Thursday, May 12, 2005

Social Security Re-Adressed

Awhile back I developed a plan, and now that it's in the news again as the left and right argue their plans it deserves a posting here.

December 18, 2004
Social Security reform:

I am wondering when somebody will state the obvious solution to bring the parties across the isles.

President Bush is accurate in stating that something must be done now, yet one must also recognize the need to continue funding the current system since the “baby boomers” are going to become a large burden on the “fund”. With this in mind what we as tax payers face is the need to both subsidize the old system as well as bear the burden in the forming of the new.

Partial privatization is indeed not just essential but reasonable. Many of the top wage earners in this country are able to set aside for their later years and have a “nest egg” that when added to their Social Security benefits allows them to retire with financial security. This is required today as Social Security benefits alone do not provide sufficient income to live on. Meanwhile, the modest income earners continue to subsidize Social Security without the ability to invest elsewhere for themselves and still provide sufficiently for their family. Thus, when they retire they are considerably underneath the poverty line.

Yet one must realize that not funding the current system will be allowing it to become bankrupt rapidly. There is a middle ground.

Under what schedule would these funds be returned to us? What accounting will be used to be certain the funds will be used for their intended purpose? In what way can the current system retain reasonable funding?

1. Every year the IRS collects and distributes tax dollars from each of us.

2. These monies are deducted from our paychecks, as well as FICA, Medicaid, etc. Once per year each of us is either billed for our personal deficits, or receives monies in return. The system to collect and distribute is already in place.

3. The proposal discussed is to allow us to retain a portion of the FICA deducted to be invested elsewhere personally.

4. Obtaining a “money market” account with a brokerage, etc. is uncomplicated and convenient, and just a matter of banking. They are also necessary for any transaction within the market. The system required to hold monies for investment is also already in place.

5. Today’s technology provides that funds could be direct deposited into these money market accounts as is currently available with IRS returns into personal banking accounts. This would provide the accounting that these monies are indeed being used for their intended purpose.

6. Obtaining stocks, bonds, and other investments also carries fees for each transaction. Limiting these fees would allow for an individual to maximize their investment dollars. One yearly transaction is the most efficient. Bi-annually is another option, but the fees per year double with this plan. Four quarterly installments would coincide with those that submit self-employment taxes, but would remove any benefit of these monies being allowed to compound. Any shorter time period is minimizing the investment dollar due to transaction fees, and commissions.

7. Monies held in secure accounts can draw an investment return as well.

Where does this lead us?

I propose what I feel is a legitimate compromise, and yet addresses all of the issues raised with concern. It includes the current system to submit to losing a portion of the current receipt of monies. It also includes a personal sacrifice of a portion of what one would feel a right to, for the sake of providing for the current system. Both also receive added benefit consequently.

Social Security reform
Page 2

1. Allow the continuing of full FICA deduction as is currently occurring.

2. The monies earmarked for return to each individual are to be located into an interest bearing account or multiple investment accounts.

3. At the time period to be determined, individuals then receive their entitled portion transferred to his or her money market account for investment.

4. The interest gained during the holding time to be determined is then transferred to the “Social Security trust fund” as additional revenue to the current system.

5. The holding time allows for the individual investor to maximize investment while minimizing fees, which would in all probability save an amount equal to or in excess of the amount of interest forfeited to the Social Security system.

This reciprocal system is indeed the answer to moving Social Security into the current era while providing for the current system.

Jonathan P. Thompson

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