacred cow of Social Security in any meaningful way. However, I’d like to offer my view on how to save this program so that there might be a slim chance I could get my money back when I hit retirement age. Whether or not you like my ideas here, there is no question that serious changes need to be made before the program not only dries up, but sucks our nation into serious economic turmoil in the process.
Sustainable Contribution Base
The relationship between who pays into Social Security and who receives benefits needs some serious work. Surprisingly though, it is the one program that seems to tie recipients to contributors. Currently there is a cap on how much income will be taxed for Social Security. I don’t recall the exact figure, but somewhere just north of $100k, income stops being taxed for Social Security. This is the one element of the program I think actually makes sense. There is an underlying presumption that everyone will receive Social Security, despite the acknowledgment that our wealthier Seniors have little need of it. Talk of taxing every dollar while applying a sort of means-test to decide who receives benefits gets into wealth-redistribution territory, which is pure tyranny at every level. No man, no matter how “successful” should be obligated to work for the benefit of another unwillingly, which is exactly what redistributionist programs require. This is where I lean on Natural Law, and encourage the reader to learn what you can about Natural Law.
One major reason Social Security is unsustainable, and is speeding toward insolvency, is that when the program was created, there were nearly 16 people paying into the program for every person receiving benefits. Today that number is closer to two. That means that a typical married couple is paying into a program to support one of their four parents. It is left to their kids to support the other three, while trying to support themselves in the process. In past generations, it was much more reasonable for kids and grandkids to support their elderly parents and grandparents because birth-rates were much higher. Life expectancy was also much lower. Most people didn’t expect to live to see 65 years of age, when they would become eligible for Social Security. Today they are living well into their 70’s. And when you had four or six kids, who each had four to six kids of their own, you’d have a couple dozen people pitching in to make sure your needs were met in old age. Today we are in the position where most people have made caring for the elderly a low priority because “that’s what Social Security is for”, and there are fewer of us to do it.
As a result, the age of eligibility absolutely needs to be adjusted – dramatically. Assuming that life expectancy will continue to rise (just for the sake of prudence), I would tie the age of eligibility to life expectancy in percentage terms. For example, life expectancy averages 75 years, and we set eligibility at 95%, new Social Security recipients would be eligible at age 71 and 3 months. This would give them 3 years and 8 months, on average, of benefits. This doesn’t seem like much, but keep in mind that when the program started, most people didn’t expect to live to see anything. Also keep in mind that Social Security is little more than a guaranteed welfare program, and the only requirement is to keep breathing for a specified length of time. Welfare has a lifetime cap of five years, not much more than my proposal.
Choice
As with any other government program, Social Security is crumbling for lack of choice. Just like government schools, you’re stuck with it, you have to pay in, and have no say in where the money goes. The only saving grace is that you’re free to supplement Social Security through an IRA, 401(K), or other retirement account. You can put all your change in a jar for 60 years and retire on it if you want to. Sticking with the government school analogy, this is like going to private school in the evenings, after getting let out of the government school; that’s probably where the meaningful portion is going to come from.
Because any word of making any change to Social Security, besides sending out bigger checks, is met with the strongest of resistance, even among the so-called Conservative, I’m willing to be careful with how a system of choice is offered.
I propose that anyone anyone age 50 or older be given a few options. The first option, which should satisfy the staunchest of Social Security lovers, is to continue with business as usual. If they haven’t retired yet, they can continue to pay into the system as usual, and get the checks they expect when they expect them.
The second option would be a lump-sum payout. If the person is retired, they could receive a tax-free payout equivalent to everything they’ve paid in over the course of their lives. If retired, they could do what they wish with the money. If not yet retired, they could put it into any investment they like under the umbrella of a Roth IRA, where it would never be taxed. This option would probably be disregarded by lower and middle class retirees, who have been counting on Social Security to pay their bills in retirement. However, for many wealthy and prudent retirees that saved all their lives, not expecting to receive anything, this is a great option. They get back what they paid in, without being a greater burden on the system. I say that because most people receive back what they paid in within just a few years of retirement, and the remainder of their lives continue collecting long after their own contribution is exhausted.
The next group would be the 30-49 crowd. This group would also be given options. However, the options given to this group would have more serious consequences, no bail-outs for making bad choices.
The first option would be to move to an optional state-run system. This would shift an unconstitutional program away from a Federal government that has no Constitutional authority to run such a program to the states, which have a 10th amendment option to offer such a program. Should this option be chosen, the state would decide the specifics of the program, but could not guarantee a payout greater than that equal to a lifetime of total contributions plus a reasonable, market-determined rate of interest. The contributions could be used by states to provide necessary services, such as building roads or other service that requires a lump-sum initial cost, but offers long-term use.
The second option would be similar to the 50+ crowd’s option of taking a lump-sum payout. However, it wouldn’t be a lump-sum. It would be would be paid directly into a tax-free retirement account, phased in over a pre-specified number of years, probably around 10. The phasing allows the money they have been credited to be used to help pay for the retirees that opt to stay in the current system. I personally prefer this option because it puts the burden back on the backs of future retirees. You will invest your money better than anyone else, especially if there is no hope of a bailout if you are wrong. You will weigh risk vs. reward and make a choice that best suits your needs. If you lose everything, you’ll have to work later in life.
For anyone who is 29 or younger, there is no choice. Their contributions to date would be transfered over a similar pre-specified number of years into a private investment vehicle.
In addition to reforming the system in terms of how accounts are structured, I would open up the options of where to put the money. For example, if real-estate, on average, appreciates over time (current economic situation notwithstanding), I would allow people to buy homes with their IRA money. Many people already spend a lifetime investing in bigger and bigger home, figuring that at retirement they can drastically downsize and live off the equity. Under the current system, you can borrow from your IRA to buy a home, but you are required to “pay yourself back.” I would certainly retain the option, but wouldn’t require that the money be paid back into your account. It’s your money, your retirement, and your problem if you screw it up.
Conclusion
Regardless of whether my idea would work or not, things will change sooner or later. The option isn’t if, it’s how and when. I’m of the mind that the sooner it happens, the better. That gets us out before we dig a deeper hole, and gives us more time to iron out the details and resolve inevitable problems that will arise.
As with any program, private is always better. People will make better decisions with their own money than government bureaucrats will. Also, the gut tendency by many to want a safety net must be resisted. It certainly eases the conscience to help people out who make bad choices, but all that does is introduce a moral hazard that will encourage bad decisions to be made in the first place. Don’t get me wrong, I would never forbid anyone from helping a friend or loved-one, that is their choice (and risk) to make. I would not, however, require anyone by force of law, to bail out the irresponsible. Those who make bad choices (like blowing their money on a high-rolling trip to Las Vegas) will provide the example to others that such behavior is not acceptable to society at large, and won’t be subsidized via public bailouts.