Thursday, May 14, 2009

The Social Security Solution

Its nothing new. I mean, the solution. I've been an advocate for it for years and have taken my lumps from plenty of conservatives for that stance. On the other side of the aisle, there has been a muted acknowledgment that it might work but they fear, as most rich folks do, that they will be basically paying and not receiving back. I like to call it the boomerang effect. What you put in they believe you should get back out, eventually.

Nobody who makes a lot of money, taps their ability to invest and believes in the markets will really much like the idea. Conservatives call it socialism but its more like social security. Not the name of the program but the net effect.

We all know about the impending doom of Social Security (and the other two often mislabeled as entitlement programs for the poor, Medicare and Medicaid). We have seen it coming for years as economist and actuaries have been tapped for their expertise and foresight at seeing the future. Sure they crunch numbers and look at folks who earn this or that and they can make a pretty good determination of how much will be paid out compared to how much will be going in. But is this mostly an exercise in futility? Some would call it politics? Others might even see it as polarizing.

It is one of the few government programs that needs to be balanced and rebalanced in order to work. The accompanying suspicions that this will burden future generations unfairly and unnecessarily are always announced as someone pointed out, at the same time there is a huge get-together of the nations health insurance providers.

But what makes it so prone to future bankruptcy? Too many people withdrawing from the fund and no one replacing the missing benefits? To much borrowing? Too much debt?

When solutions are bandied about, the always seem to point to a payroll tax increase, a retirement age increase or a benefit decrease. Some even think a combination of the three might be even more beneficial. A payroll tax of just under two percent would fund the program for 75 years. Increasing the retirement age, as is currently happening, and less people can collect benefits leaving more in the fund longer. A benefit decrease is self-explanatory and might just be economically devastating to a large group of retirees.

A means test would solve everything. The current program is fair to everyone. But any changes in benefits does not distribute evenly or fairly. A means test would place the right amount of benefits where they are needed most.

Here's how it would (might) work:

We could shoot for a $15,000 a year retirement income as the threshold for full benefits; after that it would be reduced incrementally. Will this keep folks from investing for their future? Not really. If anything, it would allow people to draw on their retirement savings only as needed for longer. Add that to that threshold sum to the $15,700 estimated benefits thatand you have just enough to keep the retired person a consumer (which is really what we want them to be) and with enough cash to pay for their lifestyle. Retiring with more would only increase the quality of your retirement years and for those that focus on just such goals, they would not take their eye off of that target because they thought it might jeopardize the size of their SS check..

To make it fair, you could re-run the test every couple of years. That way, if a person with a reduced benefit (because they have so much that Social Security simply pays for pool maintenance) were to have a change in financial circumstances, they could be reconsidered.

If you consider the self-directed invested for retirement rates among all workers, most would not even come close to that mark, despite access to the markets. But many will and they will do it exactly the way they are now. But those that are not using the markets, and they number in the millions, will not be left as burden on the society you want to retire in.

The system was designed to keep the poorest from a poverty existence. We should restore it to its original purpose. It would have the net effect of keeping the economy moving and not burdening it (and their families) with poor retirees.

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