Tuesday, February 9, 2010

Solutions to Social Security

Social Security is going bankrupt at a faster pace than the experts predicted, because it is based on people working in the work force. When people are not working, they are not contributing to the system. People talk about Bernie Maddoff when it comes to Ponzi schemes, but they fail to mention the biggest Ponzi scheme of them all, Social Security. If anyone would try to set up a program like Social Security today they would be arrested for setting up an illegal pyramid scheme.

According to the Social Security Administration the Social Security trust fund will begin running a deficit by 2016 and the trust-fund surplus will be exhausted by 2037The fund is also being drained by individuals on SSI who possibly never contributed to the fund. However, the Social Security Administration states Supplemental Security Income (SSI) is a Federal income supplement program funded by general tax revenues (not Social Security taxes). Actually, the trust-fund contains no assets, but just Government IOU’s, so the money does go into general revenue. It was supposed to be in a lock box, but politicians have used the money to pay for other things and now the system is going broke. In other words Social Security is going bankrupt.

The current system is set up and based on the number of employees’ working. Ultimately, there will not be enough workers in the system to pay the retirees. AARP likes the status quo and is against privatizing Social Security claiming investing in the stock market is too risky. They want the system to remain the same, which is based on employees that are working. However, where do they think these workers are working? They are working for corporations. When people invest in stocks the value is based on the earnings of the corporation. If the corporation is doing well it may or may not have more workers working to contribute to the system; some corporations are doing well by increasing their productivity by squeezing their employees, getting more with less. This is usually short lived, because eventually you get job burnout. The company then would fire those people and hire new ones and they would have to be trained. Then there’s a learning curve, which ultimately becomes costly or they hire more people. If the corporation is not doing well then it will have fewer or no workers working to contribute to the system, because of job layoffs or the business closes.

The politicians’ solution to the financial problems with Social Security is to raise taxes, raise the retirement age and cut benefits. It is a hideous system that was put in place by politicians to use as a slush fund and not necessarily for the benefit of the individual. With the politicians suggested solutions to the problem it seems their goal is for the individual not to benefit from it. What some of them would like to see happen is to increase the taxes the individual pays into the system and their hopes are they die right before they reach retirement age.

That is why the system needs to be privatized. Individuals need to have their own account, where they can control it and it can be passed onto their heirs. They could invest in stock, bonds and treasuries etc. based on their risk tolerance. The key being it would be theirs and would give them individual freedom.

When some people talk about the healthcare debate they say they do not want a Government takeover of the healthcare system. I happen to agree with that sentiment, yet when it comes to retirement the Government is telling you when you can retire if you rely on Social Security. I believe it should be left up to the individual. Also, individuals are restricted when they can access the money. This is another reason why the Social Security System needs to be changed. People should retire when they have enough money to retire and they want to retire.

Here is how the system currently works and its flaws. It may be anecdotal, but it is how it worked in my family. My parents both worked all of their lives and paid into the system. My father was getting about $1300.00 a month and my mother was getting about $1100.00 a month from Social Security. He died September 28, 1998. Upon his death my mother had to return September’s payment back to the Social Security Administration. In return she received a $275.00 death benefit. My mother then received the amount of my father’s check of $1300.00, and she no longer received her check.

On September 27, 1998 my parent’s household was bringing in about $2400.00 a month in Social Security retirement. However, on September 29th, 1998 the household income was cut in about half to $1300.00 a month due to a death. That is not right. It was tragic enough to have lost my father. The household income would not have changed upon my father’s death if my parents had their own retirement account.

Again, that is why Social Security needs to be privatized. Social Security needs to be replaced over time by individual private accounts. The people that bought into the system, paid into it, and are on it now, need to be taken care of and be paid their benefits. The rest of the people need to be weaned off the system until the system is replaced by individual retirement accounts, where they are in control of it and they can decide when they want to retire.

Greg Zotta

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