(An Investment Grade White Paper on Social Security)
Introduction:
As an investor, I’ve always wondered why Social Security is such a problem. What’s so difficult about managing this particular Trust Fund, and why is it so different from any other investment account that pays out a constant stream of income to retirees? The private sector does it routinely (defined benefit pension plans are not anything new, nor are deferred fixed annuities), so what’s the big deal? Naïve, oh yeah, big time!
Is Social Security failing because it hasn’t been invested soundly, because it is too large, or is there another reason? The most obvious problem is politics, and the most common way of dealing with the issues is to cast blame in every direction. I have no interest in calculating how much has been wasted or mismanaged by whom, nor do I intend to waste even one sentence on finger pointing. We have a very solvable problem that can be fixed relatively quickly and in a surprisingly painless manner. Benefits are likely to increase in the process, jobs will be created, and not one of the mythical dollars in the non-existent Trust Fund will go missing!
The Problem(s) and the Needs:
Actually, there really is no Social Security Trust Fund, and there are no Investment Managers involved. That’s right, no stocks and bonds, or anything else…just no investments at all. What we have is a gigantic Government designed, controlled, and manipulated Ponzi scheme. An illegal entity (in the private sector anyway) that has worked incredibly well for years, in spite of congressional tinkering and pork barrel political influences. There has never been a plan for funding the benefits. We need one, and we need one that isn’t a dumpster for every other politically sensitive entitlement scheme that waltzes down the aisle.
We need to simplify the benefit structure as well, to make it just a retirement program and not a Widows and Orphans Protection and Healthcare Society. But we can’t eliminate all the unnecessary bells and whistles until we remove it from the political sphere and create an independent federal agency responsible for several things: (1) calculation and administration of benefits for retirees including claims, complaints, and questions, (2) proactively looking for and investigating instances of fraud, (3) qualification of and communication with retirement benefit providers in the private sector and monitoring their operations, etc., while still doing absolutely no investing.
Without doubt, we need to re-explain the purpose of the Program to participants. This is a supplemental retirement program, and while it is generous, it is intended to be the foundation of a retiree’s total retirement package, a benefit floor. Employer sponsored benefit programs and individual savings and investments are expected to make up the bulk of every citizen’s retirement program. Social Security will assure that every one has something, but individual savings plans must be more vigorously encouraged.
The retirement benefit itself should never be subject to the income tax, regardless of what the retiree earns elsewhere. Contributions to Social Security must continue to be mandatory, and there must be an actual Trust Fund that can only be managed by professional investment managers... perhaps in the form of the old and standard FIXED ANNUITY.
Finally, we need to deal with Health Care and Health Care reform separately from the Social Security Retirement Program. They are two totally different problems, and the health care issue is much more complex and totally out of the range of my expertise. But there can be one possible tie in, as follows:
- The SSRP (Social Security Retirement Program or Plan) is funded from employee payroll deductions up to a certain maximum. Thus, the obscenely overpaid out there just don’t pay enough! Under the new SSRP, any total annual compensation package (meaning salary, bonuses, gifts, soft dollars, royalties, stock options, etc.) in excess of $1,000,000 will be assessed 1%; packages over $5,000,000 will be hit for 3%, the over $10,000,000 crowd get nailed 6%, and so on. And these numbers are at the time of agreement, not of actual receipt. So if you pay that Heissman Trophy Quarterback $100,000,000 over 10 years, the SSRP gets its cut when it hits the newspapers.
- 50% of this money will be directed toward another (new) Trust Fund that will be used to help fund Medicare and Medicaid Benefits. The other 50% will go to the SSRP Trust Fund, until that fund has a comfortable surplus.
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Social Security Goodbye Part 2 <--
