I’m tired of Social Security being a “third rail” that nobody can talk about fixing. If we don’t fix it soon, it will be gone for everyone. This idea assumes that Congress will not vote to eliminate social security taxes. So I am trying to develop something that works this into a better plan for everyone.
Let’s say that everyone age 50 and over (open to adjustment) gets their original social security value. This will be funded over the next 15-20 years through SS taxes.
In year-increments, say 10 year increments below 50, social security income gets phased down. For example, anyone age 40-49 would be guaranteed to receive 75% of the SS value. 30-39, 50% of the value, and 20-29, 25% of the value.
In each age bracket, social security taxes are still paid. However, based on the age bracket, part of the SS becomes a tax to fund the system, and part goes into a personal fund similar to a 401(k) that belongs to that person. These 401(k)-like programs will invest in a mix of relatively safe but age-based funds.
It could be demonstrated through easy to understand charts how much these personal accounts will grow over 20, 30 and 40 years. As an example, a fully funded Roth IRA at $7,000 per year for a 30 year old at just 6% average rate of return will grow into about $1.1 Million. That alone would provide $55,000 per year income from age 70 through 90, but much more because the funds that remain in the account will still grow year after year. And if the rate of return on the account is higher over time, say 8%, that account grows to $2 Million by age 70, or $100,000 per year.
And since it belongs to each person, these accounts can be given to anyone if you die. This has the potential to create generations of wealth.
That is the idea. basically, everyone pays into “social security”, but we fully fund those who are closer to retirement, and provide even greater benefits to future generations who contribute to the program. Depending on how well this works, tax incentives could be provided to encourage people to direct part of their income to those most in need.