Don’t you hate it when someone makes an absolute comment
like social security is one of the top five issues facing the middle class in
the United States. Oh yeah I did that in my last post. Subjective comments are
so wonderful. Yet I think most people would agree that trying to address Social
Security and the subsets of Social Security is something many Americans would
agree would be beneficial.
Actually coming up with a solution to make it what we all want
it to be….. well, I am known to dream.
I still want to at least put on paper some ideas of what
potentially can be done, or at least offer some discussion points for moving
forward with social security.
Social Security Act of 1935
Preamble:
An act to provide for the general welfare by establishing a
system of Federal old-age benefits, and by enabling the several States to make
more adequate provision for aged persons, blind person, dependent and crippled
children, maternal and child welfare, public health, and the administration of
their unemployment compensation laws; to establish a Social Security Board; to
raise revenue; and for other purposes.
Quite a monstrous task they created for good ole social
security. And from this preamble we have come to a behemoth legislative
juggernaut, tax and budget sucking, and is it worth it all; government program.
And everyone wants something done to “preserve it”; “rid
ourselves of it”; “fix it”; or “make it better”, yeah you know completely
reorganize one of the largest institutionalized programs in the world with a
Congress that for decades cannot pass a reasonable two-year budget. Or heck even agrees to try.
Actually the reorganize statement is my wording. I am not
quite sure how everyone else wants to address Social Security since probably everyone
else has a different opinion. Somewhere down the line we need to start
discussing what we want and what we want Social Security to look like now and in
the future.
Where do we start?
And there are many ways to start. Some major decisions need
to be made before we can start and that is answering what do we want it to look
like going forward.
So I will start by proposing a few ideas as to what it can
become. At some point we, the middle
class, want our retirement. I do not think people want to be forced working
till they die. Yes, there are some people who like to work or would have no
idea what they would do once they quit working, but I feel comfortable stating
most of us want some sort of retirement. And I will leave the what I am going
to do in retirement up to you.
The issue is how do I afford to retire. Over time the
concept has gone through many changes, I would have said evolve, but that connotes
improvement and I am not sure the process to retire is improving. At some point
it had. Many workers could look forward
to a small pension, social security and by the 1980’s even 401ks that gave
people an opportunity to create savings not just income for retirement.
Alas pensions are drying up or facing shortfalls, 401ks are
in the market and Wall Street is effectively making this a dangerous retirement
plan. (On a side note mutual fund companies should be better advocates for
their customers when it comes to Wall Street excessiveness. Whether they force better behavior in business
models or support government programs that manage Wall Street behavior I do not
know (I have one tax plan as part of a solution), yet they should do something.
The middle class to upper middle class best option for savings were the traditional
mutual funds where managers made good long term investing decisions. Sad to say
with all the volatility in the markets partially caused by dynamic trading this
isn’t a strong long term solution anymore. And of course my beef about Wall
Street is that it only supports itself not business in American which is
another problem.)
The third part of a potential sound retirement plan should
be social security. If all three parts are working in tandem, it is a bit
easier to work with modifying social security for the future. Unfortunately, like when social security
began, social security is the only retirement income for many Americans. This
will not work going forward.
One reason it doesn’t work by itself is cost of living and the
second is life expectancy. And even
though social security is supposed to help us with medical benefits; the growth
of the medical field and the cost is far outstripping the average person in the
middle class to keep up. One note here and I will come back to it is the high
cost of living with the medical field. This will need to be addressed either in
tandem with social security reform or on its own. Obamacare was supposed to
address this and is one of the reasons I feel Obamacare has failed the people
it was supposed to help. Let me put that
aside for the moment.
The first problems to address are income for social
security, what do we do to either protect 401k investing or strengthen
pensions. I can try but I do not think we will get back to having all three as
viable combinations for everyone. And when I say 401k I mean all workplace
savings plans like 457 and 403bs.
Since we are talking about social security I will mainly
discuss ideas for increasing revenue to continue offer a reasonable check to
retirees. Some of the reforms for the pensions and 401ks will seep into the
conversation.
The first statement I want to make about improving Social
Security is we need to pull it completely out of the rest of our government’s
budget. This has to be a stand-alone identity. Every aspect of how it is
administered could be directed by Congress (and should), but the actual administration
and budget has to be separate. One reason is because it has become so
cumbersome that we need to find ways to streamline it and also make the numbers
better accountable to the people.
The first priority is determining how we are going to increase
income into social security or find ways to decrease need for social security
ie better pensions or some new program.
I bring up the pension vs social security for many reasons.
We first need to consider is whether employers have to pay into either or
both. An employer must pay social
security taxes that matches what the worker is putting in. This is somewhat
backwards in the visual, however, I feel more people will have a better idea of
the problem if they realize the employer is contributing an amount alongside
what they withhold from your check to send to the government. The obvious
problem is when they do this they have less money to add to a pension.
So where do we start? Make Social Security private, increase
taxes, have a social security lotto, invest the funds like a pension fund, or
place your own thoughts here. Actually there are some options, however, they
take away from something else. This is the push me pull me of taxation and
having government programs that work or benefit the people they are intended.
And increasing social security taxes could work in different
ways. First and probably one of the ideas regularly done is to increase the
income level for taxation purposes. Basically it includes higher and higher
levels of income being taxed. And this increase affects you and your employer.
So know you have businesses arguing well you can increase for the worker, but
not for me since I cannot afford increased taxes on what I pay people. And in a
reasonable world this argument has some merit especially if the company is
offering pensions or 401k matches etc… Is it possible to find a balance of
lowering the employer portion of the taxes so they can offer more to their
employees? This is a possible discussion point, but not all companies may take
advantage of this so now are we going to tier social security payments based on
what different employers contribute. I am going to leave this on the table and
come back to it.
Another idea is to find ways for social security to increase
income besides wage withholding or what I have been calling taxes. The term social
security taxes is common, but actually it is wage withholding to go to a trust
to be paid. Part of the reason to make social security stand alone is so there
is better accountability to the wages being withheld and used for social
security. I will continue to use the word taxes because we see it on our
paychecks as a tax.
To increase revenue becomes interesting and that is where
some people say we can make it private. Making it private, by itself, would not
increase revenue, but offers individuals a chance to increase a balance. And of
course this has not faired well when presented as an option mainly because no
one would trust those put in charge of it. We already do not trust our
government with it, but we do have, if we would exercise it, better control of
the people in charge: Congress. Handing
it over to private interests to manage creates a nightmare of liability issues
if money was lost. Yet being able to find revenue by investing is a
possibility. Who manages these decisions and how are they held accountable are
very serious questions that need to be answered to offer this in a solution
mix. I have proposed in other posts an investment plan that incorporates
certain types of investments only and gives the economy a secondary boost.
As you can start to see we do have options, it is actually
putting together a plan and a combination of resources together that can move
us forward for our retirement. And yet the next obstacle is getting all the
divergent groups together or incorporating them in the plan that will be
tricky. It can be done. As I mentioned us, the people, holding Congress
accountable is how we will get something done.
To start putting some pieces together and by no means do I
feel I have all the right answers, but I am going to propose some thoughts so
you can decide what you think works, what needs either improvement,
elimination, or can take some of what I am proposing and add your own ideas to
drive home the idea that we still can make social security a continued viable
option to help us out in our retirement and in other areas. Social Security
still needs to be a foundation for us, not the whole answer, but since we
created social security it might just behoove us to make it the best we can.
So without number crunching:
We need income from sources beyond wage withholding. I have previously suggested municipal and
utility bond investing. Use some of the proceeds from the trust (remember it is
now separate) to increase in well vetted revenue or other high quality bonds
that cities or other localities and utilities can use to improve
infrastructure. Also this could be in some other areas since infrastructure is
a highly discussed need. Why does this always have to be addressed through
higher taxes? This will not be for every need. You can argue a great many areas
of development (not necessarily private development and there is more to
discuss there, but separate from social security) could benefit with resources
a Social Security trust fund could offer. And with everything there are downsides,
but they are manageable with some well thought out guidelines in place.
Basically you increase revenue through high quality bonds’ interest income.
Will this be a superlative increase of income? No. yet it gives the trust fund continuous
income from a well developed bond stream that possibly benefits other areas of
our country’s needs.
Second we make a decision about how much we expect an
employer to contribute to the employee’s retirement. This is some serious
legislating and very specific reward for action idea. And it goes back to my
comment earlier do we have tiered payments for employees of employers who take
on more of the expense of retirement. And how do we manage if the employer plan
fails or the company fails? Do we end up telling the employer their funds will
still be given over to the social security trust and the employee manages it? Ends
up being one of the same problems people have with the 401k type plans. Can
they manage it successfully? Do we give credit for 401k with matches and profit
sharing to lower employer contributions to the original tax withholding wage
amounts?
Many details to be worked out, but I do support we create a
standard wage withholding plan that all employers/employees contribute and then
it is increased for employers that do not provide separate plans and stays at
the basic or stair step increases with the size and security of the employer
plan(s). This would be difficult to manage and yet it gives an employee
multiple options to actually save for retirement. I have not gotten to it yet,
but I feel people for retirement need both a steady income stream and a savings
to fall back on or use for their pleasure. People need both. And of course how does all this work with
people changing employers on a regular basis? First way is there is a standard
wage withholding level and second we either put the money in the trust or let
employees take them as they do now such as IRA rollovers from their employer
plans. We do not have to change everything, just allow some cohesiveness
amongst all the plans for the employee with social security being the base line
level of retirement. This is what the preamble attempted to accomplish, it is
just that times change so the program needs to change. This portion is the most
flexible in regards to discussing how to implement, but I think the most
important piece of our retirement discussion. I can answer some of the questions I brought
up, but those would just be my ideas. Think about this yourself and down the
road I will come back and do a give and take on this portion of the plan.
Third and I am about 35-65 for this idea. I do not think we
privatize social security, but I think we can invest in private or commercial investments.
There would have to be some serious guidelines and I would suggest it would not
be a large portion of the trust. Yet having a growth component is important.
Now do we invest for what I mentioned earlier and that is income stream and
savings or just use this investment growth to cover income stream which only
maintains the same benefit we have now.
I think the income stream approach is better and use employer plans and
IRAs for savings. Yet if some employees do not receive employer plans this
might be a way to set aside a very small amount of a social security savings
account. You would have to do some excellent accounting work to earmark the
higher amounts of employer contributions mentioned above to allocate to these
employees’ accounts, but if you set it up right it might be feasible. There is
work to be done on this idea. I just feel we need to look at maintaining social
security retirement funds for the long term so it will need a growth component
to it.
Okay the above is some ideas and not the whole program. I
plan on doing a different post for the medical, another for the social welfare
aspect, and the conclusion that tries to tie it all together. I do think there
is more to the retirement plan. So again I ask you to think about some ideas
and I will circle back to some of this at a future date to rehash the ideas and
answer some of the questions I asked.
Remember Social Security belongs to you.
College loans are not financial aid. I do not know why they
include loans as part of a financial aid package. It is crazy. Debt is not aid. (I don’t support Bernie though)
Have a great evening everyone
