Fantastic Idea for Revising Social Security

[chaz4jazz]

A New Idea for Social Security

By Paul H. O'Neill, former Treasury Secretary in the Bush administration from January 2001 to December 2002.

The debate over what we should do, if anything, with the Social Security system is heating up. A political campaign-style assault has already begun; in the weeks and months ahead, prepare to be buried in markedly different versions of the truth.

If you are like me, you hunger for something better from the political class. How about a new idea to offer financial security for each American when he or she reaches retirement age? Here's one way.

If we decided as a society that we were going to put $2,000 a year into a savings account from the day each child was born until he or she reaches age 18 — and if we assume a 6% annual interest rate — each child would have $65,520 at age 18. (The worst return for a 25-year investor in the stock market from 1929 before the crash to 2004 was an average of 6% a year.) With no further contributions, again with a 6% interest rate, those savings would grow to $1,013,326 at age 65.

If we began to do this now, the first-year cost would be $8 billion; that is $2,000 times the roughly 4 million children born each year. The second year would cost $16 billion and so on until we were contributing $2,000 per year to a savings account for every child from birth until age 18. When fully implemented, the cost would be $144 billion per year. To put this $144 billion per year into context, this year's combined spending for Social Security and Medicare will exceed $750 billion.

What this plan would do is "pre-fund" for the needs of old age. It solves the long-term financing problem for both Social Security and Medicare, allowing for the gradual replacement of programs like Supplemental Security Income and Medicaid and food stamps and housing aid for those over age 65.

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Read the rest- http://www.latimes.com/search/la-oe-oneill15feb15,1,5834933.story?ctrack=1&cset=true

[Warpy]

1. I guess the author hasn't had any money in savings lately

Most interest rates are hovering between 1.8% and 2.5% for longterm CDs.

It would be lovely to find something that gives a guaranteed 6% per year. However, since such an animal has never, ever existed for most of us who are the underpaid masses, Social Security was started as an insurance program to protect us against being wiped out by sharp dealers, frauds, predatory lenders, and Ponzi schemes.

Fairy stories about mythical interest rates that have existed in reality for only relatively short periods of time won't sell this garbage to those of us who know better.

[jo2house]

2. Ponzi scheme?

social securety is a ponzi scheme.

[Warpy]

3. Social security is insurance

but I'm sure nobody told you that in bullshit right wing economics 101.

Everything right wingers think they know is a lie.

Just wanted to clue you into that.

Ignorance is repairable.

[jljamison]

4. A couple of flaws, otherwise a great idea

One of the first replyers makes the mistake of assuming savings accounts would be used. O'Neill specifically suggests putting the investments in the stock market.

Where O'Neill goes wrong is to assume that one would keep their retirement nest egg in the stock market all the way up to retirement age of 65. Most financial advisors would recommend that a person approaching retirement age begin transitioning to less- or non-risky investments so as to avoid losing principal at an age where insufficient time remains to regain it.

So in other words, rather than having all of the money in the stock market through age 65, one might transition into increasing proportions of cash (savings or CDs) or T-Bills starting at age 50.

Thus that 6% annual return doesn't go all the way to 65. Still you would have a heck of a lot of money as a starting point for retirement security.

O'Neill also doesn't say whether the money belongs to the person or not. If it is kept held by the government in that person's name, then if the person doesn't reach age 65 or doesn't live long enough in retirement to consume all of the money, there is more money left for other retirees (kind of like how annuities work and the current system).

Another significant flaw in his theory is that this model does not account for immigrants who join into the system much later. If there are 4 million newborns per year, there are hundreds of thousands if not 1 or more million legal immigrants per year ( I do not know the figure).

[chaz4jazz]

5. separate accounts 4 all

I believe O'Neill is saying that the accounts,funded by 36Gs per head coming out of a SS fund would be "owned" by the recipient and invested by trustees to get as much return as possible (probably mutual funds of some kind). The million bucks that the 36Gs would grow to from age 1-65 would belong to the recipient and if that recipient dies before taking advantage of the retirement it could be gifted to his/her heirs.

Now, I receive SS payments equally around 36Gs every 2 years. So, in the first 2 years of my retirement the US government has already paid me the amount equal to the entire payments for the proposed newborn. At age 65, with over a million bucks in the fund, the retiree could opt to take out 50Gs a year nearly 4 times what I get (granted this is future weaker dollars) and that should last that person 30 years.

I thought it was a better sounding idea than Bush's.