It's undoubtedly one of the most sensitive issues in politics, whether it be in the national spotlight or casual conversation at the dinner table, the topic of social security is a soft-spot, particularly for the elderly or those who are soon looking to retire. It is a federal program that the once-hopeful GOP nominee Rick Perry called a ponzi scheme, where he was greeted with much criticism. But I couldn't agree more.
We've all heard that social security will be broke in the near future, but let's take a look at some real numbers that will bring the issue a little closer to home. When social security was first created in 1935, there were 40 workers for every one retiree. In 1950, that ratio drops to 16 workers for every one retiree, whereas today, the ratio is a dismal 3 workers for every one retiree. You don't need to be a statistician to understand that the trend is a decreasing worker:retiree ratio. Estimates indicate that the social security trust fund will be broke by 2037, and retirees will not be able to receive full benefits. If a federally funded (taxpayer funded) system were to work, there would need to be a combination of increased payroll tax rate, increased retirement age, and possibly decreased benefits. In the words of economist Dan Mitchell, keeping this system would be like "paying for a steak and receiving a cheeseburger." Senators Rand Paul (who I am quite fond of), Lindsey Graham, and Mike Lee created a proposal titled "Social Security Solvency and Sustainability Act," which attempts to accomplish the salvation of social security. I disagree with this because of one of the provisions of the act is to gradually raise the social security retirement age to 70. I believe it is more important to phase out the taxpayer funded ponzi scheme, and allow citizens to privately invest their own money to pay for themselves in the future, rather than supporting an irresponsible pay-as-you-go model.
Think privatization of social security is crazy? Almost 30 countries have at least in part privatized social security and the ones I have looked into have all seen great success, including Chile, Australia, and even socialist-favored Sweden. Chile, for instance, had privatization accomplished in the early 1980's by a man named José Piñera, who created a system that includes: no social security tax, no government-funded pensions, and ten percent of the worker's paycheck is automatically transferred into a personal savings account (PSA) that the government is not allowed to touch because it is the worker's money protected by property rights. These accounts are unable to be accessed until the worker turns 65. Not to mention workers in Chile have had a rate of return of nine percent above inflation. José Piñera said himself that when Chile adopted this system the Dow Jones was at 900, whereas today it sits at roughly 10,300. But even if the individual worker decides against the stock market due to higher volatility, he/she is more than welcome to diversify his/her portfolio and include more stable (although less potential for return) options such as bonds or treasury bills.
My suggestion? Allow younger workers to opt-out of social security and start paying into a PSA. I'll even go one step further than Chile and allow the workers to decide for him/herself what percentage of income he/she would like to donate to the PSA every year. This allows the workers to take their expenses into their own hands. After all, I am positive that the individuals know more about their financial future than do the bureaucrats in Washington, and a one-size fits all model is bound to face opposition from freedom-loving Americans. Eliminate the social security tax and public pensions (as Chile did), granting more liberty to Americans to do with their own money as they please. With an average higher rate of return, total solvency, and more financial freedom, why wouldn't you support privatization of social security?
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