By the time this writeup is submitted our illustrious
representatives in both the House of Representatives
and the Senate
will be writing the closing chapters on a variety of issues facing the nation
. The future of stem-cell research
, our national energy
policy, the patient's bill of rights
and who gets first dibs on the fresh batch of interns
will all be debated and legislated upon in one or both of the branches of the legislature
. These issues are all worthy of attention in Congress; however, one issue that deserves more attention, at least in this noder's opinion
, is the viability of Social Security
. Granted this issue can be rather mundane
and generally does not bring in the most colorful
characters from the political rainbow. It is still a matter worthy
of consideration because it directly deals with one of the most important aspects of our lives, namely our money
. This is true regardless of your political proclivities.
Allow me to elaborate. Those of you who have taken on a paying job know all too well the painful sacrifices you and your employer are forced to make at the end of each pay period. The mandatory 15 percent "payroll tax" is your direct investment into the Social Security system. As of now, the money extracted from your paycheck is used to fulfill liabilities to older (i.e. retired) citizens. Of course, one day you will be that older citizen and, accordingly, will expect a payment from the government for the years of financial contributions you have made. If, indeed, your check from Uncle Sam was guaranteed to be there throughout your retirement, there would be no need for such a boring debate and we could all go back to watching TV. But reality is not so kind.
By most estimates, Social Security will lose its solvency sometime within the next 50 years, at which point the federal government will incur a liability varying from $4 to $11 trillion. Which begs the question, "What can be done to avoid such a colossal calamity?" There are those, generally on the left side of the aisle, who believe that this problem can be alleviated by raising taxes (always a popular option), boosting the retirement age, lowering Social Security payments or any combination of these three. Those on the right side believe that allowing taxpayers the option of funneling a minuscule chunk of their Social Security payments into private retirement account will do the trick. Are there any other choices?
Well, one may propose that all Social Security really needs is some fine-tuning to boost the paltry 2 percent return to a more reasonable rate. Can this be done? It most certainly can. Just ask any state employee. Employees of the State of California are generally enrolled in what is known as the California Public Employees Retirement System (CalPERS for short), which invests in various stocks, bonds, real estate and even some venture capital. Unlike the bearish Social Security scheme, CalPERS has been able to garner a rate of return of more than 15 percent in the last five years. Similarly, federal employees can enroll in the "C" fund, which has had a 17 percent rate of return for the past 10 years. With such phenomenal performances, one could suggest that any and all citizens should be enrolled in these thrilling retirement schemes to avoid a Social Security meltdown.
Alas, CalPERS and the "C" fund are only for those elite individuals who are lucky enough to land a job with the federal or state governments. Unfortunately, the average taxpayer is excluded from the system that he or she directly supports. On the other hand, there are those (such as Nobel Laureate Milton Friedman) who believe that Social Security should not be "fine-tuned" but, instead, should be fully privatized (i.e. abandoned). To be sure, Americans are not the first to come up with such a solution. England, Chile and now even China have privatized their corresponding retirement systems. So what is holding the U.S. back? Some say that privatizing Social Security accounts would prove too overwhelming for those who are unfamiliar with investing. No doubt, this a noble concern. Nonetheless, it is a weak argument.
First, investing in a regular savings account at your local bank is, in itself, a much more productive retirement scheme than Social Security. Thus, even those who are too timid to test their luck on Wall Street or the bond market can still provide a much better retirement for themselves via privatization, provided they don't resort to stuffing their retirement savings under a mattress. But, even if someone decided to stick all of his or her retirement money in a mattress with a 0 percent rate of return, what does it matter to you? As absurd as this may sound, in reality you are responsible for your own retirement, just as you are responsible for your own dinner, housing, clothing and hygiene. It is rather absurd to believe that such essential concerns as clothes and food can be privately funded and managed yet retirement plans must be handled by a paternalistic state. As a corollary, one must understand that the only person or institution that actually has an incentive to save up for your retirement is you and not your favorite congressman.
Thus, only you can decide, honestly and effectively, how much money should be stored and in what manner in order to provide for your golden years. It is clear then, at least to your humble correspondent, that privatization is, at this point, the best possible solution for "mending" Social Security. Of course, there are those of you who believe that my position is seriously flawed. In which case, we are back to square one. But as a final salvo, let me remind you that we are supposed to be in the land of the free. Thus, does it not make sense for us to be free to spend our own hard-earned cash as we see fit? That is, shouldn't we be free to save for our retirement and do so as we think best? You be the judge.