My Fix for Social Security

[distraff]

I have been thinking of an idea for fixing social security. Currently social security relies on young people paying for old people's retirement every year. The problem is that there are more and more old people and fewer old people. Also, healthcare cost is going up for the old people, and the young people have been suffering from falling wages.

My fix is that we change social security so that it is funded by every year we take all the funding every year from the tax and divide it equally between every adult. This money is saved in a savings account. This is done every year and when every person turns 65 they have access the the large amount of money that has been collected since they were 18. This savings account can work very much like a corporate savings account where the user can choose to save it in long-term savings, invest it in the stock market, put it in bonds, invest it in commodities like Gold and Silver, and more.

Since these accounts will collect a massive amount of interest over 47 years, this interest will help offset the factors making social security less affordable. Also it is help with the problem that the rich own most of the financial wealth in this country, and that much of the income inequality growth has come from the rich's gains from their large investments in the stock market.

I would also remove the regressive the social security tax and make it added to the progressive income tax in a way that is moderately progressive.

This idea benefits from the facts that the interest from investments will bolster social security and make it a real investment. It is right-wing in that the money is invested in the private market and massive hikes in the social security tax are prevented. It is left-wing in that the social security will remain equal for everybody and the tax will be made progressive instead of regressive.

 

[ttwtt78640]

What happens to a 25 year old that becomes disabled? Why should anyone that does not work get any "contribution" taken from those that do work? What happens to those now 40 years old (or older) - that have virtually no chance to benefit from your new system? For those that die before age 65 what happens to those funds?

Self directed private accounts may or may not yield a decent return and generally require paying brokerage or management fees - I had a (rather small) 401K account (1.2 years of contributions) that "disappeared" before I was able to become vested with the employer contribution (5 year lag) and transfer the funds.

One problem with SS is that the benefits are indexed to the CPI but the contributions are not. As the average wages lose ground to inflation but the benefits do not it naturally creates an imbalance.

 

[Visbek]

My fix is that we change social security so that it is funded by every year we take all the funding every year from the tax and divide it equally between every adult. This money is saved in a savings account. This is done every year and when every person turns 65 they have access the the large amount of money that has been collected since they were 18. This savings account can work very much like a corporate savings account where the user can choose to save it in long-term savings, invest it in the stock market, put it in bonds, invest it in commodities like Gold and Silver, and more.

Uh... yes, that's called "privatization." The idea has been bandied about for a few years, and it causes as many (if not more) problems than it solves.

The current issue is that outlays are already greater than revenues. If we start peeling off funds to put into an individual savings account, that will exacerbate the problem. We'll have to draw trillions of dollars from some other source during the transition period. That alone pretty much kills privatization.

Second, interest and investments are not magic. While they do go up over the long term, the reality is that most people do a poor job at it, meaning if people can pick and choose their investments, most will have low returns. They also don't do a good job of handling their investment upon retirement. E.g. Australia has a system like this, which allows people to draw the full amount early in retirement. The amounts are often insufficient to last the entire retirement, an issue exacerbated by retirees that blow big chunks of their "super" on vacations early in retirement.

The "massive interest" is also far less than people normally assume, as inflation can reduce the return by 3% or more per year. Fund fees also take a bite -- 1% and more, which is more than the administration costs of Social Security. (Fees are another problem for the Aussie system.) And of course, people who retire during a downturn will have issues, as their investments will be worth less, and they will need to draw down more of it to keep up the same income.

The only way it could really work is if people were literally locked into index funds, with little control over investments, and restrictions on withdrawal. Even then, it is likely that many will spend all of that saved retirement, and draw on the government funds at some point. This will cost less than the current system, but that government pension won't have a dedicated funding stream either. So who pays for that, and how much?

Disability is also paid out of Social Security. Who pays for that?

Also it is help with the problem that the rich own most of the financial wealth in this country, and that much of the income inequality growth has come from the rich's gains from their large investments in the stock market.

No, this will not reduce wealth inequality.

Retirees already have more assets than younger cohorts, and they will quickly draw down the amounts. Wealthier individuals, in contrast, have enough income-generating assets that they can pay for their retirement without drawing down their funds. They will also have much more wealth than the lower income earners from this system.

This idea benefits from the facts that the interest from investments will bolster social security and make it a real investment.

No, it will turn Social Security into a giant IRA, which is precisely what it is not.

If SS funding wasn't already in a crisis, the transition might be workable. We could also take a few hints from problems with the Australian system. Unfortunately, we simply cannot afford the transition any time in the next 20, 30, 40 years. Hence, it seems unlikely to happen any time soon.

 

[Henrin]

I think it's somewhat funny is that richest age demographic is the elderly and for those elderly that are truly poor they get government assistance from elsewhere.

 

[distraff]

What happens to a 25 year old that becomes disabled? Why should anyone that does not work get any "contribution" taken from those that do work?

I don't think helping social security logically entails helping young people who are disabled. This should happen in a separate government program.

What happens to those now 40 years old (or older) - that have virtually no chance to benefit from your new system? For those that die before age 65 what happens to those funds?

We will have a transition period.

Self directed private accounts may or may not yield a decent return and generally require paying brokerage or management fees

The rate of return for investment is far better than the current social security program (basically zero).

I had a (rather small) 401K account (1.2 years of contributions) that "disappeared" before I was able to become vested with the employer contribution (5 year lag) and transfer the funds.

I am sorry about your misfortune. That should not be legal. I don't see what this has to do with the topic.

One problem with SS is that the benefits are indexed to the CPI but the contributions are not. As the average wages lose ground to inflation but the benefits do not it naturally creates an imbalance.

You are right. My program would naturally adjust for that. If wages are lower, then there will just be less money to invest that year since people are poorer.

I appreciate your critical review of my idea.

 

[distraff]

Uh... yes, that's called "privatization." The idea has been bandied about for a few years, and it causes as many (if not more) problems than it solves.

My version is a little more left-wing than the privatization offered by conservatives.

The current issue is that outlays are already greater than revenues. If we start peeling off funds to put into an individual savings account, that will exacerbate the problem. We'll have to draw trillions of dollars from some other source during the transition period. That alone pretty much kills privatization.

That is a very intelligent criticism. We should start by replacing the plan and then replacing the tax. We will draw down the social security benefits as the accounts under the privatized accounts grow.

If your SS account adds $5,000 per year that is $235,000. if your investment bonus outstrips inflation by 2% every year that is closer to $500,000. Most investments modestly outstrip inflation like this. Social security is on average about $15,000 per year. If the average person gets social security for 10 years that is about $150,000.

Second, interest and investments are not magic. While they do go up over the long term, the reality is that most people do a poor job at it, meaning if people can pick and choose their investments, most will have low returns.

That is not a criticism of privatization and more of a criticism of a very open way of allowing people to invest their money. I think there should be reasonable limitations. Corporations do this very well.

They also don't do a good job of handling their investment upon retirement. E.g. Australia has a system like this, which allows people to draw the full amount early in retirement. The amounts are often insufficient to last the entire retirement, an issue exacerbated by retirees that blow big chunks of their "super" on vacations early in retirement.

Again, this is more of a criticism of a possible open way this program could be run. These benefits could be given out in pieces somewhat to modern social security.

The "massive interest" is also far less than people normally assume, as inflation can reduce the return by 3% or more per year. Fund fees also take a bite -- 1% and more, which is more than the administration costs of Social Security. (Fees are another problem for the Aussie system.)

Inflation is more like 2 - 2.5%. Usually the rate of return for investment is higher than this by a few percentage points. Over a long period of time this small percent dramatically increases profits.
Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb | Financial Post

And of course, people who retire during a downturn will have issues, as their investments will be worth less, and they will need to draw down more of it to keep up the same income.

That is why people should not rely too heavily on stocks. Also, if you retire on an upturn things are great.

The only way it could really work is if people were literally locked into index funds, with little control over investments, and restrictions on withdrawal. Even then, it is likely that many will spend all of that saved retirement, and draw on the government funds at some point. This will cost less than the current system, but that government pension won't have a dedicated funding stream either. So who pays for that, and how much?

Something like index funds could work. What do you mean about a dedicated funding stream?

Disability is also paid out of Social Security. Who pays for that?

That is not a huge issue. Make it separate.

No, this will not reduce wealth inequality.

If this plan causes the middle class and more to have more savings and invest more it logically will. Since it is progressive it will raise taxes on the rich slightly while slightly lowering them on the poor and middle class.

Retirees already have more assets than younger cohorts, and they will quickly draw down the amounts. Wealthier individuals, in contrast, have enough income-generating assets that they can pay for their retirement without drawing down their funds. They will also have much more wealth than the lower income earners from this system.

Again, this is an adjustment that can be made to the system. Plus, modern social security has some of the same flaws. The progressive system I propose will have rich people paying somewhat for everyone else's retirements.

Thanks for the critique. I am not completely sold on my idea myself.

 

[Neomalthusian]

It's currently more like a defined benefit pension, plagued by the same pervasive problems as most other defined benefit pensions.

Our fix needs to make it not be a defined benefit pension and be something else.

If we want it to be old age poverty insurance, we raise the eligibility age to "old" and asset test it and it's solvent forever. In fact if we raised the age to average life expectancy we could either raise benefits or cut taxes and still be solvent.

If we want it to be retirement welfare, we can keep the eligibility age about where it is and means/asset test it.

Lastly, if we want any semblance of generational fairness, we have to be willing to cut back the benefits to older retirees who have made out like bandits under the old model.

 

[DA60]

My solution? End it.

For everyone over a certain age (say 40) the benefits will still be there when they are old. But for everyone else, zip.

Plus, I would build federal shelters in every major regional center - that includes beds/tiny apartments, a 'soup kitchen' and a hospital for basic medical care/emergencies (but not expensive operations like triple bypasses).

If you get to 65 (or any age) and you cannot take care of yourself, go to a government welfare center. They will give you shelter, clothing, food, basic/emergency care. All you need to survive.

If you cannot save enough money in 50 years - that is your own fault (unless you were disabled, then the government should help you more).

The government should look after those who cannot look after themselves...but 'look after' means the basics for life and that is it. You want more then that, earn it. If you cannot/will not, go to a charity. If they cannot/will not help you - you are out of luck.

 

[Riveroaks]

I have been thinking of an idea for fixing social security. Currently social security relies on young people paying for old people's retirement every year. The problem is that there are more and more old people and fewer old people. Also, healthcare cost is going up for the old people, and the young people have been suffering from falling wages.

My fix is that we change social security so that it is funded by every year we take all the funding every year from the tax and divide it equally between every adult. This money is saved in a savings account. This is done every year and when every person turns 65 they have access the the large amount of money that has been collected since they were 18. This savings account can work very much like a corporate savings account where the user can choose to save it in long-term savings, invest it in the stock market, put it in bonds, invest it in commodities like Gold and Silver, and more.

Since these accounts will collect a massive amount of interest over 47 years, this interest will help offset the factors making social security less affordable. Also it is help with the problem that the rich own most of the financial wealth in this country, and that much of the income inequality growth has come from the rich's gains from their large investments in the stock market.

I would also remove the regressive the social security tax and make it added to the progressive income tax in a way that is moderately progressive.

This idea benefits from the facts that the interest from investments will bolster social security and make it a real investment. It is right-wing in that the money is invested in the private market and massive hikes in the social security tax are prevented. It is left-wing in that the social security will remain equal for everybody and the tax will be made progressive instead of regressive.

Tax tax tax.

That's all you know huh ??

The only solution is to let in more foreign workers to make up for all the babies that the liberated American females are NOT having anymore.

That's the only solution.

 

[Riveroaks]

My solution? End it.

For everyone over a certain age (say 40) the benefits will still be there when they are old. But for everyone else, zip.

Plus, I would build federal shelters in every major regional center - that includes beds/tiny apartments, a 'soup kitchen' and a hospital for basic medical care/emergencies (but not expensive operations like triple bypasses).

If you get to 65 (or any age) and you cannot take care of yourself, go to a government welfare center. They will give you shelter, clothing, food, basic/emergency care. All you need to survive.

If you cannot save enough money in 50 years - that is your own fault (unless you were disabled, then the government should help you more).

The government should look after those who cannot look after themselves...but 'look after' means the basics for life and that is it. You want more then that, earn it. If you cannot/will not, go to a charity. If they cannot/will not help you - you are out of luck.

Do you pay dues to the John Birch Society or do they let you come in for free ??

 

[Riveroaks]

It's currently more like a defined benefit pension, plagued by the same pervasive problems as most other defined benefit pensions.

Our fix needs to make it not be a defined benefit pension and be something else.

If we want it to be old age poverty insurance, we raise the eligibility age to "old" and asset test it and it's solvent forever. In fact if we raised the age to average life expectancy we could either raise benefits or cut taxes and still be solvent.

If we want it to be retirement welfare, we can keep the eligibility age about where it is and means/asset test it.

Lastly, if we want any semblance of generational fairness, we have to be willing to cut back the benefits to older retirees who have made out like bandits under the old model.

What you are describing is called "means testing."

This is also what Jeb Bush wants to do.

Pity that his campaign is sputtering.

The Donald has not said anything on this yet.

Hillary will keep it all the same and kick the can down the road. That is actually the most politically popular approach.

 

[Riveroaks]

My version is a little more left-wing than the privatization offered by conservatives.



That is a very intelligent criticism. We should start by replacing the plan and then replacing the tax. We will draw down the social security benefits as the accounts under the privatized accounts grow.

If your SS account adds $5,000 per year that is $235,000. if your investment bonus outstrips inflation by 2% every year that is closer to $500,000. Most investments modestly outstrip inflation like this. Social security is on average about $15,000 per year. If the average person gets social security for 10 years that is about $150,000.




That is not a criticism of privatization and more of a criticism of a very open way of allowing people to invest their money. I think there should be reasonable limitations. Corporations do this very well.



Again, this is more of a criticism of a possible open way this program could be run. These benefits could be given out in pieces somewhat to modern social security.



Inflation is more like 2 - 2.5%. Usually the rate of return for investment is higher than this by a few percentage points. Over a long period of time this small percent dramatically increases profits.
Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb | Financial Post



That is why people should not rely too heavily on stocks. Also, if you retire on an upturn things are great.



Something like index funds could work. What do you mean about a dedicated funding stream?



That is not a huge issue. Make it separate.



If this plan causes the middle class and more to have more savings and invest more it logically will. Since it is progressive it will raise taxes on the rich slightly while slightly lowering them on the poor and middle class.



Again, this is an adjustment that can be made to the system. Plus, modern social security has some of the same flaws. The progressive system I propose will have rich people paying somewhat for everyone else's retirements.

Thanks for the critique. I am not completely sold on my idea myself.

In order to read this mess I need to re-print it first.

At any rate you sound no different than any other John Bircher.

You don't have a solution.

 

[Riveroaks]

Uh... yes, that's called "privatization." The idea has been bandied about for a few years, and it causes as many (if not more) problems than it solves.

The current issue is that outlays are already greater than revenues. If we start peeling off funds to put into an individual savings account, that will exacerbate the problem. We'll have to draw trillions of dollars from some other source during the transition period. That alone pretty much kills privatization.

Second, interest and investments are not magic. While they do go up over the long term, the reality is that most people do a poor job at it, meaning if people can pick and choose their investments, most will have low returns. They also don't do a good job of handling their investment upon retirement. E.g. Australia has a system like this, which allows people to draw the full amount early in retirement. The amounts are often insufficient to last the entire retirement, an issue exacerbated by retirees that blow big chunks of their "super" on vacations early in retirement.

The "massive interest" is also far less than people normally assume, as inflation can reduce the return by 3% or more per year. Fund fees also take a bite -- 1% and more, which is more than the administration costs of Social Security. (Fees are another problem for the Aussie system.) And of course, people who retire during a downturn will have issues, as their investments will be worth less, and they will need to draw down more of it to keep up the same income.

The only way it could really work is if people were literally locked into index funds, with little control over investments, and restrictions on withdrawal. Even then, it is likely that many will spend all of that saved retirement, and draw on the government funds at some point. This will cost less than the current system, but that government pension won't have a dedicated funding stream either. So who pays for that, and how much?

Disability is also paid out of Social Security. Who pays for that?



No, this will not reduce wealth inequality.

Retirees already have more assets than younger cohorts, and they will quickly draw down the amounts. Wealthier individuals, in contrast, have enough income-generating assets that they can pay for their retirement without drawing down their funds. They will also have much more wealth than the lower income earners from this system.



No, it will turn Social Security into a giant IRA, which is precisely what it is not.

If SS funding wasn't already in a crisis, the transition might be workable. We could also take a few hints from problems with the Australian system. Unfortunately, we simply cannot afford the transition any time in the next 20, 30, 40 years. Hence, it seems unlikely to happen any time soon.

Excellent analysis.

The John Birchers still want to get rid of it.

The GOP'er's want to privatize it.

The DEM's don't want to change anything.

Ultimately the only solution is to let in more foreign workers and let the US economy grow.

There is going to need to be tax reform so that corporations cant invert and outsource their jobs and earnings to Ireland, Israel, Singapore, Switzerland and other tax haven rat holes anymore as well however. But if Hillary gets elected then this will probably never happen.

 

[DA60]

Do you pay dues to the John Birch Society or do they let you come in for free ??

So, you believe providing every American who wants it with free shelter, food, clothing and basic medical care is an idea akin to an anti-communism society?

Noted.

:roll:


Have a nice day.

 

[Riveroaks]

So, you believe providing every American who wants it with free shelter, food, clothing and basic medical care is an idea akin to an anti-communism society?

Noted.

:roll:


Have a nice day.

Straw man.

You need to study my list of fallacies. You should do it now. Look for the separate thread I started on this.

 

[PIPEWRENCH]

The solution to social security has always been simple. Invest the surplus money that was paid in by most of us. We were taxed more than was paid out because it was known the number of people collecting could not be supported by the number of workers in the future. The surplus social security should have been invested instead of spent and an IOU issued in its place. Right now we have an IOU for roughly 3 trillion dollars instead of an actual 30 trillion or more if the money had been invested. If and when we need the 3 trillion dollars for social security the people today will have to be taxed again for the money. Could you imagine a 401k where instead of investing the money you spent it and put an IOU in a box and put your kids name on it.

Then you have the doom and gloom who say the money could be lost if invested in Gold, Silver, and Stocks. Well I have invested in all of the above and I have done very well along with every other diversified investment over the long term. My money has doubled every 5 to 7 years without fail when averaged out over the last 40 years. If you plug the surplus social security paid in over the past 60+ years into any investment program calculator and 30 trillion I am using would be the absolute worse it could have done. In reality it would have done much better. The problem today would be what to do with all the money not if we could retire comfortably.

 

[DA60]

Straw man.

You need to study my list of fallacies. You should do it now. Look for the separate thread I started on this.

You started it.

Instead of suggesting an alternative, you made some childish accusation about the John Birch Society.

I asked you a question...you ducked it.

You are wasting my time on this.


We are done here.


Have a nice day.

 

[Riveroaks]

You started it.

Instead of suggesting an alternative, you made some childish accusation about the John Birch Society.


Either make a logical point and back it up with unbiased evidence or you are a waste of my time.


Have a nice day.

There is no alternative.

Get that into your John Birch Society mind.

 

[DA60]

There is no alternative.

Get that into your John Birch Society mind.

I asked you a question...you ducked it.

You are wasting my time on this.


We are done here.


Have a nice day.

 

[cpwill]

I have been thinking of an idea for fixing social security. Currently social security relies on young people paying for old people's retirement every year. The problem is that there are more and more old people and fewer old people. Also, healthcare cost is going up for the old people, and the young people have been suffering from falling wages.

My fix is that we change social security so that it is funded by every year we take all the funding every year from the tax and divide it equally between every adult. This money is saved in a savings account. This is done every year and when every person turns 65 they have access the the large amount of money that has been collected since they were 18. This savings account can work very much like a corporate savings account where the user can choose to save it in long-term savings, invest it in the stock market, put it in bonds, invest it in commodities like Gold and Silver, and more.

Since these accounts will collect a massive amount of interest over 47 years, this interest will help offset the factors making social security less affordable. Also it is help with the problem that the rich own most of the financial wealth in this country, and that much of the income inequality growth has come from the rich's gains from their large investments in the stock market.

I would also remove the regressive the social security tax and make it added to the progressive income tax in a way that is moderately progressive.

This idea benefits from the facts that the interest from investments will bolster social security and make it a real investment. It is right-wing in that the money is invested in the private market and massive hikes in the social security tax are prevented. It is left-wing in that the social security will remain equal for everybody and the tax will be made progressive instead of regressive.

I have proposed a similar idea. I see both positives and negatives to the "divide it equally among every adult" addition. I'll have to think on that for a bit.

 

[cpwill]

My version is a little more left-wing than the privatization offered by conservatives.

The equal division bit certainly is. It's interesting.

That is a very intelligent criticism. We should start by replacing the plan and then replacing the tax. We will draw down the social security benefits as the accounts under the privatized accounts grow.

Visbek brought up a similar criticism here, and I had to go to a little bit of effort to run the numbers for him.

Basically: The System would run a deficit until 2029, at which point it begins to return a surplus to the US Government. The debt added to the government during the transition point of 2016-2029 totals to about $3.7 Trillion, which is fully paid back by the surpluses by 2042. After that, the system runs a growing surplus for the US Government indefinitely, allowing us to expand other spending while cutting other tax burdens.

That is not a criticism of privatization and more of a criticism of a very open way of allowing people to invest their money. I think there should be reasonable limitations. Corporations do this very well.

I think the TSP offers a good model, and has the benefit of already being a government structure that we can expand, rather than trying to create something new. I would add in some index options (SP 500, SP 100, etc)

Again, this is more of a criticism of a possible open way this program could be run. These benefits could be given out in pieces somewhat to modern social security.

Australia's system incentivizes people to draw out their retirement accounts in massive chunks in order to buy houses (which don't count against them), so that they can benefit from both their private investments and the public support system for folks who don't have much left in their annuity accounts. Like you say, he's basically taking a flaw in Australia's system and misapplying it to "investment".

Inflation is more like 2 - 2.5%. Usually the rate of return for investment is higher than this by a few percentage points. Over a long period of time this small percent dramatically increases profits.
Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb | Financial Post

That is why people should not rely too heavily on stocks.

This is a mix of 40% bonds. When you calculate returns to the SP 500 over the past few decades, they are usually higher than 6%, more generally in the ~7-8% range.

Also, if you retire on an upturn things are great.

When I ran the numbers, even very poor earnings performers who had the worst rate of return of any post-War cohort, who retired in the middle of the 2008/2009 downturn, still did better than they did under traditional social (in)security.

That is not a huge issue. Make it separate.

Concur.

If this plan causes the middle class and more to have more savings and invest more it logically will. Since it is progressive it will raise taxes on the rich slightly while slightly lowering them on the poor and middle class.

That is an excellent point. You aren't really changing the savings/investments portions for upper income earners - they were (more) likely to save/invest this money anyway. All you are really doing is changing the venue. The people who are saving/investing more relative to their previous position v upper income earners are middle and lower income earners. Average people would retire as millionaires.

Again, this is an adjustment that can be made to the system. Plus, modern social security has some of the same flaws. The progressive system I propose will have rich people paying somewhat for everyone else's retirements.

And that does make it interesting.

You stated that it would be divided "among every adult". Does this mean that I get 12.4% of the average income deposited into my account, regardless of whether I worked or not? Is it divided amongst everyone who paid any FICA tax for the year? Is it divided among those who worked for a certain minimum? (if I work through January 2nd, for example, do I get the full-year's credit towards my account?)

 

[donsutherland1]

One problem with SS is that the benefits are indexed to the CPI but the contributions are not.

Just so there's no confusion, Social Security benefits are indexed to a specific CPI index, CPI-W (urban wage earners and clerical workers). This index often shows higher inflation than broader inflation measures e.g., the Personal Consumption Expenditures (PCE) Index, which is the focus of the Federal Reserve. For example, during the 30-year period ended 12/31/2014, CPI-W showed average annual inflation of 2.7%. The PCE registered average annual inflation of 2.3%. Over time (compounding), the difference is significant. For example, $1,000 in monthly benefits at the beginning of 1985 would have risen to $2,207.19 by the end of 2014 using CPI-W. Had PCE been used, the monthly benefit would have increased to $1,967.45. That's a $239.74 difference with CPI-W resulting in a monthly benefit that would be 12.2% above what it would have been had PCE been used to index benefits.

Data:
CPI-W: https://research.stlouisfed.org/fred2/series/CWSR0000SA0
PCE: https://research.stlouisfed.org/fred2/series/PCEPI

 

[JoeTheEconomist]

I have been thinking of an idea for fixing social security. Currently social security relies on young people paying for old people's retirement every year. The problem is that there are more and more old people and fewer old people. Also, healthcare cost is going up for the old people, and the young people have been suffering from falling wages.

My fix is that we change social security so that it is funded by every year we take all the funding every year from the tax and divide it equally between every adult. This money is saved in a savings account. This is done every year and when every person turns 65 they have access the the large amount of money that has been collected since they were 18. This savings account can work very much like a corporate savings account where the user can choose to save it in long-term savings, invest it in the stock market, put it in bonds, invest it in commodities like Gold and Silver, and more.

Since these accounts will collect a massive amount of interest over 47 years, this interest will help offset the factors making social security less affordable. Also it is help with the problem that the rich own most of the financial wealth in this country, and that much of the income inequality growth has come from the rich's gains from their large investments in the stock market.

I would also remove the regressive the social security tax and make it added to the progressive income tax in a way that is moderately progressive.

This idea benefits from the facts that the interest from investments will bolster social security and make it a real investment. It is right-wing in that the money is invested in the private market and massive hikes in the social security tax are prevented. It is left-wing in that the social security will remain equal for everybody and the tax will be made progressive instead of regressive.

The Social Security Administration says that this solution may cost as much as $30 trillion dollars to transition away from the existing system. That means on top of everything you are dividing equally into private accounts you will need to have a new tax to pay-off of the legacy cost of retirees - of course you may be planning to tell existing retirees to pound sand.

 

[JoeTheEconomist]

What happens to a 25 year old that becomes disabled? Why should anyone that does not work get any "contribution" taken from those that do work? What happens to those now 40 years old (or older) - that have virtually no chance to benefit from your new system? For those that die before age 65 what happens to those funds?

Self directed private accounts may or may not yield a decent return and generally require paying brokerage or management fees - I had a (rather small) 401K account (1.2 years of contributions) that "disappeared" before I was able to become vested with the employer contribution (5 year lag) and transfer the funds.

One problem with SS is that the benefits are indexed to the CPI but the contributions are not. As the average wages lose ground to inflation but the benefits do not it naturally creates an imbalance.

Great questions. Today contributions are indexed to average wages. It is part of the problem with Social Security because wages have run faster than inflation. Typically, the promises of SS have increased at a rate of about 1% real for the last 30 years.

 

[JoeTheEconomist]

I would also remove the regressive the social security tax and make it added to the progressive income tax in a way that is moderately progressive.

This idea benefits from the facts that the interest from investments will bolster social security and make it a real investment. It is right-wing in that the money is invested in the private market and massive hikes in the social security tax are prevented. It is left-wing in that the social security will remain equal for everybody and the tax will be made progressive instead of regressive.

You have two serious problems with your idea. First, the size of the problem is much bigger than you believe. Second, Social Security is already progressive. Much more so than your approach would be. Your approach would likely make the system less progressive. You need to spend some time with the benefits formula rather than looking at just the FICA tax structure.