Social Security is owed, not an entitlement

Behind the headlines calling for private accounts and trumpeting tax increases and benefits cuts for Social Security recipients, there lurk good intentions, political dogmas, past decisions by committee-think, and grotesque pandering to young and old.

How can this be explained in simplest terms, the media seems to wonder? How can we sell our root philosophy, the politicians ponder? Meanwhile, millions are being spent to “educate” you by calling on your emotions, clouding your reason, and confusing you over what is common sense by turning United States social security benefits and retirement discussion into double-talk and half-truths about voluntary, private accounts, and constant reference to “entitlements,” as though decades 0f contributions to Social Security equal some form of welfare..

The stakes are incredible. If you earn just $20,000 a year, starting at 18, with only a 1.5 % inflation salary increase, at age 65 you should accumulate $565,059 at a 3.3% inflation- adjusted interest rate. That’s under the current 6.2% contribution plan for workers and 6.2% for employers. Your retiring salary at 65 should be $40,266, and your benefits should be $25,391, slightly more than 60% of current salary – and net of income tax. You and your employer will have contributed $86,261 each to your retirement.

That scenario is what should happen. Unfortunately, past administrations have never established an actual individual fund for anyone. Part of the reason is the original law in the 1930s reflected the accounting reality of the day – millions of hand-entries in the insurance and banking industries, and hundreds of thousands of clerks and accountants tracking money. It would have been a costly nightmare to manage millions of pension accounts, especially voluntary, personal accounts by hand, and so tables were established and payments for personal accounts calculated on a set rate of return.

The following principles are critical to a fair United States Pension Plan:

Set the interest rate for Social Security bonds and payments at 3.3% above the current inflation rate, adjusted quarterly. This reform will guarantee a 60% or higher payment to every retirement recipient at age 65 and it will maintain the solvency of the trust fund and payments to personal accounts..

Raise the limit on contributions to $250,000 of annual wages, instead of the current cap of $118,000. If combined with principle #4 these high-income individuals will receive a commensurate return on their increased payments.

Base recipient payments solely on the amount contributed over their lifetime of work – in short, the sum of their set and voluntary contributions, employer contributions and interest earned. Personal accounts benefits will be based on the same formula – 3.3% above the current inflation rate.

Permit the designation of all individual contributions to be placed in the trust fund of another person or persons. For example, the $86,261 – accumulated by the $20,000 wage earner in our benefits table – could be transferred to the trust fund of a spouse, children, grandchildren or other loved ones. This voluntary allocation of private accounts would enhance their benefits and this estate would be part of their contribution base for future, similar endowments.

Remove all federal, state and local taxes on the payments of benefits to trust fund recipients. This reform for personal accounts is in exchange for sacrificing the interest earned by their contributions over a lifetime, tax free.

Invest the trust fund, not just in United States Treasury notes, but in municipal bonds, which are guaranteed by state or local tax bases. This would eliminate an enormous premium on interest rates, now paid by governments, and end excessive bond counsel and other fees, encouraging new school and road construction, and repairs to the nation’s infrastructure.

Allow the voluntary contribution of more than 6.2% by individuals. These voluntary pension private accounts would form part of the base of their retirement benefits. All funds and the interest they earned would be payable in the same manner as an I.R.A. – withdrawn as early as 59 1/2, with mandatory deductions at age 70. These disbursements would be taxable as withdrawn, and loans would be permitted under the current 401K rules.

4 responses

  1. […] Social Security system is the joke of the industrialized world. The average payout is some 40% of prior wages, […]

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  2. […] if you make more than a set amount in retirement, you will not be entitled to any benefits from Social Security. The age of eligibility will also be increased and cost of living raises will be reduced by using a […]

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