Consider The Social Security Opportunity

Federal Reserve Board Chairman Alan Greenspan started a firestorm last week when he warned that we face financial and economic calamity lest we cut future benefits for Social Security and Medicare. Immediately, politicians – especially from the left – began referring to the suggestion as outrageous, or worse.

Therein lies the reason that anyone under the age of forty-five who expects to see any type of Social Security payment is nuts. For there are three things certain regarding Social Security – we need to take drastic action to save it, we need to start taking that action now, and the politicians in charge will do neither.

But before we crucify Greenspan and anyone else who seems remotely intrigued by his suggestion, let’s look at the situation for the challenge and opportunity it is.

First, we know that the baby boomers – the oldest of whom are nearing sixty – will soon become a huge liability on the Social Security books. We also know that there are countless deficit demagogues who decry the fact that we are financing our lifestyle today by mortgaging our children’s future.

But that is precisely how Social Security was designed. It’s a pay-as-you go system that promises that if we pay for today’s retirees, then our children will pay for us when our time comes. The only problem is that the boomers will be passing through the system like a rodent passes through a snake – one big mass, with little following behind.

In other words, there will be more people collecting and fewer people paying. So the only solutions are to cut benefits, raise taxes or both. Those on the receiving end don’t want benefits cut because they feel entitled to them since they paid into the system their entire lives. But taxing the next generation isn’t fair either. It’s not their fault that their grandparents chose to have lots of kids, and their parents chose not to.

But this is where the opportunity comes in. With a little leadership, sacrifice and compromise we might not only save Social Security, but positively transform our society for generations to come.

Suppose we apply the concept of privatized Social Security accounts as a supplement to, rather than as a replacement for, our current system. Maintain current benefits and taxes, but require every worker to put a fixed amount, say three percent of their pay, into an untouchable personal retirement account.

Then when the person begins receiving Social Security, their SS benefit is reduced by an amount determined by the annual return on their personal investment account, say by fifty cents for every dollar the private account earns in a given year. Since the size and earnings of these accounts would be larger the longer people are paying into them, the amount of savings to the system will grow the further into the program we get.

Think of all the benefits – we start to pay for our own retirement now rather than leaving it up to our children, we reduce the burden on the system as we retire, we maintain a basic floor of benefits at the current level and we create an entire society that has an ownership stake in our nation’s economy.

Yes, we’ll have more taken out of our paychecks, but it will remain our money. And if we leave less of a burden for our children, won’t that be the best benefit of all?