Solving
Social Security: Fire the Politicians!
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 other investment
accounts that pay out a constant stream of income? The private sector does it
routinely with defined benefit pension plans and fixed annuities, so what's the
big deal? Is Social Security failing because it hasn't been invested soundly,
or is there some other reason?
The most obvious explanation is politics,
but we're running out of time for finger pointing, and Social Security is
solvable in a surprisingly painless manner. It will require a whole new
approach that uses old ideas and institutions in ways that most of us have
pretty much given up on. As hopeless as the Bush Administration's Nicotine
Patch for Social Security would have been, it pointed in the right direction.
Now don't hit DELETE when I refer to "privatization", or when I
mention one of my own most hated financial products, the
"annuity". Both are needed to
permanently fix the Social Security mess, to get it away from people who are
neither managers nor investment specialists, and to make the whole system work
more economically. The purpose of this article is to get you to think about
it... and to elect a hero with the guts to fix it. Unfortunately, Joe DiMaggio
has left the building!
Are you surprised that there is no
"Social Security Trust Fund"... no investments and no Investment
Managers? This is a gigantic Government designed and controlled Ponzi scheme
that has worked incredibly well in spite of congressional tinkering and
prohibitively high cost. There was always a tax plan for funding the benefits,
but never an Investment Plan. And as difficult as it is for me to admit, no
sophisticated Investment Plan is really necessary. We just need a new (reduced)
contribution plan, one that isn't designed to fund every politically sensitive
entitlement that compromises itself down the aisle. We need a simplified
benefit structure that supplements privately funded (untaxed) retirement
programs. [Healthcare just has to be a separate issue, perhaps an actual
(managed) Trust Fund, and certainly something that should not be funded by
private citizens until there is meaningful tort reform in this country.] Pshew!
Back to the point... We can eliminate all the unnecessary bells and whistles
simply by mandating personalized benefit funding. Let the politicians deal with
homeland security while the private sector deals with things financial.
After the repeal of the Social Security
tax and implementation of mandated Individual Retirement Plan Contributions,
the Social Security bureaucracy will retain several important functions: 1)
Qualifying private sector companies and licensing them to provide Social
Security Retirement Income Annuities (SSRIAs). Thousands of providers will be
needed, but only, fixed income experienced, profitable companies need apply. 2)
Developing a computerized system for participant/provider matching... inspired
randomness is essential. 3) Proactive monitoring of compliance with the minimal
rules, installation of fraud detection systems, and investigation of all
violations by providers, participants, and retirees, 4) Keeping the plan sacred,
simple, and principally unchanged by future legislation. The plan must be kept:
simple and profitable for providers; painless and visible to participants;
timely and comprehensible to retirees.
The SSRIA is a new and improved version of
the ancient Deferred Fixed Annuity Contract... a boring but guaranteed
retirement benefit vehicle, funded by both mandated and voluntary payroll
deductions, with a whole bunch of new wrinkles that make it an ideal Social
Security replacement program. For example, and unlike existing annuity
contracts: 1) Participants will be allocated to "qualified SSRIA
providers" so there will be no sales commissions, no business acquisition
or retention costs, no advertising expenses, etc. 2) All SSRIA contracts
(regardless of provider) will contain the same terms, interest guarantees,
retirement benefit choices, and pre-retirement death benefits, thus eliminating
any incentives for internal fraud and manipulation of statistics. 3) Qualified
providers will establish separate subsidiaries to manage and control SSRIA
operations and to assure that only high quality, income securities are used to
fund future benefits. 4) All qualified
providers will use the same mortality, investment earnings and expense
assumptions, and all benefits will be fully guaranteed by the parent
corporations.
The SSRIA is a supplemental retirement
program, funded by a much smaller, yet flexible, payroll deduction, and it is
designed to be the foundation of a retiree's total retirement package... a
benefit floor. Participants will choose (annually, for the following year) to
deposit from the required 2% up to a maximum 4% of their Pre-Tax Income to
their personal SSRIA, a contract that will follow them everywhere, from
employer to employer, throughout their working years. Before retirement, a
death benefit equal to the full cash value of the contract will be paid to the
designated beneficiary. At retirement, participants can elect either a Life
Annuity or a Joint & 50% Survivor Annuity. No variable plans of any kind
will ever be allowed; there will be no loan privileges, withdrawals, or
dividends. Providers are expected to make a reasonable profit, which will
ultimately be determined by their operating and investing abilities... hmmm, I
smell capitalism.
Employer sponsored benefit programs and
individual savings and investments are expected to make up the bulk of private
retirement programs. The SSRIA will assure that everyone has something, but
individual savings and retirement plans, both company sponsored and personally
funded, will be encouraged by new IRS policy. No retirement income, regardless
of source will be subject to income taxation! Neither employers nor
self-employed persons will be required to make matching contributions of any
kind to employee SSRIAs. However, they will be encouraged to use their improved
cash flow to increase employment or to reduce prices, perhaps by a new system
that will reduce their corporate income tax obligations as a reward for
boosting the economy. Similarly, billions of dollars of discretionary spendable
income will find its way back into the economy from consumers whose payroll
deductions have been slashed deservedly.
Steve
Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional
Portfolio Management since 1979
Author
of: "The Brainwashing of the American Investor: The Book that Wall Street
Does Not Want YOU to Read", and "A Millionaire's Secret Investment
Strategy"
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articles,trust fund
Solving
Social Security: Fire the Politicians!
What
Social Security Trust Fund: Fire the Politicians!
Simplified
Social Security: A Personal Approach
There
is no "Social Security Trust Fund"... no investments and no
Investment Managers. There was always a tax plan for funding the benefits, but
never an Investment Plan. This is a gigantic Government designed and controlled
Ponzi scheme that has worked incredibly well in spite of congressional
tinkering and prohibitively high cost.
The
SSRIA is a personal retirement program, funded by a much smaller, yet flexible,
payroll deduction, and it is designed to be the foundation of a retiree's total
retirement package... a benefit floor. The SSRIA is a new and improved version
of the ancient Deferred Fixed Annuity Contract... a boring but guaranteed
retirement benefit vehicle.
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