Fixing Social Security in an Efficient, Fair, and Popular Way

Economy
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Social Security is inefficient and doesn’t deliver the returns for people it needs. As I explain in this post, it should function like a 401(k) or Roth IRA that invests solely into government debt instead of it using a trust fund.

I’ve posted this as a reply, but now I want to create my own post where people can reply to me over this subject and I’ll edit it whenever I think of something important to add (check edit history of the post). Because of the looming solvency crisis of entitlements, we can’t keep printing, borrowing, taxing, and spending money on a broken, inefficient system.

When Social Security was created in 1935, it wasn’t meant to be a retirement program as much as it was meant to be insurance for the lucky few who made it past 65. The program worked well and banked surpluses because of a massive 150:1 taxpayer-to-collector ratio and the fact that most people didn’t make it to 65 which was the original retirement age for full compensation. However, people are living longer and a much greater portion of the country is eligible for Social Security or who are completely dependent on it which brings up the cost. Now it’s about 2.2:1 taxpayers per collector. In that sense, it is inherently a pyramid scheme. But now, Social Security is more of a ponzi scheme at this point because we’re seeing a birthrate decline and there won’t be enough people to pay in to make due on the promises to the previous generation.

Basically, the issue is this: You’re paying for someone else’s retirement and not your own. Social Security is nothing more than a slush fund as opposed to your own government-protected account. It’s effectively a transfer of wealth from the young to the old while also devaluing the money you get paid back when you do retire. You’d be much better off if you were able to save for your own retirement over the course of 40-50 years as opposed to each paycheck paying for the promises made to someone 40-50 years ago. The ‘rate of return’ you get off SS right now comes from taxing the next generation at higher rates and also doing more deficit spending. It can’t last forever.

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From here on down, I’ll be explaining how changing Social Security’s funding mechanism akin to a 401(k) or Roth IRA that invests into government debt instruments saves itself from totally collapsing. It takes away the need for our government to take an individual’s taxes and pay someone else. This is important because the cost of Social Security can be done away with since it’s no longer on the government’s balance sheet similar to monetary rehypothecation or fractional reserve banking. The balance of your Social Security is now only a liability to the government in one place which is your retirement account. It also means the expense gets transferred into paying back principal+interest on the outstanding debt which is also drastically lower. As a matter of fact, we’d be able to outright get rid of the program and the SSA altogether which saves bloat and waste. At the moment, Social Security is our largest budget item after medicare at around $1.5 trillion. This entire expense can be done away with a simple structural change and we could lower the SS taxes significantly.

ReasonTV has a video explaining how Social Security functions like a ponzi scheme. Because it relies on bringing in more revenue with each passing generation and/or having more people paying in, there are ways our government cheats it way out of it in the meantime. It inflates, raises the debt ceiling, raises taxes, and borrows more in the treasury market. Guys like Ron Paul and Peter Schiff explain how it’s impossible to keep it going without creating more inflation and borrowing more from creditors.

In the past, Steve Forbes ran for president back in 2000 and made the suggestion that people should be allowed to use some of their Social Security to invest into the stock market like a retirement account. While controversial at the time, it opened up room for discussion on the flexibility of the program. ReasonTV has also suggested Social Security should function like a retirement account and it could be as simple as purchasing government debt instruments such as bonds, notes, and treasuries which are guaranteed returns as opposed to equities. There’s also no need to privatize it which means fearmongering won’t be a thing.

Back in the 1980s, Ronald Reagan addressed Social Security’s big shortfall by increasing payroll taxes to address the shortfalls in the short run and also allowed it hold treasuries until maturity. Interest rates on government debt in the early 1980s would yield 10-15% or easily more, so long term surpluses could be stockpiled with 10yr and 30yr bonds. Right now however, the trust funds are actually selling the treasuries they keep in reserve back into the market because of the program’s deficit. At some point, the program will blow through its reserves and go belly up. I think Reagan obviously did the right thing, but his solution was temporary. It needed to be a structural change to its funding mechanism.

This needs to be sent to Trump’s team ASAP. Doing this now while Social Security is still solvent up until 2032 or so means we avoid the massive pitfall and we don’t have to borrow trillions more until there is no alternative. Senator Rick Scott out of Florida along with a few others including democrats like Joe Manchin see this crisis coming if we don’t act now. I’m telling you that if this gets addressed, this would be huge. We’re talking Trump and Vance hitting 65-70% approval ratings which would be mental. It’s like a Reagan move waiting to happen again. We could apply this same solution to Medicare as well, but at that point medicare would be redundant if they’re in a retirement account. That’ll be in a different post.

In the meantime, the people who are still on SS should stay on regardless of their financial condition and whether they need it or not. I’ve also suggested giving people the option to give up their benefits if they don’t need them in exchange for tax credits of equal amount to what you’re owed + adjustments for inflation based off the CPI during the timeframe where you paid in compared to now. What really needs to be done is winding down the program over the next 15-20 years, although doing it faster is better. It’s possible to have a spending schedule in combination with this alteration to the program where no one loses their benefits and the money people do get won’t be eaten up by inflation.

The solution is so simple, effective, and would be popular. I think it’s just the fact that both parties are scared of not being re-elected when SS is brought up, but this is a perfect fix for a broken, inefficient system. It becomes cheaper for the US government and the taxpayer, higher returns for the retirees, and Everyone wins.

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I agree in principle regarding SS reform. However I’m very uncomfortable with the sentence quoted above.

What do you mean? Are you suggesting qualifying who will or will not receive SS? Who makes that determination?

I’ve waited to age 70 to start taking the benefits promised to me for entire working life. I had a “deal” with the government, for better or worse: they took 15% of my income from me in return for promised benefits later. If I had been able to invest 15% of my income for the past 40 years, I’d have a lot more available for retirement.

Yes, SS needs to be fixed for future retirees. But it is morally bankrupt and inherently evil to impose “qualifications” on current retirees.

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I’ve edited the part that caused confusion.

That was more of a generalization. What I mean is that people like with your example clearly should get their benefits. Anyone who is currently receiving it should get it regardless of financial status. I’ve also thought of the option to give up their benefits in exchange for tax credits such as people who are very wealthy and don’t need it, but I wouldn’t make that required. It would be just as absurd as trying to gut it wholesale all at once.

My idea is based on how far away you are from retirement. Our government works on a solution to wind it down by making cuts and collecting less taxes. For people my age at 26, there’s no chance I’m collecting it at all with the current system. My generation is at the end of the ponzi scheme so we don’t expect to get any of it. I’d like the option to opt out and not be required to pay into it ideally, but that would crash Social Security entirely. For people who are nearing it within 15-20 years, you won’t get as much in return and in exchange for the cut you won’t get taxed as much going forward. The further away you are from retirement, the less you’ll get later but the less you’ll pay in taxes. That cuts the expense of the program down and gives us the transition time we need to fix it.

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Why not change retirement age for those who are now 40 or even 45? We will all live longer so need to start now without punishing those counting on benefits.

But do not privatize SS - there is no reason why the government cannot ensure that people’s money is safely invested. Too many people are too emotional with their own investments.

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To answer your first question; if you mean having a different retirement age for people based on how old they currently are, that would help too. We could also change the retirement age by raising it more the younger you currently are since that means there are less people on Social Security at any given point which lowers the cost and there is more time to wind down the ponzi scheme structure.

For the second part, I agree and it’s why I address this for the reason you laid out. There is no need to privatize Social Security and people will get stressed when they hear the word ‘privatize.’ The US government could set this up as nothing more than an account to buy government treasuries, bonds, and notes. Those earn interest and the return is guaranteed by the Treasury. Because bonds have a $1000 par value, every time you put away $1000 dollars in this account you buy a bond and you get the principal + interest back. Then you can buy a new bond after it matures with the proceeds. I don’t want it purchasing equities or assets with implied volatility. Only risk-off assets like government debt.

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Social security and Medicare are earned by payments from the individual workers salary withholding. Welfare, housing supplement, and food stamps are NOT funded by the recipients! Just in case some of you young whippersnappers (& some older ones) didn’t know this. It’s easy to check out, if you don’t believe it. Be sure and show it to your family and friends. They need a little history lesson on what’s what and it doesn’t matter whether you are Democrat or Republican. Facts are Facts. We need to return to the original social security rules!

Franklin Roosevelt, a Democrat, introduced the financial “safety net” for older Americans, Social Security was established in 1935 by the Social Security Act. Before then support for the elderly wasn’t a federal concern - it mostly fell to states, towns and, of course, families. Part of the reason for the program was to encourage the elderly in the work force to retire and allow younger citizens to get the jobs vacated while providing the elderly an ongoing income high enough they wouldn’t need so apply for other social program support, nor live in a state of poverty.

To qualify for Social Security retirement benefits, while employed a worker must accumulate 40 quarters of coverage (QCs), which takes at least 10 years because no more than 4 QCs can be credited in any year; you receive benefits later on at a retirement age based on when you were born. Contributions take the form of the Federal Insurance Contributions Act (FICA) taxes withheld from most paychecks.

The original government promise/ contract didn’t last long.

1.) Participation in the Program would be completely voluntary [No longer voluntary],

2.) Participants would only have to pay (1936) 3 cents a dollar up to 3000 a year and that will be the most you will ever pay. (1937) 2 percent rate. Now 7.65% matched by employer or on the first $90,000, or 15% on the first $90,000 if you’re self-employed],

3.) The money participants elected to put into the Program would be deductible from their income for tax purposes each year [No longer tax deductible],

4.) The money participants contributed went into an independent ‘Trust Fund’ rather than into the general operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program [Under Johnson the money was moved to the General Fund and Spent or loaned interest free thus stealing the compounded interest], and

5.) The earned benefit annuity payments to retirees would never be taxed as income [Under Clinton & Gore up to 85% of your Social Security can be Taxed].

Since many have paid into FICA for years and some of us are now receiving a Social Security check every month — and finding it is getting taxed on 85% of the money paid to the Federal government to ‘put away’ — you may be interested in the following:

Q: When did spousal and children payments become authorized following wage earners death?

A: In 1939 recipients were expanded and coverage beyond the worker provided in effect becoming a type of “life insurance” coverage.

Q: Which Political Party took Social Security from the independent ‘Trust Fund’ and put it into the general fund so Congress could spend and borrow interest free from it?

A: It was Lyndon Johnson and the democratically controlled House and Senate.

Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?

A: The Democratic Party.

Q: Which Political Party started taxing Social Security annuities?

A: The Democratic Party, with Al Gore casting the ‘tie-breaking’ deciding vote as President of the Senate, while he was Vice President of the US

Q: When was the retirement age raised?

A: Males under JFK, Women in 1956.

AND MY FAVORITE:

Q: Which Political Party decided to start giving annuity payments to immigrants who had not paid into the program?

A: That’s right! Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!

Social Security Cards up until the 1980s expressly stated the number and card were not to be used for identification purposes.

Since nearly everyone in the United States now has a number, it became convenient to use it anyway and the NOT FOR IDENTIFICATION message was removed

Now, after violating the original contract (FICA), the Democrats and Republicans both turn around and tell you their isn’t enough money to pay the earned benefits as they have been using the surplus to pay for other unearned benefit type programs (welfare). The Democrats are now trying to sell the story that Republicans want to take your Social Security away!

And the worst part about it is uninformed citizens believe it! If enough people receive this, maybe a seed of awareness will be planted and changes can evolve. Maybe not, though. Some Democrats are awfully sure of what isn’t so — but it’s worth a try.

Politicians have purposely named benefit and entitlement programs very similar to confuse people about what the government is spending and to loop some gullible taxpaying voters into supporting their unfunded and unconstitutional welfare programs.

Social Security still is Based on work history and payroll payments into the SSA trust fund.

Title II - employee payroll deductions

Retirement - draw after date determined by birthday

Social Security Disability Insurance (SSDI)

[after 5 months]

Survivors and Dependents Insurance

Title XVIII - employee payroll deductions

Medicare [24 months after Title II begins, usually pays 80% of care, has deductible, copayment, no prescriptions]

Welfare Based only on financial eligibility (unfunded and unearned benefit from Tax dollars and diverted SSA trust funds. )

Title XVI - GOVERNMENT HANDOUT

Supplementary Security Income (SSI)

Title XIX - GOVERNMENT HANDOUT

Medicaid (immediate, usually covers 100% of care)

Medicaid provides a broad level of health insurance coverage, including doctor visits, hospital expenses, nursing home care, home health care, and the like. Medicaid also covers long-term care costs, both in a nursing home and at-home care. Medicare does not provide this coverage.

Prescription drugs are not covered by Medicaid. But if you’re eligible for Medicaid, the program usually pays the premium for Medicare Part D, the Medicare prescription drug plan, as most states include prescription drug coverage

Isn’t it sad people who pay into social security and FICA most of their lives get less benefits from the government than those getting unearned handouts?

If the social security program is going to be terminated or payments substantially reduced all individuals who have been forced to pay into this program should receive a lump sum untaxed refund for the total amount contributed with an option to open retirement accounts or deposit into TSP with the funds!

Actions speak louder than bumper stickers.

Read https://www.downsizinggovernment.org/ssa/timeline

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One of the biggest problems is the Government touching the SS Funds. We all know that they have “borrowed” funds from SS but they have not been paid back. IF the funds were never touched except for when a citizen has decided to start being paid from their portion they this conversation would not be needed. However our Government is terrible about managing money so here we are. Since the Government cannot stop touching the money it needs to be taken from them and the program dissolved. Let every citizen who has put into it get their money (along with the interest that have accrued ) This needs to be done tax free since the Government has taken these funds. I agree that someone in their 20s and 30s may not have access to their funds at retirement if this path continues. I have paid into SS for 25 years and I am worried that I may not see my SS when the time comes. We need to figure this out and remove the Government from the equation and ensure that the ones who are already drawing theirs are taken care of as well.

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Exactly. That’s what I’m saying. I’m 26 and I know that there is no chance Social Security will exist because of its current trajectory.

It’s been nearly a century of abusing the dollar’s reserve currency status around the world with our empire building, lacking an understanding of where the returns on SS come from, and the fact that both parties don’t want to lose power. However, I’d say that because the democratic party is in complete disarray unlike anything I’ve ever seen before, now is the opportunity for Donald Trump’s administration to address the elephant in the room.

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This is definitely an opportunity to address this issue along with many others… this will show America if our representatives are in support of our issues. Trump is claiming to address these but he will need the Senate and Congress to make it complete. We are going to have the majority so time will tell…

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I know Medicare will be addressed since the insolvency of that program will start to hit in 2028. I’m not too worried about that because with RFK Jr. in charge of HHS and Jay Bhattachayra of NIH, we’ll see a huge cut to what Medicare will cover after we all discover how harmful all the things it covers are. Medicare is a giant moral hazard for big business to lobby for more and more vaccines, treatments, and procedures to get covered so the markups for hospitals and pharmaceuticals are raised. Most recently, trying to put Ozempic on Medicare would be a disaster. I would just get rid of Medicare entirely since it’s where a lot of healthcare spending comes from. It’s basically a money laundering scheme that bids up the cost of providing healthcare and socializes the expenses for taxpayers. I’d bet the entire industry would go bankrupt if Medicare was dissolved which means new competitors and lower costs.

Social Security IMO is a very easy fix which is just mind-boggling that it hasn’t been discussed. Really the entire goal of delaying fixing it has to do with politics and blaming the other party. However, the democratic party is basically irrelevant since they’re falling apart and have nothing left. I highly doubt they will survive past 2030 especially looking at how the electoral college will make the sun belt a GOP winning machine, but as of now they’re taking a back seat.

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Temporary relief for Social Security could be had by disbanding the IRS and moving to a national sales tax on all new goods except food and medicine. That would free up 12 billion/year that could be directed to SS with a sunset clause ceasing this cash influx after 10 years. Some of the ideas posed above could be incorporated into a scheme to replace SS during that 10 year period.

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Not a bad suggestion, God knows how much I despise the IRS.

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After 6 years of addressing my returns to the Infernal Revenue Service someone finally caught it and I got a visit from an agent. I was informed that it is a crime to defame the IRS. When I asked to see a printed official document defining what wasn’t allowed the dude got aggressive. I called the cops, the “agent” left, and I never heard from them again except to be audited 4 years in a row. They got their evens. Now I file electronically so no more fun for this old cat.

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@Thomas t - I have two grandsons by marriage in your age group. Listening to them kvetch at family gatherings is tragic, entertaining and highly educational. One has finished getting his degree in communications while the other dropped out after two years while majoring in IT. The first one is still looking for work in his field while the drop out has gone to work for a software company - he claims he has learnt more in three months than he did in two years in school. Into the bargain, he is learning things that are state-of-the-art vs. the obsolete stuff he was learning in school.
I really feel for your generation - the opportunities for OJT are few and far between compared to what I got in the '70s and '80s.

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I appreciate the kind words. I guess I gotta make do with what I got. Part of the reason I don’t look to starting a family is how expensive it is to raise kids. Fortunately, I have my finances in order and I got no debt so I can weather the storm as a single guy. I firmly believe that sometime during my lifetime that the world is going to reject the idea of fiat currency and debt-based fractional reserve banking, possibly even the idea of central banking as well. The world can’t keep being in debt to itself and at some point things will get so bad with inflation that we might see a revolution. I hope I’m wrong.

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I put together another option for fixing the social security mess, this would include the option to own U.S. based company stocks in the account and getting a match from the U.S. government on top of your employer match. I also would want to make sure, no matter what system is used for retirement it must be made OPTIONAL. I would gladly loose everything I’ve put into the current social security scheme if it meant I could stop paying in.

What if social security was restructured as 1. Requiring all employers provide a 401k with a match of 50% of contributions up to 10% of your income.
2. The government matches what your employer puts in
3. All 401k plans need to offer a low cost total us market index fund, a low cost total us market bond fund and a high yield u.s. government bond fund
4. Employees should be given a short course on 401k’s to explain how they work and how to use them, as well as examples on how this saving scheme works
5. Decrease the earliest date you can withdrawal money from your 401k penalty free from 60 to 55

That way the money stays in your hands, young people will not have to save an additional extra dollar since 20% of their income will be put away and people closer to retirement are doubling their savings. This would also be good for people like me who don’t think the forced 6.5% tax that has a very low return and an even lower chance of being able to pay me out in full by the time I retire. Companies also save since the match would be 5% rather than 6.5% of your income.

Wins across the board

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We need a permanent fix to SS, and increasing the age just pushes the can down the line until people live to 90 on average I also do not want SS at all because of the poor returns, he also mentioned it wouldn’t be privatized because 100% of the money would be guaranteed by the U.S. government

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I’d argue that risk on assets should be allowed but in limited quantities depending on your age, they should also only be total stock market funds sponsored by the government ( partial ownership of all U.S. companies).

The government can offer these while pushing people away from them but the returns might be necessary for people around the age of 40 just getting started on saving.

Make the default investments 50% bonds, 35% notes, 15% bills, if you don’t access the account and make changes (like how 80% of 401k’s are not accessed until retirement) that is what you’ll be invested in. It’s guaranteed and offers liquidity to the government, (side note the government should bring back 45 year and even 60 year bonds). They can also offer 3 more options for people to get shorter and shorter terms over time. By the time you retire it would be something like 25% Bonds 25% Notes and 50% bills while 2 more options can be offered for younger savers one would be the “aggressive” (still risk free) gov. Bond portfolio which would be 75% 45-60 year bonds, 20% Notes and 5% Bills. The final option should be labeled accurately as “risk on, non-guaranteed assets” and a warning should be displayed before letting you select it saying something along the lines of “this retirement option includes assets that are not guaranteed by the U.S. government or any institution, there will be times in witch the value of this account will decrease if you select this option and unfortunately this can happen at the worst times, it is not suggested that people nearing retirement use this portfolio.” The mix for that portfolio would be 50% total U.S. market stocks 25% 45-60 year gov bonds and 25% total U.S. corporate bonds.

We should not let people make their own mix of investments because that would let them choose genuinely risky assets, this makes sure people can get the returns of the total market while still having their portfolio fairly risk off. We also should have the government send a statement every 5 year going over the returns you have received, the amount you’ve put in and the current balance, this is the only time you’d be able to change which mix you are using to prevent market timing, the Gov should suggest one of the options based on your age and balance (if you are behind suggest the “aggressive” (risk off) mix vs if you are ahead suggest either the average or the low risk portfolio, they should never suggest risk on mixes).

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I like this suggestion a lot especially when you touch on liquidity for the government. Having the 45-60 year bonds is good for both the saver and the US government since the obligation to pay back isn’t nearly as difficult as opposed to short term debt. In a nutshell, it really comes down to the idea ‘Does the government want to allow people to price in risk and volatility in their retirement portfolio?’ I’m open to the idea, but lean against it since I don’t think most people would handle their retirement losing value very well.

I also want to comment on the 401(k) idea because I think this is a great option particularly if we reduce payroll taxes. However much it’s reduced means that amount is matched by your employer can also be contributed by the US government. I’d look at that as also part of the gradual transition to phase out Social Security.

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There are a lot of less risky methods to invest for retirement, the government should not be mandating any specific investment.

If you are going to mandate a retirement income have the government regulate indexed universal life insurance so it has no fees, has a minimum return, has maximum cash value, and minimum death benefits!

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