I’ve been advocating a similar approach for years. It’s simple: limit social security benefits to what you’ve paid in, your employer contributions and whatever’s been earned with that whopping 1% rate of return. That’s it. At retirement age, you can collect your benefit in an annuity, or lump sum. Disability benefits would be limited to only those with the most serious—and verifiable—medical conditions. For those below retirement age, disability payments would be even more restricted.
Using my own benefits as an example, I would collect about one third of what I’m projected to receive. Too many people believe that Uncle Sugar has actually created an account for them and when they retire, the lockbox will magically open and pay them a king’s ransom for 30 years or longer.
Tell people in their 30s and 40s that social security will be limited to what they pay in, and you’ll see a rapid rise in the savings and investing rates.
Unfortunately, the politicians (from both parties) have made too many promises and kicked the can down the road for far too long. No one is willing to make the tough choices until the nation is in fiscal ruins. Too many baby boomers retired or reaching retirement. Can’t antagonize that many voters.
Interestingly, the feds are willing to make tougher choices if you’re part of a voting bloc deemed insignificant (at least by electoral standards). Case-in-point: Obama and Congress are in the process of “reforming” military retirement. The 50% of base pay pension after 20 years of honorable service is being replaced by a 401K-style plan. Under the new system, “everyone gets something,” even if you only serve four years.
However, the payouts will be smaller, and the mandatory contributions will place an undue burden on junior enlisted members. There’s also talk of delaying payout of military pensions until the retiree reaches age 60—almost 20 years after most service members leave the ranks. If Obama’s actuaries are correct, this plan will save about $1 billion a year, chickenfeed in the federal budget lexicon.
“: limit social security benefits to what you’ve paid in, your employer contributions and whatever’s been earned with that whopping 1% rate of return. That’s it. “
SS is highly socialized, with higher earners subsidizing lower earners.
Looking at the 3 tiers of the SS calculations that use a retiree’s AIME, or average indexed monthly earnings. In the first tier, 90% of your AIME count toward your PIA (primary insurance amount). Those in this tier alone get back more than they paid in, by far.
The 2nd tier drops rather quickly, giving a retiree credit for only 32% of what they earned. Some in this category might get back what they paid in, some won’t. Depends where they are in the earnings range and how long they collect SS.
Those earning in the last tier will never come close to getting their money back, not even just the amount they paid in if not self-employed, much less the total paid in for them by an employer and themselves.
I’m all for your plan since it is like a flat tax vs progressive tax.