SOCIAL SECURITY
REDESIGNING SOCIAL SECURITY
By Joel K. Douglas, May 24, 2024
How might we change
the premise of Social Security to make it fully funded, more equitable, and
sustainable indefinitely?
Social Security is societal insurance, not an individual retirement plan. It’s
intended to protect individuals against income loss due to retirement,
disability, or death. It supports disabled individuals, survivors, and children
and reduces poverty.
Social Security protects taxpayers across American society. Without Social
Security, millions would face poverty, straining families and state and local
governments, increasing inequality, and destabilizing the economy.
But Social Security isn’t without its problems. It relies on a larger future
generation funding the current generation of older Americans. This model is
projected to run out of full funding between 2034 and 2037 for the Boomer
generation. With the Millennial generation larger than Gen X, the shortfall
might right itself during the Gen X retirement period.
We need to explore innovative solutions beyond increasing taxes, reducing
benefits, or expanding the workforce. How about we explore an approach so simple
that it would be a radical, permanent solution?
To ensure each future generation has access to the social insurance program, we
must orient the program to be:
Fully funded by the individual, not the following generation
Funding achievable by an individual in their earnings lifetime
Sustainable, such that the program will incur no government debt and weather future changes in population growth
This is achievable.
What if the American people invested $100,000 in every newborn, purchasing a
65-year government bond on their behalf that guaranteed a 3.5% annual return?
Then, throughout each individual’s lifetime, both the individual and their
employer would contribute to Social Security taxes, repaying this investment.
This structure would mirror the existing Social Security tax system.
The individual would have access to the funds when they reach 65 years old. The
fund would project to pay out 30 years of benefit to age 95 at a fixed monthly
rate.
The government would incur no permanent debt with this approach.
Let’s consider the feasibility of this proposal. If America invested $100K at a
baby’s birth and the trust grew tax-free and returned a 3.5% annual return, the
$100k would grow to $935,670 when the baby turned 65.
If we wanted that money to last until the individual reached age 95, that $935K
would pay $2600 per month, or $935,670 spread across 360 months. $2600 per month
is $31,200 per year, which is above the 2024 federal poverty level of $30,000
for a family of four. The average Social Security check today for retired
workers is $1915 per month, a figure published in April 2024.
Let’s break it down piece by piece.
Equitable Access and Personal Responsibility
The premise of this approach is equitable treatment and personal responsibility.
Every American, irrespective of background, would contribute to and benefit from
the fund equally, eliminating disparities from unequal lifetime earnings. Each
participant would receive the same initial investment, with repayment terms
identical for all. No generation would be responsible for supporting another.
Ultimately, this model aims to balance the collective security of traditional
social insurance with the individual responsibility of personal investment.
Once the individual returns the initial investment to the American people, the
individual should no longer owe Social Security taxes. Their additional income
could be redirected towards other financial goals, such as saving for retirement
or investing. This would accelerate financial security as individuals approach
retirement, providing more flexibility in financial planning.
Projects 30 years of Benefit with No Permanent Government Debt
In 2020, 33% of the U.S. population was older than 65, and only 0.6% was older
than 95.
Projecting benefits to age 95 ensures the program plans for the vast majority of
Americans. Those who survive past 95 would continue to receive their benefits.
Individuals receiving benefits past 95 is achievable because most don’t survive
to that fine old age.
Because Social Security is a social insurance plan and not an individual
retirement plan, the funds not paid out to individuals would remain in the
Social Security fund.
This is not different from Social Security today.
Access to the Funds
Adjusting the age of funds distribution, similar to Social Security today would
result in modest changes to the monthly payment.
If individuals chose to take early distributions at age 62, the payout would
change to $2,362 per month.
If individuals chose to wait to take distributions at age 70, the payout would
change to $3,118 per month.
Funding Achievable by an Individual
A worker repaying their $100K investment back to the American people is
achievable.
Let’s assume a worker works for 40 years by the time they reach 65. At the
current Social Security tax rate of 6.2%, that worker would need to earn
$806,451 to repay $50,000 in Social Security taxes over their lifetime.
Lifetime Earnings = Required Total
Contributions/ Contribution Rate Lifetime Earnings = $50,000/0.062
Lifetime Earnings = $806,451.61
To achieve this lifetime earnings mark in 40 years, the worker would need to
have an average annual wage of $20,161.29.
Average Annual Income = Total
Lifetime Earnings/Number of Working Years Average Annual Income =
$806,451.61/40 Average Annual Income = $20,161.29
This is a simplified model that assumes consistent earnings over the entire
career without interruptions and no change to the Social Security tax structure.
Individual Benefit Clearly Outweighs the Cost
The benefits of this model are exceedingly strong for the individual because the
American people made the initial investment at birth. The timing of the
contribution is such that the fund can grow for decades before the individual
makes their individual retirement account investments.
Repaying the American people’s $100K investment would result in a monthly
payment of $2600 to the individual.
If the individual lives 3.2 years past 65, they would receive more than their
Social Security contribution.
Further, many individuals will repay their Social Security investment early in
their careers and stop paying Social Security taxes. They can then focus the
remainder of their retirement planning on their individual accounts.
The proposal has risks, including changes in economic conditions, varying bond
yields, and the impact of these factors on the proposed payouts.
The transition from the current model to this sustainable model would require
strong political consensus to gain public and political support for such an
overhaul.
How might we change the premise of Social Security to make it fully funded, more
equitable, and sustainable indefinitely?
To ensure each future generation has access to the social insurance program, we
need to reorient the program.
We must make it fully funded by the individual and not the following generation.
Individuals need to be able to easily repay the American people’s investment in
their earnings lifetime. The program needs to be sustainable, such that it will
incur no government debt and weather future changes in population growth.
These goals are achievable, and using this model would ensure future Americans
would enter retirement more financially secure.
Written and audio versions of Joel K. Douglas’ work are available at
https://joelkdouglas.substack.com/.
Reprinted with permission from the American Thinker: https://www.americanthinker.com
THE LIE BEHIND SOCIAL SECURITY
By Dan Weber, March 25, 2015
Social Security is in trouble. We
all know this, or should. But there is a cheat within the system, and it is time
the cheat was brought into the full light of day. In short, Democrat lawmakers
-- and Republicans who have remained silent on the issue -- are complicit in a
process that amounts to fuzzy math or worse – intentional confiscation of Social
Security benefits from those who, all their lives, have worked harder. Contrary
to public misconception, Social Security is not a level playing field -- it is,
in fact, confiscatory.
Let me put the numbers before you,
and you reach the conclusion to which they lead. This is pure math. The question
that the math presents is sobering: The Democrats are fond of asking, “Are the
rich paying their fair share?” But the real question is: Why do those who work
harder all their lives end up with less? In sum, those who make more, are paying
for it later -- the Social Security system is rigged to pay them less. Here are
the raw numbers.
You would think that if a worker earned double the income during their working
years, their Social Security would be double -- but that is not the case. When
you do the calculations for a person with a $4,000 average monthly income, the
Social Security benefit comes out to $1,759 for life. So you would expect a
person whose average monthly income was $8,000 to have a double Social Security
benefit of $3,518, but in reality, they would only receive $2,525 per month.
The numbers are arresting, although no one is being arrested. They are sobering, although one wonders where the more sober minds are to right the implicit wrong. Social Security benefits are presently calculated to enrich the benefits of lower-wage earners by taking away money from higher-wage earners. No politician tells you this, but it is the rock-hard truth. This is presumably baked into the system in order to give poorer people more money. But there is certainly no problem with that.
The central problem is with the false impression that continues to be created by those in positions of leadership. The impression presented day in and day out is that higher-income individuals -- or those who have worked longer and harder all their lives -- are not paying their fair share. But that is frankly not true. As Ronald Reagan was fond of saying, “facts are stubborn things,” and so they are. As illustrated above, the higher average lifetime income an individual has worked to earn, the less fair the Federal Government is to that person in retirement. Put differently, the lower the percentage of salary they are getting back in the form of Social Security. Is that fair?
Is that honest? Is that being publicly discussed? No -- and the question is, why not? Just as veterans should not twice be taxed on their pension earnings, those Americans who have worked harder and lived longer in their earning capacity, should not be punished for their industry, diligence, creativity, or sweat. After all, into what venture is that sweat equity being paid? It is paid into the prosperity of the United States of America, and what one puts in -- one should equitably get back in the older years, when the pension matters so much. So, where is the fairness? And where are those who will stand up for seniors, particularly those who have worked all their lives to make the sunset years, sustainable?
Despite the unfairness of the facts, liberals want to punish more and harshly those older Americans who earn more and have worked harder, those higher-income individuals who have built the prosperity on which we all rely. They are attacking the hardest workers and highest earners in retirement, more today than ever before. The fiction that they are not paying more for others needs to be stopped; the truth needs to be laid bare, spoken boldly, and inequities in the Social Security system need to be put under the bright lights and openly discussed. To date, they have not been.
By raising the tax cap, those who have earned salaries over the current cap will receive an even smaller percentage of their salary in the form of Social Security as compared to low-wage and middle-wage earners. So remind me again why this continuing burden on those who work the hardest, strive and risk and sacrifice the most, that have put more in over the passage of time, not being rewarded -- and why is this added burden on them not, in the end, proof that they continue to pay more than their “fair share”?
The sad fact is that the present leadership -- in many parts of the Federal government -- seems intent on obfuscating the truth, and in the process punishing, diminishing, and disparaging the hard work of seniors. It is time that the truth was plainly spoken, and that the hard-won benefits of seniors who have put more into the system and at a higher level, those who have worked harder for America over their many years, were not ignored.
These many seniors -- the ones who worked hardest and paid the most into the Social Security system -- are the ones most regularly punished by an inequitable Social Security payment system, one that penalizes their hard work in retirement. The irony is that they pay more than their fair share and always have. And yet we have a president, and many around him, who are intent on placing the burdens of runaway Federal profligacy on their backs. Shall we talk fairness, then? Who would call that fair? Bold and honest leadership that appreciates them, treats them fairly, and recognizes the hard work to which they have given their lives -- and the tremendous gift that hard work is to their country -- is needed.
Dan Weber is the President of AMAC, a
senior citizens group that represents 1.3 million Americans and seeks greater
fidelity to fiscal responsibility by the Federal Government.
Read more: http://www.americanthinker.com/articles/2015/03/the_lie_behind_social_security.html#ixzz3VPemEYnU
GENERATIONAL WEALTH GAP
By Jeffrey Folks, November 15, 2011
A recent census report disclosed
that the wealth gap between seniors and younger Americans is at an all-time
high. Those over 65 have accumulated $170,494 in total assets, while those
between 25-34 had a net worth of $3,662 -- a difference of 47-to-1. Media
commentators floated a variety of reasons for this supposed inequity:
globalization, bad timing, and government retirement programs that supposedly
transfer wealth from young to old. The real reason, I believe, has more to do
with the choices that the young have made.
One of the most important generational differences has to do with home ownership. Those over 65 typically purchased homes at a time when prices were low and saw the value of their homes increase. Even with recent declines, these homeowners are way ahead on their investment. On the other hand, those who bought in at the height of the market in the mid-2000s have seen the value of their homes decline by an average of 30%. It's not their fault, the liberal media tells us, that they're underwater and behind on their mortgages. They are the victims of the worst housing market in 50 years.
That is an argument that many would like to believe because it absolves delinquent homeowners of responsibility and helps make the case for government-mandated principle forgiveness. Unfortunately, that argument is also largely bogus.
For one thing, most of those now underwater did not buy precisely at the market top. They bought before or after the top, saw their home prices rise or decline, and now sit on an investment that may be somewhat above or below what they actually paid for the property. On average, the current value of homes purchased in 2002 or 2003 is about the same as the purchase price. Many homeowners now find themselves underwater not because they bought at the market peak, but because they purchased a more expensive home than they could afford, and because they borrowed against its value as home prices increased.
In other words, they made no allowance for risk. They bought beyond their means, often after submitting fraudulent loan applications, and then they borrowed more as the value of the property peaked. They were the victims not of bad timing but of their own bad judgment.
Compare this behavior with that of Americans over 65 -- those with a net worth of $170,494. This generation purchased "starter homes" in the 1950s and 1960s, normally with a down payment of 5% to 20% on a fixed 30-year loan. These homes were modestly priced in relation to their buyers' incomes. (The median home price in 1950 was $7,354 compared to $172,800 in 2008.) As their incomes grew, those now over 65 moved up to larger homes, but their ambition was always to pay off their loans before retirement. Except in a real emergency, they did not take out home equity lines of credit.
In too many cases, younger Americans attempted to game the system by purchasing expensive homes, borrowing against the value of those homes, and hoping that home prices would continue to rise. But it was not just housing where they were gaming the system. They were doing much the same thing in regard to the job market.
Typically, Americans over 65 sought the best education they could afford, obtained stable employment, and worked for decades with the same employer. Even those who completed only a high school degree were well-educated -- more so than high school graduates today. The evidence of college entrance scores is telling: SATs scores peaked in 1963 and have declined ever since -- so much so that testing agencies have felt compelled to adjust the difficulty of exams and recalibrate scores in response to declining aptitudes. For whatever reasons, young people today are poorly educated in comparison with those over 65.
As to why graduates are poorly prepared, it is not that they are less intelligent: they have simply not worked as hard as previous generations. Large numbers of college students have chosen "soft majors" over more demanding fields in science, math, and engineering. And among all students, there has been a declining commitment to study. Among current college students, time devoted to homework has declined by half as compared to the baby-boomer generation. The loss of 13 hours per week, over a four-year period, means that today's college graduate has studied some 2,000 hours less than a 1965 graduate. No wonder he seems poorly prepared; he is.
This failure to obtain an education translates into lower earnings. CEOs and human resources managers often complain that younger workers are not well-prepared. A Business Roundtable report stressed the "overall inadequate level of education" among graduates entering the workforce. In a workplace that increasingly requires more than a high school education (63% of new jobs will require at least some college and 45% a college degree), less than 30% are college graduates.
In the same vein, a report issued by the Conference Board noted that younger workers lack "basic knowledge and skills." But it is not just preparation. Managers complain that the "generational characteristics" of millennials include the need for instant gratification, unwillingness to work long hours, and a lack of respect for rules and authority. As a group, younger workers are just not as disciplined or hardworking as their elders.
The whole argument that the young are the unfortunate victims of bad timing, unfair trade practices, or generational wealth transfers does not hold up. Every generation has faced challenges (the Great Depression, World War II, the Vietnam War, the severe recession and inflation of the 1970s and early 1980s), but earlier generations prepared for hard times by studying and working hard, obtaining stable employment, avoiding debt, and saving for retirement.
What separates the young today from earlier generations is their choices, not their luck. Among past generations, taking on debt was accompanied by a sense of moral hazard. The possibility of bankruptcy was frightening not only for economic reasons, but for moral ones as well. Bankruptcy was considered a lifelong stain on one's reputation. Today it is seen as a temporary hit to one's credit rating.
It's no mystery as to why younger Americans have an average net worth of only $3,662. So far, as a group, they have made all the wrong choices. Bad choices have consequences, and for the Millennials, the consequences will be reduced lifetime earnings, a lower standard of living, and a less comfortable retirement. This is not the fault of their elders, and it is not a situation that can or should be addressed with a government bailout. As a generation, those under 35 will never recoup what they have lost as a result of their poor choices. The best they can do is to redouble their efforts, focus on saving and paying off their homes, and trust that they will be rewarded with at least an acceptable if not a prosperous retirement.
Jeffrey Folks is the author of many books on American culture, most recently Heartland of the Imagination (2011).
Page Printed from: http://www.americanthinker.com/articles/../2011/11/generational_wealth_gap.html
STOLEN SOCIAL SECURITY NUMBERS
In Human
Events, for the week of June 25, 2007, Terrence P. Jeffrey, writes about a
boy who was born in September 1991. By the time he was seven -- according
to W-2 reports bearing his Social Security Number (SSN) -- he had taken multiple
jobs. From 1998 to 2001, employers filed more than 3900 W-2s using his
SSN. When he was 12, they boy was holding down 919 jobs in 42 states.
This information was published in a 2005 audit report from the Social Security Administration's (SSA) inspector general. The absurdity of the law as it now exists in that if the SSA were to discover that someone was misusing your SSN, they can't tell you about it. Instead, they try to contact the employee who used your number and the employer who accepted it.
Employers who turn in a lot of no-match SSNs get lots of letters. They have the ability to check on SSNs by phone and on-line. They have the ability to obey the law if they wish to do so.
Under present law, the only disclosure allowed by the SSA of no-match numbers is to law enforcement agencies. The SSA, however, cannot refer cases to law enforcement agencies. They cannot report these no-match numbers to the Department of Homeland Security -- the agency which is charged with enforcement of the immigration laws.
Mr. Jeffrey suggests that Congress (which is well aware of this problem) pass a law mandating that the SSA hand over lists of no-match numbers, particularly involving employers who are egregious filers of no-match W-2s.
He finishes his piece with this piece of wisdom: "Who knows? They might discover that, like that child born in 1991, you, too, have been holding down several hundred jobs you didn't know about."
THERE
IS NO "LOCKBOX"
Editorial by Maureen H. Rudel
It is disconcerting to hear people say the federal government should "save Social Security first." The federal government cannot save money. It can only spend money. Let me explain.
At the present time, payroll taxes collected from current workers exceed the current cost of Social Security and Medicare payments to retirees. The extra money is called the "Social Security surplus." Unlike people, companies and even state governments, the federal government does not have a way to invest the money and earn interest. This is good, because a lot of mischief could be caused if Congress or the Executive Branch had the freedom to pick and choose the winners and losers in the market place. So, what happens to the excess money?
The so-called "Social Security Trust Fund" does not have a nickel of real money in it. It holds special bonds which cannot be sold on the market and which represent a debt from the government to itself. If the "Trust Funds" (and there are many of them) are the left pocket of a pair of pants, the right pocket holds the rest of the funds which flow through the federal government. When there is extra money in the left pocket, it is moved to the right pocket and replaced with an IOU. The money in the right pocket is spent on government programs and to pay interest on the national debt.
The debt is made up of two parts. The first part is the money that the government borrowed from the public through issuing treasury notes, bills and bonds (like savings bonds). Each of these bear an interest rate and the interest must be paid when it comes due. From time to time, each of these instruments expire and can be redeemed, just like a savings bond. The government then must pay the face value of the instrument as well as the interest due. In previous years, the government would then go out and borrow more money to replace the money it just paid out. Now that we have surpluses, the government is not borrowing from the public by issuing more debt instruments, it is borrowing from Social Security, Medicare and other trusts funds. These are the other part of the debt. This is why you hear politicians talk about paying down the "public debt." What they don't tell you is that the debt owed to Trust Funds is going up every year. The only way to pay that off is with future taxes.
The money that was once paid by a worker for Social Security and Medicare is then spent on other programs.
There are two ways to stop the theft of this money. One way is to lower the payroll taxes so they only bring in enough to pay off current retirees. However, this leaves a major problem for current workers when they become retirees, because there are simply not enough people who will be working when the baby boomers retire to pay the costs of their benefits and still have any money left to live on. It has been estimated that, if there are no changes to the systems, the baby boomers children and grandchildren would have to pay 85% of their income in taxes to cover the Social Security and Medicare payments to the boomers.
This is why the systems must be changed. The other way to stop the theft of the Trust Fund money is to effectively take it out of the government's hands. That is the purpose of creating individual accounts for younger workers. Since there is so much extra Social Security money coming in right now, the extra money could be used to establish separate accounts for current workers and still pay off the people who are already retired or are very close to retirement. The worker would have a choice of whether or not he wanted to stay on the old system or try the new system. If they went on the new system, a part of their social security taxes would be invested in an account in their names. They would be able to choose from a variety of safe investments -- all of which would produce much higher returns than the IOUs in the Social Security Trust Fund -- which now returns about 2%. The accounts belong to them, not the government, so they can't be spent and Congress does not get to decide whether it can change or lower the payments from those accounts as it can for regular Social Security. If the worker dies before he reaches retirement age, the private account would go to his family. Now, he loses it.
The rest of the Social Security payroll tax would be used to pay off current retirees and to maintain the death and disability insurance benefits that exist now.
The Medicare excess payments that are now being generated could be used to set up a different system. The one proposed by President George W. Bush would work like the system the federal employees have now. There would be a choice of policies or medical programs offered to each retiree. The recipient would be given an amount of money to apply to the premium for the program he chose. If the recipient wanted better coverage, he could add to the money he received and get it. If he wanted to get a policy which contained prescription drug coverage, (because he didn't have it elsewhere, for example) he could get it. If he decided to stay with the old Medicare, he could do it. The choice is in the hands of the citizen, not Congress and not a bureaucrat.
This is the approach that President Bush favors and so do I, because I know the truth.
There is no "Lockbox."
