Title: How Do We Protect Social Security?
Original CoS Document (slug): how-do-we-protect-social-security
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Created: 2024-07-27 12:31:17
Updated: 2024-08-03 03:00:00
Published: 2024-07-27 03:00:00
Converted: 2025-04-14T21:31:55.495737574
Medicare and Social Security (SS) take up one third of our national budget and are funded from extra tax collections (FICA). We all pay 15.3 percent of our wages into these two benefits. Your employer pays in half and you pay in half.
The money the government takes in from FICA is disbursed immediately (no trust fund). It is a Ponzi scheme run by the government. In other words, it is a “pay-as-you-go” scheme. You have all heard about the Social Security Trust Fund.
This fund was built up when more people paid into the fund than there were disbursements. Social Security began when the average death age was 67 years. Now people are living longer and Social Security has expanded the benefit package to include
- disability,
- aid to illegal immigrants, and
- aid to children under 21
There are fewer young people paying FICA. The trust fund is being depleted and is predicted to run out sometime in the 2030s.
Social Security and Medicare are two items that must be addressed if we wish to bring the budget under control. Social Security was never meant to be a retirement program, but that is how it is being used by many retirees. Many people do not save for retirement and pay a dear price for their lack of savings when they retire. Part of what is collected by FICA taxes is eaten up in the bureaucracy to manage the collection and disbursements.
A Potential Solution
Denmark, a country considered by many people to be a socialist country, is now returning the responsibility for retirement savings back to its people. Their social security program is being assumed by private savings plans. It will take some time to eventually convert their program entirely over to private management because older folks have no chance to save over a long term.
The advantages of a private savings plan are:
- competition that keep fees low,
- investment so that your retirement funds grow in value,
- and the government gets out of the retirement business.
Private retirement programs can be compared to 401(K) plans. Imagine investing 12.4 percent of your income into a 401(K) plan that grows every year. Are there risks involved. Yes, there are.
Savings invested in a 401(K) generally have grown in value over the long term, but your decisions will play an important part in determining the value of your retirement plan when you retire. There are many types of retirement plans. If you are risk adverse there is a plan for you. If you can tolerate more risk there is a plan for you. Risk adverse plans, generally, earn less return on your investments. It is competition that will keep the private retirement plans honest. Most plan managers have a fiduciary responsibility – they are supposed to keep the client’s interest above all else.
Private retirement plans are only one way to get the government out of the retirement business and reduce the federal budget. The details of any private retirement plan need to be defined by Congress. However, a final plan is chosen by the people the retirement plans serve. Retirement plans (like 401(K) plans) have returned more money for their subscribers than Social Security, which returns less money to the people than the government takes in. There is little risk with Social Security, but no risk also means minimal return on your investment.
This is only one idea that a Convention of States will discuss to address corralling the budget. It is all about choice. Your choice. At the moment, we have no choice.
Making a Comparison
Let us assume that you are a 20-year-old and that you make $42,500 per year (includes your employers SS contribution) for the rest of your life. Let us also assume that you put in 12.4 percent of your income into a fund that earns four percent a year (a simple no risk plan). When you retire at age 65, you will have accumulated $695,000 in your private Social Security savings account. If you live to be 90 years, that means you could withdraw about $2316/mo. It is actually more than that as your account would still be earning money, even though you retired. The government Social Security plan would pay you about $1239/mo. You could also leave the remaining amount of your Social Security retirement account to your children. Can you do that with the government plan? The plan described above is for comparison purposes only and represents a minimal plan. There are investment risks involved. So, which is the better plan – the government plan or the private Social Security savings plan? Consider - most people retire with about $50,000 in savings plus government Social Security.
This plan presented here is for comparison purposes only. Many details must be defined for any plan to work. Plan choice is up to the plan participant and many factors are involved.