Yesterday,
Gindy posted the question, "In the 1930's when Social Security was created the ratio for workers to elderly was 41 to 1. What is the ratio today?"
Here's what I wrote about Social Security:
When social security was created, it wasn't a retirement system like we have now. There are aging Americans that rely on social security checks as their basic income in retirement. I don't believe this was ever intended. My understanding is that based on the retirement age at the creation of the system, half of all Americans wouldn't expect to live long enough to receive a single penny. When the system was created, it was to keep seniors out of poverty. The fact is that over time the system has changed. We need to either change it back to what it used to be or face up to the change and accept the responsiblity of maintaining what the system has become.
The answer to Gindy's question? 3-to-1 ratio. So how did we go from 41:1 down to 3:1? It's simple. In 1935, when Social Security was first enacted, the average human
life expectancy was 61.7 years -- 59.9 for men, 63.9 for women. In 2001, people could expect to live to age 77.2 -- men to 74.4, and women to 79.8. So people are living around fifteen years longer than they did in the 1930's. This should be good news, right? Of course it is, but there is an unintended side effect of such a trend. Just look at the numbers. As I responded to Gindy, most people never expected to receive Social Security benefits at all. Today, most people do.
They say that Social Security is the third rail of politics. But because I am not a politician, I am immune from its powers of electrocution. What I'm about to say, however, will shock my liberal friends. And unless you've been reading my blog a while, you might not know that I, too, am a liberal.
I am the kind of liberal who believes it's the right thing to help people in need. That's why I believe that protecting our senior citizens from poverty is an essential part of our role as a caring society. I am also a fiscal conservative, and believe that the people's money must be carefully spent. I do not believe that handing out money for its own sake is a good idea.
I wrote yesterday that we have a choice to make. And here's where I begin dancing. I propose we do both.
Part one. We need to return Social Security to its original intent, to protect senior citizens from poverty. We might, for example, increase the retirement age to 80, the approximate equivalent of age 65 in the 1930's.
Part two. We need to create a universal retirement system which will guarantee that seniors have income when they retire, so long as they make contributions to the system. The system must be optional, of course, because many people have their own retirement accounts. And the system should create accounts which are owned by the individuals, may be inherited, etc.
Sound familiar? If I'm not mistaken, this is pretty much what the President is proposing. He calls it fixing Social Security, though. I think it's important to be honest about what we're doing. We need to scrap Social Security as most of us know it and return it to what it was meant to be, while at the same time creating a new, optional program to take the place of what people have come to expect.
How do we get there? Good question! People who are getting close to retirement and expecting that check will be really mad if they don't get it. So for people above age 50, we'll need to guarantee they get their check. But let's be reasonable about it, let's add means testing, so that people born after 1955 will only receive social security between ages 67 and 80 if they need it.
That leaves everybody from age zero to age 50. Let's do it this way. If you were born after 1985, you get nothing until you turn 80. Sorry, kids! If you were born after 1975, you get 33% of what you would have received between ages 67 and 80. If you were born after 1965, you get 66% of what you would have received between ages 67 and 80.
There, I've invented an arbitrary phase-out of Social Security as a retirement plan. But some benefits are still going to be paid out that we can't necessarily afford. This is the "transition cost" -- nice words -- that has been discussed. I have a plan for that, too. Borrow it. People who contribute to the new universal retirement plan will need something safe to invest in, right? Borrow it from them by throwing Transition Bonds into the mix of securities that are part of the Universal Retirement System asset portfolio. Eventually this should all balance out.
And eventually we can start to cut back on payroll taxes for Social Security, to a point where the back-to-basic plan is balanced. If people are smart, they will shift the savings over to their retirement plan. We will all be responsible for ourselves. And if we're not, we won't be a burden on society as a whole, we'll get to move in with our own kids!