I know this plans been proposed, but I can’t remember by who:
That’s over 15%. (My current 401(k) plan only allows a maximum of 16%.) Plus 401(k) contributions would be tax-deferred, so basically only 5.5% would be taken out of paychecks.
Do you think that enough workers would choose the private investment route to make SS unnecessary? or insolvent?
I’d certainly jump at the chance to manage my own money. Odds are I would be able to get a greater return and eventually see more of it.
I have little faith in the government retirement program ever paying off for my generation.
Well, shut my mouth. It’s also illegal to put squirrels down your pants for the purposes of gambling.
Sounds like a good plan to me. I’m not the best money manager, but I am a damn sight better than the U.S. Gov’t.
“Some people are worried about the difference between right and wrong. I’m worried about the difference between wrong and fun.”
~P.J. O’Rourke~
As a military retiree you can’t collect SS as long as you receive a retirement check, but you still have to pay it. Go figure!
Even if I were eligible to receive it, I feel there will be nothing to collect in my ‘golden years’. The tax base/pensioner pyramid has been turned upside down by the aging of the baby boomers.
I happen to agree that most of us would be better managers of our money than Uncle Sam, but what I find is a general misunderstanding that SS is meant to be a fully funded retirement plan; this was never the case; it was/is strictly supplemental.
For those who don’t/can’t understand this, Darwin is alive and well, economically speaking.
The problem is that SS is not an investment plan for you, it is a wealth redistribution plan - take from the working and give to the retired.
That means that if everyone switched over to the new private system, Granny starves. Of course, it also means that Mr. Moneybags stops getting his check - SS doesn’t stop just because someone is rich.
So unfortunately to extricate ourselves from this situation we need to come up with a way to both fund current retirees and save our own retirement. This means a whole lot more ‘tax’ at least in the short term. Couple it with some cuts of benefits for those who truly don’t need it and you might get somewhere.
The problem? AARP. Old people vote, young people don’t, so it’ll never happen. Nice try though.
One possible problem with the “invest it in the stock market” proposal is that created by ‘The Law’ of supply and demand. Assuming that corporate profits don’t increase dramatically but that most people take that option, we would suddenly see A LOT more money chasing essentially the same number of shares (or the same amount of earnings, however you want to define it). Can you say “bubble?”
Another problem is that of what happens to those who blow it all on stupid schemes. Social Darwinism, while attractive to those on top, wouldn’t likely be the answer after the bubble created above bursts. Instead, look for another ‘magic solution,’ this time funded with…what? Printed money? Can you say “hyperinflation?”
Actually, seen that way, pushing the ignorant to put money into stocks is ITSELF a redistribution scheme…just not the type that typically comes to the attention of standard political thinkers.
The U.S. Social Security system is a pyramid scheme.
That being said, it’s also a non-optional pyramid scheme. Even in the original Social Security Act of 1935, payments into Social Security were called “An Income Tax on Employees.” It was never voluntary.
Another opinion from ‘CBS MarketWatch’s Chief Economist’ is available here: http://cbs.marketwatch.com/news/current/kellner.htx?source=htx/http2_mw
His claim is that the calculations which show that SS will be bankrupt by 2032 are based on historically unrealistic, overly-pessimistic assumptions that have the economy growing at only half the actual rate seen over the last 75 years.
Raising the assumed GDP growth level to a level which is ‘more realistic’ but still less than the actual figure seen in the past leaves SS with tons o’ dough.
douglips and I agree on this. I’ve always strongly felt that SS benefits should not be paid to the wealthy. douglips also correctly points out why a change in that regard is not likely to happen.
Prior to Social Security, the nation experienced a terrible result from economic downturn, one of a series of such downturns that periodically repeated and were expected to repeat. The object to the program was to put the money generating power of the US behind the payment of basic retirement benefits, so that, no matter how bad the economy, you couldn’t ever ‘lose’ the investment in your basic benefits. I am not yet convinced that episodic depressions are a thing of the past.
Social Security is not a ‘pyramid’ scheme, but it IS close to one. The assumption was that demographics would allow a reasonable tax rate to produce sufficient benefits for surviving retirees. In actuality, the rising number of surviving retirees, caused by both the increased work force from the 1930’s to the present, combined with the lengthened average lifespan of American workers, has made it impossible to continue funding the system without either significant benefit cuts or significant tax increases, unless we wish to continue funding it by deficit spending.
There is no valid reason to cut out those who, at retirement, have a lot of money, unless we wish to turn SS into a true entitlement program, with benefits restricted only to those who can’t afford retirement without it. This is not, nor ever has been, the purpose of the program, which is why it is restricted, in the main, to those who have contributed to the system in the past. And because the relative number of ‘wealthy’ retirees is small, very little of the systems resources go to pay benefits to them.
If you proposed to do away with the system, how would you go about it? After all, I have put into the system for roughly 20 years, now. While it is true that the taxes I paid into it were not set aside for my retirement later, I certainly have some expectation that I will be getting something back later. To change this expectation now, when I am almost halfway to retirement age would totally upset my reasonable retirement calculations, and break faith with my willingness to be so taxed in the past.
Mind you, I consider the system a classic example of Rooseveltian paternalism, which, in my opinion, has helped our nation develope the lack of a sense of personal responsibility. Nevertheless, one can’t just dismiss it because one doesn’t like the politics that caused it. 
Under the current U.S. social security system (like most such systems around the world), the current generation of active employees is paying the benefits for the prior generation of employees.
Under the self-invested scheme that is suggested by the OP, each generation pays for itself.
There is no way to convert from the one system to the other system without one generation getting totally screwed.
The self-invested scheme has been put in place (successfully) in Chile, in about 1981, under a military dictatorship: the “screwed” generation was handled through extra taxes. Similar schemes have recently (last five years) been put in place in Mexico, Poland, Colombia, Argentina and a few others. The “screwed” generation is a problem, except that there really was no prior system, so the prior generation got screwed anyway.
If y’all would care to read the CBS MarketWatch article referenced above, you’ll find that Dr. Kellner makes a number of assertions (I have no reason to disbelieve his statements, but since there is not supporting documentation I will refrain from calling them “facts”) that counter what a number of people herein are assuming, implying, and/or stating.
According to the article, this is not now true, and is projected to be true in future by only the most pessimistic of the various projections that the SSA has developed. Those projections assume that the U.S. economy will grow at only 1.4% per year, when the real figure seen over the last 75 years is an average 3.5%.
By projecting just a 2.1% GDP growth rate over the coming years, the figures show that the current $700+ billion surplus in the SS Fund will grow to $10 trillion by 2032.
This is true as far as it goes; what is not true is the implication that ALL of the money being paid into SS goes to current beneficiaries. There is in fact a significant and continuing overpayment, which is counted into the SS Fund, and which could be invested and drawn against for future benefits if it wasn’t immediately spent today by the politicians on porkbarrel projects.
The true Social Security problem seems to be, from what I have read and heard, that the SS fund contains essentially phantom dollars: ‘the Government’ spends the overpaid money (that is, the money that doesn’t go to current benefits) in the ‘regular’ budget as fast as it comes in and ‘owes’ the SS Fund those monies; they are apparently part of the National Debt. Another way to think of it is that the SS Fund is full of government bonds.
Paying off the National Debt would not only put 700 billion actual dollars back into the Fund to be invested (in something other than gov. bonds), but it would put our economy on a much healthier footing and improve the odds that GDP would grow at more than the most-pessimistic rates used in the projections that say the Social Security Sky is falling.
So why do people (other than those who oppose SS on philosophical grounds) think that Social Security will absolutely, positively fail and that it must be radically changed today? Because we’ve been getting our “facts” from the politicians! I shouldn’t have to point out that that might be a mistake, and that independent research might be valuable.
Let me also point out, for those who do not know me well, that I am not advocating the course of action listed in my second-last paragraph above, namely ‘pay off the Debt but keep everything else the same.’ I’m not that conservative (as in, stay the current course), and I’m not in favor of putting high taxes on all of us to support the continuing poor choices of many people.
I merely wanted to shed some light into the cloud of confusion that surrounds this politically-useful subject. If you think about, you may find (I did) that almost everything you “know” about Social Security comes from the lips (usually as reported by the media during election times) of some politician or other.
[Note to self: watch for mixed metaphors when editing for spelling and grammar.]
Diamond writes:
I have seen this a couple of times in the last few days, the problem is, it isn’t true. From the SS webpage http://www.ssa.gov/pubs/10017.html
In fact, if you read the whole page it appears to me (I didn’t read it that closely) that military members get extra credits for their income.
One thing that has not been addressed here is the fact that SS is also in a way an insurance policy. If one breadwinner dies, the children collect SS benefits until 18 or 21. In the past where most households were one worker families, this was a big deal. With both parents routinely working today, I don’t think it is as big a thing, but it does offset the loss of that second income to some degree. The proposal to allow workers to privatize SS would eliminate this insurance aspect.