I don't know exactly what the president's proposal is for Social Security reform beyond the basic idea of letting people put 2% of their withholding into personal retirement savings accounts. But I do know exactly how the proposal could be designed in a way that nobody could object to it with any credibility.
The program could be very simple, and it should be a long-term plan that eventually leads to the entire payroll tax being funnelled directly to personal accounts, maybe 50 years from now. But let's start with the 2% proposal for now.
A new type of retirement account, similar to the IRA, would be designed, but with some specific differences. For our purposes, we'll call the new account an SRA (Security Retirement Account). To qualify, the investment vehicle must be approved and certified by the Social Security Administration. It would have to have a proven track record, passing audits, showing a solid long-term rate of return, etc. Most of the more popular mutual funds would easily qualify.
Then, the rules of the account would include the following:
1. Funds cannot, under any circumstances, be distributed before legal retirement age or the death of the fund owner.
2. Funds cannot be used as collateral for loans, cannot be attached by creditors, and are otherwise exempt from being attached for any purpose other than retirement or survivor's benefits.
3. Funds would include life insurance that would pay a pre-established death benefit to the survivors of the account owner if death occurs prior to retirement. At retirement, the fund's balance becomes the death benefit.
4. The funds also would include insurance that guarantee principle and/or a minimum growth rate. These insurance plans are available and being sold commercially today.
5. The distribution from the account upon retirement will normally be provided through an annuity, but the retiree can withdraw the entire value if they meet certain conditions.
6. Of course, like any other investment account, the balance of the account will be included in the estate upon the death of the owner, to be distributed to heirs as determined by the owner's will and existing laws.
The only conceivable objections people might have against the program would be that the accounts might be taken by creditors, blown by the owner, put into risky investments, etc. Well, I've laid out ideas above that would address those objections.
So, what possible objection could be left? That's easy. If your congressperson was honest, they would have to admit that the Social Security Trust Fund isn't at all what we've been led to believe. They make payments to existing beneficiaries, then the rest is basically taken by the Congress to pay for everything else. So, the problem isn't the concept, which is terrific. The problem is that these accounts would drain a huge amount of money away from the Federal Government, which is the same as taking the drugs away from an addict. They would be forced to either cut taxes or spending to make up the difference of all those dollars slipping through their grasp.
When you hear opponents talk about the plan "bankrupting" the social security system, what they really mean is it's going to drop billions of dollars from the till that they are used to emptying out every year to fund unrelated programs. The main question a citizen has to ask him or herself is, would we rather have our own social security account that belongs to us, gives us a higher income after retirement, and that we can pass on when we die; or are we content to pay the tax throughout our lifetime and have some go to other retirees and the rest into the government's coffers, while not really believing it's going to be there for us when we retire?
Not much question about my choice.
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