One of the main arguments employed by the Democrats against personal savings accounts is that they will be too risky, that why would we take away a sure thing in the current system by changing it with this new one? Democrats are trying to convince you and I that having individuals put some of their payroll tax money into the stock market instead of the Fed's coffers is the equivalent of us gambling away our retirement on a game of roulette. This is their rationale, and it is flawed in more ways than one.
First of all, preserving the current system is the exact opposite of a sure thing. In around 2018 the system will begin sending out more money than it takes in, and by around 2040 the system will only be able to cover about 80% of the benefits that it does today. The program is heading off the cliff and we need to do something while we still have the time.
Furthermore, numbers show that investing in the stock market is the closest thing to a sure bet that you will find. For example, in only four of the last seventeen years has the rate of return on investments been negative. In eleven of the seventeen years the rate of return has been greater than 10%, in eight years it has been greater than 20%, and in four years it has been greater than 30%. The average rate of return over this seventeen year period has been 12%. As these numbers prove, investment in the market over the long term is very profitable, with the only risk being an investor pulling their stocks out after a short period of time. This will not be a problem though, for young workers will be investing for their retirement, meaning that they will be in the market for at least a few decades.
So what would you rather do; keep sending your payroll tax money to the government where on our current path you will only receive 80% of promised benefits, or invest it where long term returns will surpass anything you could ever hope to receive from Uncle Sam? I think myself and most young workers would choose the latter, for I trust myself with my own money far more than I trust the boys in Washington with it.
This brings me to the main point of this post however: To address the Democrats' concern that empowering individuals to take care of their own money is too risky, I propose that the congress pass a provision as part of any personal savings account bill that insures each individual who chooses to divert their payroll tax money into the stock market. If by the time of that person's retirement they have lost money, after decades of having it in the market, the government would reimburse that individual for every penny that they lost. So for example, if I invested a sum of $200, 000 that would have previously gone into the system, and I winded up at the time of my retirement with only $180, 000, the government would reimburse me for the $20, 000 that I lost.
As the statistics I showed you above bore out, the chances of an individual losing money in the market after an extended period of time are very minimal, with the chances being that you will see at least a 10% rate of return on your investments. As a result, it is highly unlikely that the government would have to give much out in reimbursement money, at least much less than it would have to pay out if the system is preserved in it's current state. This plan would also allow those who are pensive about the risks of investing to feel much more secure when they make their decision on whether to keep paying into the system in it's entirety or take the money and invest.
To sum up, Social Security on it's current path cannot be sustained, which is why we must act now before we fall over the cliff. Instead of the government creating a state where all of it's senior citizens are dependent on the government, we should allow individuals to take responsibility for their own retirement and their own future. As the current deficit and out of control spending show, the individual can do a much better job with their own money than the government can. It's the government's job to provide support to it's people, all the while allowing them to control their own lives. The creation of personal savings accounts and my plan of insuring those accounts serves that exact purpose.
G'mornin, Geoff. Nice to see you are still keeping up with the times.
ReplyDeleteThere are a few things I'd like to mention in response to this article.
1) According to new DNC Chairman Howard Dean:
"[Social Security] was a response toward [overcoming] abject poverty...it is not meant as a retirement program...it was meant as a social safety net for people who had reached the end of their working careers and did not deserve, after a long lifetime of dignified work, to live in poverty. ... It's not supposed to be a pension."and
Dean pointed out that, while he would not endorse this, if Social Security were left alone for 30 years, its benefits would be reduced to 80 percent of what it is now. He acknowledged that while there were indeed problems with the program, turning to Wall Street was not the answer.So Dean thinks that 1) SS is not supposed to be a pension plan and 2) that in 30 years we'll see an 80% reduction in benefits. Funny, I thought all the numbers (from the SS admin) showed that SS would only be able to pay 70-75% (which is a loss of 35-30%), not 20%.
2) If you'll read my post here, you'll see that:
If personal/private accounts had been created 35 years ago, and a 20 year old had put $1,000 (considered to be 1/3 of their payroll tax) per year into it, they would have over $500,000 today. That is in addition to the Social Security benefits that the other 2/3 would have gathered.
What if that same 20 year old opted NOT to put 1/3 of their payroll taxes into personal/private accounts? It would have only earned $200,000. So over a 35 year span, the personal/private account would have netted the retiree an additional $300,000.3) Personal/private (whatever word you choose to use) accounts will not save up the current SS system. Even President Bush admits that. So there still needs to be some major reform in addition to the creation personal accounts.
4) What is really bugging me most about the whole SS issue is the refusal by Democrats (and a number of Republicans) to even come to the table and talk. President Bush has put forth no plan or proposal. He has stated, on numerous occasions, that anything (except tax increases) is fair game for discussion. Yet these politicians continue to blather on and on about personal accounts as if that was the end-all, be-all of Bush's ideas.
Until these congressmen pull their heads out of the sand and begin talking, nothing will ever be done to reform the system.
Sorry for taking up so much space. Maybe I need to tart my own blog 'er somethin. ;-)
Cracker, would you like to know what FDR (the creator of Social Security) intended SS to be? Take a look here.
ReplyDeleteI'm not sure a bailout policy is a good idea. This would just embolden people to go for risky investments, because they know that, at worst, they break even (or slightly worse off thanks to inflation).
ReplyDeleteKnowing government's fondness of regulating anything and evertyhing, they will distinguish only a select few areas in which people can invest, which will prevent people from investing in high risk stocks.
ReplyDeleteI appreciate your viewpoint and I understand where you are coming from. You are right that personal accounts won't solve Social Security's solvency problem in the short term, but in the long term they will lessen the government's obligations and the money that it is required to send out.
ReplyDelete