Social security is broken. The program has run losses for many years and it will continue indefinitely. The so -called “Trust Fund” is nothing more than IOUS than the federal government and it will end at the end of 2032, and tens of trillion in long -term unpublished liabilities are in trillion dollars. The politician who emphasizes social security cannot be touched, they are not protecting the seniors. They are pending, and when the “Trust Fund” is finished, the board will cut 24 percent profit until anything is done to fix the problem.
The system can no longer be seen as “third rail” and should be fixed for good.
For decades, Washington has tampered with the edges by increasing payroll taxes and increasing the retirement age. None of it has solved the fundamental defect of social security, that is, it is a pay-e-u-Go scheme. Current workers are paying for the current retired people, and nothing is accumulating to pay the current workers. With the support of more retired people with fewer workers, mathematics no longer works.
A better way is one that has worked in many countries around the world, private retirement accounts. Instead of sending their payroll taxes to a government system, which is broken and getting worse, workers will invest those contributions to their own accounts, managed professional, compounding in value over time. Retirement, that the nest egg will belong to them, not the government. And when they pass, the remaining property went into his heirs, creating generations instead of disappearing into the black holes of Washington.
There are many advantages of privatization. Private accounts are individual -owned assets, provide high retirement income, promote economic growth through investment, and eliminate the government’s mass unpublished liability. Workers can contribute more. If they choose, employers can match additional savings, and the program will be permanently self -sufficient.
The challenge is an infection. Significant capital is required to move to the model of private accounts funded completely funded from the broken pay-e-Go system. We should maintain payment to current recipients, so redirecting contribution to private accounts leaves a funding difference for current retired people. That deficiency during infection should be covered properly and responsible.
I have underlined an ideological 20-year-old transition plan that shows the way forward with gradual changes in private accounts unless all contributions go to private accounts in the year twenty. Current retired people will maintain their benefits, while new retired people will receive a combination of social security payment and private account disbursement until private accounts completely cover their retirement. The temporary shortage will be covered by three sources: a minor high payroll contribution to employees, employers and government. These will be sunset after the trust fund is not required.
Yes, there will be transitional costs and adjustments. But when the conversion is complete, retirees will be better, the unfund will go to the liabilities, and the program will eventually be durable.
The number shows why it is important. A worker who invests the current 12.2 percent social security contribution for 40 years, even at 5 percent, will retire with more income than providing social security. The retirement age will become irrelevant, because whenever their savings reach the minimum range, individuals can attract benefits – for most people who will be 67 years old before the age of retirement. Unlike social security, their accounts will be real assets that they themselves and control.
The big picture is growing very much. The decline of social security is only part of the US fiscal crisis. Almost with debt 125 percent of GDPWe are on a confrontation course with reality, showing the loan to 200 percent of the GDP in the coming decades for multitrician annual deficit, and in the coming decades. Social security is not a complete problem, but it is an important piece of solution.
What is missing is public support for such a major change. Previous attempts of privatization have not failed because economics was not unheard, but because the plans were not fully thought, were clearly sold, or roughly supported. Groups like AARP, which claim to speak for seniors, should prevent improvement and start advocating for future retired people.
The current social security program is a financial disaster. Otherwise there is a dangerous illusion. We can fix it through a real plan, over time, through private accounts. This path is not easy, but it is appropriate, durable, permanent and better for all sides.
The election is between a Ponzi scheme sticking to our eyes that is collapsing or building a retirement system that works for seniors today, for workers for the future of tomorrow and America.
Les Rubin is the founder and president Main road economics,
