Wednesday, July 15, 2009

The Only Way to Fix Social Security….NOW!

The only way to truly fix Social Security is to return it to its roots. Run it the way it was originally intended. It is a safety net; not a crutch. It is an insurance policy; not a retirement plan.

In order to receive Social Security, you must qualify on the basis of need, similar to that of an insurance policy. Life insurance is not paid until death, fire insurance is not paid unless your house burns in a fire, and Social Security should not be paid unless you qualify. It is intended for people who are too old to work and do not have any other income, survivors of those who were the bread-winner in the family, or truly disabled people. In no way should this be used as a retirement plan. A system in which you put in money and that money is used to help others but you have the expectation of getting that same money back doesn’t make any sense.

Why should someone who is making $100,000 a year or is worth over $1,600,000 (outside of their residence) get a check from Social Security? They have the ability to live off of their income and/or they have enough assets to create an income that will provide for them. One thing to consider, if Social Security did not start giving money back once you hit a certain age…whether you are rich or poor…the amount you would have to pay in to Social Security would drop drastically. You could keep your money and invest it in whatever you want rather than being stuck with government bonds (which is what Social Security is basically invested in). Remember…this is your money.

This system could be accomplished by phasing it out based on income. Perhaps when you reach 62 and you make $50,000, you get half of a normal Social Security benefit. At $60,000 a year you get 40%, and soon. If you have no income, than a percentage of your net worth (outside of your primary residence) would be considered your income. A safe assumption is 3%.

For example:
I am 62 and it is time to dig in to Social Security. I own my own home and I am retired. I have no retirement or pension and I don’t have a single penny saved, but I do have two additional homes I am doing nothing with them. The two properties are worth a combined $2,000,000 and bring in $30,000 a year of rental income. It makes no sense that this person should get a full benefit check from Social Security even though they are only making $30,000 a year. They have enough assets to sell and generate enough income to provide a nice life in their golden years. Social Security would look at this person, see that they have a $2,000,000 in assets (outside of their primary residence), and determine that 3% of $2,000,000 is $60,000, so they would only get 40% of the normal Social Security benefit.

Push Back:

But I pay in to Social Security so I want my money back!
Premiums for life insurance do not get paid back to the customer. When you pay into a type of insurance, the premiums go towards regulating risk. Car insurance companies don’t return your premiums after you sell your car. I know there are certain life insurance products that accumulate a cash value, but that cash value is something you pay in addition to the premiums. The idea that everyone will get their money back from social security has to be done away with. Using this program as a retirement plan is a cause of the slow death of Social Security. As it is set up now, it is a Ponzi scheme. I do not mean it is like a Ponzi scheme or has some traits that are similar…it IS a Ponzi scheme. Running it like an insurance policy (think of it as “in case I am poor” insurance) will ensure it is at least run intelligently. Remember, the amount you pay into Social Security will go down significantly if it were run correctly. So it will either be poor insurance for Americans or poor assurance for Americans. You pick.

Why should we pay for Social Security at all?
Society with a safety net is a better society. Take my father as an example. He grew up dirt floor poor. His father ran a produce market and was a farmer, but he died when my father was young. Through a little extra help via Social Security, my father was able to become a doctor and serve in the Navy after he graduated high school two years early. He is a productive member of society and has now paid back 100 fold what was spent on him as a child through Social Security. I cannot imagine anyone begrudging a system that offers this type of help when run properly.

People have already started planning using the current system. Changing now is not fair!
Ok, calm down. Fixing this problem is as simple as picking a couple of dates. Everyone born after 1991 is 100% in the new system. If you are born after 1971 you are in the new system, but by only 50%. If you are born after 1951 it would be 25%. etc. These are arbitrary numbers and would have to be verified by an actuary, but you get the idea.


  1. Sometimes you just seem to make things up for the sake of argument. "Why Social Security is not a Ponzi Scheme"?

  2. "Oh no, it's NOT a Ponzi scheme!" Ok, fine, but Social Security is actually much worse. At least with a Ponzi scheme, nobody is forcing investors to invest their money. They make a free choice to do so.

    Compare that to Social Security. Try not "investing" in it and see what happens. If you are employed, it's impossible. You are forced to pay into it even if you don't want to. If you are self employed, you can try to "evade" paying into it, but the IRS will catch up eventually, and won't that be a fun day? Not.

    It's so easy to throw stones behind the veil of anonymity.

  3. I have to agree with Anonymous. I am sorry but it is not a Ponzi Scheme. Even though you are "forced" to invest in it, it is still not a ponzi scheme. I think that was the point of Anon. You can't call a fish a cat if it is a fish, even if you force feed it cat food, it is still a fish.

    I also, since it is forced investment, you should at least be able to get out what you put into it, Mike on the other hand doesn't think so.

    I am also not sure why Mr. Schwartz states 100,000 dollars as the cut off point to get SS. When do you determine a persons income, when they are 30? 40? 50? etc. It just doesn't make a lot of sense.

  4. I didn't throw any stones. I just posted a link. Not sure why you said it is easy to throw stones under the veil of anonymity, like having your first name on there is so telling. Here you go, My name is Rick Rickenfield. Hope that helps.

    It is about a hundred times easier to use Anon than to sign on to different Aol or Google accounts to post your comment, of which I don't have any, and since only 3 of us read this blog, I thought it would be a waste of my time.

  5. thejoe128- I think the author was clear that it is a Ponzi scheme in function. Obviously the government is not trying to hurt people. That is just the result because of structuring Social Security in the same way a Ponzi scheme is structured. The article you posted doesn’t even dispute that. It supports it!
    Regarding your other points, the author was crystal clear that it is not an investment, but insurance. How could that have been any more clear? The income would be determined at the time a person is applying for Social Security. The concepts you do not understand are elementary. The rest of us got it. Loud and clear. Are you just arguing to argue? Do you know the author or something? It is too bad we do not have more people out there offering fair and level headed solutions rather than just throwing rocks like Jennifer said. That was directed at Mr. Rickenfield too.

  6. I have to agree with Mr. Rickenfield and thejoe128.

    It seems like Veronica and Jennifer are cut from the same cloth. SS is a necessity and if you pay into it, you should be able to get at very least what you gave.



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