As you probably all know, social security is a transfer program, not a retirement program. Aside from eliminating the program entirely, which advocating for would have you removed from polite company, here are some things to consider about it.
- The system is in far better shape than Medicare. Medicare is the big elephant in the room. I would gladly trade off more capitalism in medicine for less capitalism in retirement savings. After spending the last week in and out of various medical facilities, none of them able to discuss cost and price with me, and ALL overflowing with patients and stressed out doctors and nurses, it is quite clear to me that we need more competition, not less, and a different way of thinking about helping needy people afford basic medical care than the way we are doing it today. But that is for another series of long posts.
- A quick, short-term, but not complete, fix would be to extend the retirement age. It bears repeating that when social benefits started being paid (to a much smaller population) in 1940, life expectancy at birth was close to 63. Conditional life expectancy, upon reaching retirement, was not nearly as high as it is today. So the program was designed under a very different demographic regime (including birth rates too). Retirees simply did not live long enough to collect lots of benefits. That is obviously very different today with life expectancy at birth in the 79 year range and conditional life expectancy upon reaching 65 running another 20 years. Can someone else show me a program or product that was created in 1940 that remains nearly unchanged today in the face of massive changes in the underlying customer demographics and economics?
- My colleague here at UR believes that the US is starving the world of much needed safe, secure debt. If I were to accept the premise of the argument, then here is how I would propose we accommodate. I think the US should borrow an incredible crap-ton of money today. I think they should use the proceeds to pay off the present value of all current and future retirees’ “claims” in social security system (Medicare too?), and then abolish the entire system entirely. If the government wants to pass a law saying that these newly awarded funds be earmarked for retirement savings, then fine. I’d immediately abolish the payroll tax, and if the government needs to raise revenues to replace that, and to pay off the debt (service would be cheap remember, and at negative rates, we’d be PAID to do it!), either adopt a progressive consumption tax, or beef up the income tax and make the entire tax system more transparent.
- My portion of the social security payroll tax is 6.2% and the employer portion is 6.2%. By the way, that is a sham. Most of that incidence is borne by workers. Assume that the net burden is 12%. For a family like mine, therefore, the annual social security tax burden falls somewhere in the range of $10,000 to $20,000 per year. Suppose we take the middle end of that range for fun, about $15,000 per year. If we, instead of sending that to the government, only to be doled out to some other retiree (or some ag subsidy as it may, those funds enter the general fund), we were commanded to “take care of our parents”, we could instead simply take $15,000 from our paychecks and hand it directly to our parents. My wife and I still have 4 living parents however, and the $15,000 does not go an incredibly long way. So unless families had more kids than just two, their social security contributions are not likely to be enough to support parents. On the other hand, I am from a family of 6 kids and my wife is from a family of 3 kids. Even if the average SS taxes from each of us is $10,000, that is plenty of money for us to take care of our parents. Here’s an idea – if you do not have children, you should not be eligible for social security.
- For argument sake, suppose that my average social security contribution since I started working (age 22, less 5 years for school) has been $10,000 per year. And suppose that amount continued to be collected and invested until I was 67, I’d have $1,334,000 if I managed to secure a 5% real return. If I managed to have that asset in an interest bearing account, I’d be able to generate $53,000 per year in pre-tax income and still preserve the entire value of the asset to be transferred to my estate or some charity. If I decided to pay out the entire thing (excluding interest) so that it ran to zero by the expected time of death, I could generate $78,470 per year. If you are worried that poor people would not be able to accumulate this kind of a retirement nestegg from their social security earnings alone … tax the wealth that has accrued at the time of death and use those funds to supplement the retirement funds of the poor.
I don’t actually believe in doing any of these things, and for sure I can flesh them out a lot more, but it’s fun to toss stuff up against the wall and see how it looks.
