Thoughts on Restructuring Social Security

This is a DRAFT idea, a work in progress. What do you think?

Social Security is going broke. By 2017 more money will be going out than is coming in. Politicians in both parties refuse to acknowledge this fact or face the possibility of restructuring SS because of a fear of not being re-elected.

Over the years several brave politicians have taken up the effort to propose several repairs to the system so that it will continue. The last of these was president Bush who proposed allowing participants to invest on their own 5% of their social security deductions.

While a good start, opponents quickly killed this idea and so SS have rumbled along toward the cliff. A family of 4 with a $34K income pays $1000 of their $5000 in their yearly tax. Currently 15% of a working person’s salary is devoted to SS. One half is paid by the employer while one half by the worker.

SS paid by workers today goes directly to pay SS benefits to those who qualify.

What is needed is a way to wean workers off SS entirely so that each worker is responsible for their own retirement and will not be a burden on society.

Charles Murry in his book, In Our Hands has suggested a method to eliminate not only SS but all other welfare programs by simply giving every working American $10K per year starting at age 18 until they die. This amount would be reduced a little at a time when the worker exceeds a minimum of $35K. As the amount earned rises, the $10K decreases.

The $10K is for the worker to use as he or she likes; start a business, invest it, use it to attend college or trade school or spend on alcohol and drugs.

My idea is to wean the public off public support, over several years, using the following methods;

  • Make no change in the benefits current beneficiaries receive.
  • Increase the age at which benefits are paid to current workers by two years
  • Increase SS payments for all employees to 15% (half worker, half employer) regardless of income level. Push the compensation level above the current $80K limit. Compensation would include income taxable salary, benefits, but not healthcare, however including stock options
  • Means test the payment of benefits to anyone  who will be eligible to receive benefits in the next 10 years who will have a net worth starting at $250K and up to the point where they are paid no benefits at all
  • Permit any US citizen to invest initially 10 percent of their portion (employer’s portion of the SS payment remains the same) of SS payments into a private retirement fund; 401K or TSP (federal government employees) who would not otherwise be eligible to receive benefits in 10 years. That is someone who is at least 11 years away from receiving SS benefits.
  • Workers who would be eligible for SS benefits further out than 11 years are permitted to invest a larger percentage of their SS payments the further they are from being eligible for them.

o       In practice this means that anyone entering the workforce at age 18 or 22 or 26 (the latter in case of college or trade school) would be allowed to invest up to 100% of their portion of the SS payments.

o       This percentage is permitted for the life of the worker.

o       This worker will receive no SS benefits at any time in their life

  • Investing

o       10% of the worker’s portion of the SS payment must be invested in the G-Fund of the TSP or an approved fund of similar type offered in the private sector

o       The balance (90% of the workers SS payment contribution) may be invested in and approved IRA, 401K or TSP

o       At no time may a worker withdraw more than 10% from the either fund for any purpose other than personal or family education or business purpose.

o       Up to 10% can be borrowed form a fund for the purchase or down payment on a home. Repayment is deducted from payroll. In the event a worker loses his job, repayment can be suspended for up to 3 years. Interest rate for borrowing is limited to Prime rate plus 1%.  Term is 10 years.

  • Borrowing Limits

o       Up to 1%  of the funds can be borrowed for any purpose at Prime rate plus 1% for a payback duration of 5 years

o       3% of annual gains from investing will be paid to the SS fund for the purpose of providing benefits to current beneficiaries and those currently ineligible for this program.

o       Withdrawal of funds in part or whole is authorized upon reaching age 65

o       3% annual gains contribution to existing and future workers from investing expires after 20 years

  • Employers

o       Employers contribution expires after 40 years

  • Inheritance

o       All privately invested funds are transferable upon death without taxable penalties

o       Order of beneficiary will be determined by will or in the absence of a will through the state probate and court system

  • Spouse

o       Married couples where one spouse does not work are permitted to double their contribution. The married but not working spouse will gain 25% of funds upon reaching 65

  • Taxes

o       All funds, principle and interest, less the 3% already mentioned, are free from federal and inheritance taxes.

Let me know your thoughts.

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About Well of Knowledge Tour Guide

I am a public policy thinker and amateur historian. My interests are seeking knowledge in all areas of life.
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