Flip the Social Security "Pyramid" Scheme

Economy
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This is to propose altering Social Security by creating an account similar to a Roth IRA for each Social Security number when it is created, (ideally at birth). This account is invested similarly to retirement accounts with the target age set at current retirement age.

The United States then loans that account $50,000. If we assume a 4% return over 67 years, Without any input from payroll tax, that account should net just under 700k for each American citizen born in the US. The SSA shows the average retiree will currently receive approximately 700k in benefits during their retirement.

The payroll tax for citizens born in the year after be divided with 3% of it going to their account specifically and the remainder maintaining the traditional SS trust to cover Disability and potential fund shortfalls for citizens who immigrate to the USA.

The money in the fund be inheritable/transferable to next of kin in the event of the death of the holder, with the exception of the last $50,000, which will be paid back to the US and used to start a fund for a citizen born later that year.

There should be an opportunity for an individual to take a one time loan from their account, similar to loans taken from existing retirement accounts, to use as a down payment for their first home.

This will present a large upfront cost, approximately 3.6 million babies were born last year and this would present an upfront cost, (~$200 Billion annually) but will greatly reduce SSA costs in the long term while insuring that if another Baby Boom occurs we won’t have to deal with a Ponzi scheme collapse like we are facing now.

This will also benefit every American by giving everyone the ability to benefit from growth in the stock market, potentially build and maintain generational wealth, grow access for first time home buyers, and grant the security that Social Security will actual exist when they retire.

T

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Very interesting idea. So this is instead of social security…I like it. Would the individual get control of their own investment choices or would it be a have managed account? What age would they gain access? If a parent passes away would the child receive dividends?

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I’d just make it a managed account to follow an automatic investment schedule, high growth early on and transitions to stability as you approach retirement.

It would have to exist alongside traditional social security, the key to making it work is the power of compound interest and time. People who naturalize later in life would be left disadvantaged. Which is why it the individual doesn’t get the full contribution from their individual payroll tax.

I would have it tied to the same age as SS.

And the balance being inheritable, (excluding the 50k loan), I think is a key feature. It serves as the replacement for the spousal benefit in traditional SS, and allowing the balance to roll over into children’s or grandchildren accounts can really ensure that people have the opportunity to try and change the lives of their dependents.

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If it were up to me, what I’d do is make the account dedicated to purchasing government debt like treasury bonds, notes, and T-bills. I think there should be choices in what you can invest in seeing as interest rates and par values on bonds can change which can dictate what you purchase at any given moment. The idea is for it to generate ‘guaranteed’ repayment with the most secure form of investment being the credit of the United States government.

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Holy shit, I was going to write this as my own topic but you beat me to it. Well done!

When Social Security was created in 1935, the program worked well and banked surpluses because of a massive 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. 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.

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 as opposed to 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. Actually, ReasonTV has also suggested Social Security should function like a retirement account. It could be as simple as a treasury debt account where you purchase government debt instruments that are guaranteed. 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. I think Reagan obviously did the right thing, but his solution was temporary. It needed to be a structural change to it’s 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 hitting 65% 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.

I think in the meantime, the people who are still on SS and truly need it should stay on. 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. Everyone wins.

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