To start this off, I want to say that I do believe that Social Security is NECESSARY. At the same time, I do think that it could be more efficient. I've had this thought for awhile and am curious as to your thoughts on the viability of this idea. Here it is.
Let's say the US government gave EVERY US citizen $5000 at birth. They put that $5000 into a Roth IRA for that child, and it was an "aggressive portfolio" for most of it's time, if not all. That $5000 at a pretty modest interest rate of 8% (compounded interest of course) is going to be $867,684.07 at age 67.
Well, let's see.
If you start this plan now, it's not going to kick in for 67 years. This does nothing for SS over the next 7 decades. Bit of an oversight, no?
3.6 million births in 2022, that's $18 billion. That's not too expensive.
You've forgotten about inflation, though, which will chew up and spit out purchasing power over 67 years. Average
real S&P returns -- as in, when adjusted for inflation -- is around 6.5%. That means the actual purchasing power of the nest egg is closer to $340,000 after 67 years.
Could that replace Social Security? No.
First of all, SS isn't just for retirees; it also covers disability, which can kick in at any age.
Second: For retirees, the rule of thumb for retirement is that you only want to draw down 4-5% of your assets, otherwise you're likely to spend it all before the end. 5% of $340,000 is $17,000 per year -- much less than the current $21,000/yr average of SS recipients.
So, you'd probably want to plunk down $7,500 per person. That's $27 billion per year. Still not too bad, in the grand scheme of things.
At any rate: SS is a defined benefit, meaning it doesn't run out. This can run out. As a result, you're probably still going to need a SS-type program for those who spend all their assets in retirement. So it's not a full replacement anyway.
Other issues:
• What happens to those assets if the individual dies before they can collect? Should we treat death at 6 months differently than death at 60 years?
• Are there annual withdrawal limits?
• Who pays the tab if a retiree has their assets stolen?
• Do we allow people to withdraw early? If so, you can bet people will do it, and this will further reduce their retirement savings.
• What are the political implications of splitting off retirement completely from wages?
It's not the worst idea, but just the fact that it won't kick in for more than 6 decades does nothing to fix SS in the meantime.