Social Security is the most reliable future financial plan that citizens have ever had in this country. For a nominal price, we get some guarantee of financial wherewithal for the rest of our lives. That, plainly, rocks.
As anyone who has received a Social Security Administration annual summary knows, there are certain benefit levels achieved after certain periods of time and certain donation levels.
For example, if you're 35 now, earning $30,000, and you retire in 2035, your benefits are about $1,250/mo in today's dollars. If you earned $90,000 or more (that's the 2005 taxable cap), your benefits would be about $2,200/mo in today's dollars.
So, obviously, the person contributing more in SSI taxes gets more in benefits. This is the key to my plan to strengthen Social Security. Ready for it?
Let people voluntarily pay extra SSI taxes in order to increase their benefits.
That's it!
I'll explain more after the flippity flop.
Social Security: Extend it, don't end it!
First, leave the existing system as it is. Keep the current minimum SSI tax rate. And leave the maximum annual payment where it is (with one possible change; more on that below), so that the plan doesn't become some giant privilege scam for the wealthy.
Just allow people to voluntarily increase their SSI tax rate, and by doing so, get increased retirement benefits. This way, those of us at the lower end of the salary scale can add to our government-guaranteed benefits as if we earned larger annual salaries.
In other words, if the $30,000-salary person in the above example was able to dial up his or her SSI withholding until it matched the contribution of the $90,000-salary person, their benefits would be the same.
This would generate immediate new revenue, as some portion of the population would exercise this option to guarantee a better future for themselves. But, you say, this is only widening the base of the pyramid -- it's still a pyramid scheme.
It's time for...
The New Social Security -- Part Two!
In the second part of my plan, we add a small space at the top of the contribution and benefits schedule. The 2005 maximum is $13,770 (15.3% of $90,000). Allow people to voluntarily contribute, say, an additional $2,000. For that additional contribution, pay additional benefits.
But -- and here's how this helps strengthen the system -- that "extended benefit" is paid at a rate lower than the rest. In other words, you get additional benefits, but only say 80% of the additional benefits you might expect from a straight-up extension of the Social Security tables.
In concrete terms:
- Contribute $11,770 today ($980/mo), get $2,108/mo in benefits in 2035
- Contribute $13,770 today ($1,150/mo), get $2,281/mo in benefits in 2035 (+$73/mo)
- Contribute $15,770 today ($1,315/mo), get $2,339/mo in benefits in 2035 (+$58/mo)
See? People can still elect to buy themselves some extra cushion, just at a reduced rate of return. That difference in payout obligation is what delivers future solvency.
Discuss.