Alternative to Social Security Retirement?


#1

Hi all - I know its been a long time since I’ve been around here but I’m glad to see the forum back up and running! Its good to see a lot of the same faces back as well.

I figured I’d jump right back in and ask you all what you thought of an idea I had a while back for an alternative to the Social Security Retirement Insurance Benefits (RIB) program. It seems self evident that the program is unsustainably expensive, insufficient, and unlikely to last long enough to help my generation out. Instead, I’m thinking we try something more long-term and sustainable.

My idea is to create a government sponsored enterprise tasked with insuring individual retirement accounts (like the FDIC insures bank accounts) against losses or insufficient funds. Lets call it the FRIC (Federal Retirement Insurance Corporation :slight_smile:)

The program would work like this: everyone with a individual retirement plan, be it a 401(k), pension, IRA or something else, that is managed by a member institution of the FRIC would qualify for a certain level of insurance on their retirement (dependent on things like contribution amounts, with a baseline level of coverage). This means, for example, if you have $550,000 of insurance coverage, but you have $120,000 in retirement savings upon retirement, then you receive the difference as a cash payment to your retirement account.

In order to qualify for retirement insurance, your retirement plan must fill certain risk standards, to keep risk for the insurance scheme low. Moreover, even someone with no retirement savings would receive a moderate insurance payment to cover retirement costs, roughly equal to that of the lowest RIB lifetime amount. This payment would be reduced, however, for people who do not have retirement plans or savings in an effort to encourage people to open retirement accounts and save. Moreover, matched contributions to retirement from employers would remain tax deductible.

The general idea is to encourage individuals to save for retirement, to allow markets to take some of the burdens of paying for retirement, and to put the capital saved for retirement to good use to try and get the country out of consumption mode and back into investment mode.

I did a brief cost analysis (accounting for the cost of legacy participants in the current RIB program i.e. 55+ y/o, and buyouts for those who are younger i.e 45-55 y/o). These are the results with current projections for FICA tax income:

Obviously the program is significantly more expensive at the beginning, but after 16 years its cheaper than the current program and after 29 years it runs a surplus. I figure sometimes you have to make short term sacrifices for the long term health of the country. Plus, it will all be paid off in 90 years, and then will be a revenue generating program.

Even more important, costs could be even further reduced with things like raising the retirement age for non-manual workers to 67 or 68 and maybe lowering benefits levels for certain groups (i.e. high income).

I forget where I to the data by the way, but I’m sure I can find it again. I can also upload the spreadsheet if anyone wants to look at the actual numbers.

Please, fire away with questions! Let me know what you think! Its good to be back!


#2

I need to read through this more carefully before I comment. Jus want to be subscribed for now.

I will say that with my 51st bday 5 weeks away, i dont expect to ever see a dime of SS money.


#3

So your solution is MORE government?


#4

I think the idea actually entails a net reduction in the size of the government. You would be getting rid of one of the largest entitlement programs and replacing it with an entity only slightly bigger than the the FDIC. Plus, you are replacing a full government agency with a government sponsored enterprise. AND you would be reducing spending on the program greatly in the long run. All this with about the same level of coverage.


#5

I’m all for getting government out of it altogether. Government can’t run anything efficiently; therefor, they should only run those things which only government can run. Which isn’t much.


#6

Entitlement? 'Scuse me?

I PAID into the program. All it’s doing is paying me back. (Nevermind that the government got to use all that money while I PAID the FICA tax from my paycheck in the years that I worked . . .and all that money went into the General Fund, which the government used and replaced with IOU’s).

Yes, your generation will likely NOT get any money that you paid in if congress keeps kicking the can down the road and doesn’t at least raise the insurance benefit age . . . just six months will do it .

I need to read your plan closer. Even if there IS a net reduction in government, it looks like you still have the government involved.

I agree with @Fantasy_Chaser that government, as Reagan once said, is NOT the solution but rather the PROBLEM.

If you put the government in charge of the desert, there would be a sand shortage within six months.


#7

I doubt that. I doubt six decades would do it. When was the last time congress managed to pass a budget? 2009? We’re operating on continuing resolutions and omnibus spending bills that get bigger and bigger and bigger, with no proper accountability anywhere in the process. Congress is in a race to see which party can spend America into bankruptcy the fastest. I will live to see the complete economic collapse of this nation.

EDIT: I should have said “barring accident, disease or murder,I will live to see…”


#8

A couple of things. First, I appreciate that most of us have supported Social Security with our tax dollars. I also appreciate that some of us have paid a lot more than others (I’ve paid about six years worth of summers :smile:). That’s why I wouldn’t change the program for those 55+. And thats also why those 45-55 would have the option to either keep the legacy program or get a scaled buyout, which would go towards retirement savings. Its only those 18-45 that would be involuntarily transitioned to the new program (and maybe that age would drop).

Also, I’m all for raising the retirement age - I suggested maybe 68 for non-manual workers in the post above? When social security was created life expectancy was 61.7! The average person didn’t even live to collect a social security check!

The plan is in essence to take the government out of the business of managing retirement savings. It would be like transitioning from a mainly state-run financial system to private banks with deposits backed by the FDIC. A little different, but same idea. This would allow you to invest your OWN savings in higher-yield instruments than just 10 year treasuries, thus allowing the government to pay less.

I’m with you all on the whole incompetent government thing. But I don’t think anyone wants no retirement at all? I’m not positive where you guys are on this. Obviously if you are on the team of no public retirement insurance of any kind then this plan isn’t for you.

I agree with everything you said! I’m all for a line item veto and a bunch of other controls to limit spending. I think both parties are too scared to touch the “sacred cows” and really shake up the government and trim the fat. I was hopeful that with Republicans fully in power things would turn around, but the deficit looks set to keep on exploding.


#9

There was a time in the 1970’s when certain institutions could opt-out of Social Security. (I worked for one such for 5 years or so.) The City of Galveston, TX, was another. In lieu of SS, their employees were permitted to invest equal sums elsewhere. The result has been that City employees are now retiring and drawing monthly over TWICE what the maximum “benefit” is for SS.


#10

That’s basically my idea! I just looked up a couple of articles and it seems like the program worked out really well. I’ll have to use the example when arguing with skeptical friends! Thanks for pointing me in that direction.

The only added complications in this program is that the retirement savings are insured by a pseudo-private corporation, and all that stuff to make sure people who have paid into the current program don’t get screwed.

In another benefit, I think I envision my version of retirement insurance would allow opt outs.