America's Retirement Insecurity

America's Retirement Insecurity
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Republicans are bent on eviscerating America's security against poverty!

The recession has taken its toll on hard-working Americans. It has left a nation insecure and unsure of the future; a future that is dimming with every new crisis.

Not since the 1930s has the need for a social safety net been more crucial.

Years of impaired vision, misplaced ideology, and tainted government have left the U.S. vulnerable to a catastrophic collapse the magnitude of the '30s.

Republicans, after causing most of our fiscal problems, are attacking the social safety net, more specifically Social Security, Medicare and Medicaid, as the major problems in our fiscal solvency.

Representative Ryan's attempt to privatize Medicare is meeting considerable resistance. People are acutely aware of the negative ramifications of his proposed voucher system; a push for privatizing healthcare.

George W. Bush's attempt to do the same to Social Security in 2005 was equally rebuked and failed for good reason.

Why are people so averse to modernizing these social programs?

Probably because the private market, free-market capitalism, has been responsible for every financial crisis for the last 30 years.

Social Security is again under attack by deficit hawks, a disingenuous group of Republican congressional members and outside interests who manufacture fear to push their ideological agenda.

An honest evaluation of Social Security quickly dispels the theory of a bankrupt program and shows that reasonable adjustments would ensure years of solvency.

But first, the word 'entitlement' must be stricken from the Social Security debate and replaced with 'Government Secured Retirement Savings' or something similar. The Frank Luntz terminology is clouding the discourse of a legitimate concern.

Social Security should not be mischaracterized as an entitlement. It's a long-term retirement program that is backed by the full faith and credit of the U.S. Government.

Despite the 1960 Supreme Court ruling in Flemming v. Nestor, it is 'your' money -- not the governments. The focus of the ruling was so limited in it's scope and application that the implied contractual obligation of the government to the participants could be easily argued to a rightful conclusion in front of a reasonable Supreme Court.

It's true that Social Security has some fundamental funding problems in the future; problems resultant of mismanagement, lack of vision, and mistakes on the part of Congress.

But a closer look at some specifics provides a better picture of the program's solvency.

As an example, the average American will put approximately $150,000 dollars into Social Security, which is equally matched by their employer. That is around $300,000 saved over their working lives (46 years) by the time they retire at 66 years old. A considerable savings for retirement. It was not meant to be the sole source of your retirement income, but a secure monthly income allowing seniors to avoid the indignities of the late 1920s and 1930s.

Monthly returns for the average recipient are $1,200 which would provide 21 years of security. That does not include any interest on the savings. Even without adding interest it would last until the recipient was 87 years old.

Imagine how many years could be paid if 5% compound interest was added over the life of the savings. At its peak monthly interest would exceed the monthly payment.

Republicans blame mortality for the perceived fund deficiencies, but, as shown above, that argument is unjustified.

Several adjustments were made in the '60s and '70s to correct deficiencies, some, unfortunately, creating additional problems.

Ronald Reagan tackled Social Security in 1983 and convinced Congress to make adjustments that would extend the program for many more years. Both the payroll tax and the cap were raised to add additional contributions to the fund in an effort to address the coming retirement's of the baby boomers.

There have been no significant adjustments since. This has exposed the program to slowly declining surpluses becoming negative near the end of 2010, allowing some to claim that Social Security is going broke. An incredibly dishonest statement when the government owes the fund $2.6 trillion.

Two other factors for the unforeseen decline in Social Security receipts and increases in output are rarely discussed, but are most important in understanding how we reached the neutral projections earlier than anticipated. The recession has changed the landscape. High unemployment levels caused by the recession have reduced the amount of payroll tax coming into the fund and forced increased numbers of baby boomers to take early retirement in order to survive the deep and harmful recession.

Republicans are salivating at the opportunity privatization would provide their campaign donors -- Wall Street and the Big Banks. More money for them to gamble with -- huge sums of taxpayer money--coupled with promises of bailouts cleverly masked in Representative Ryan's Roadmap for America's Future, should their gambles fail.

Prosperity was also the promise of private retirement accounts: 401Ks, IRAs, and Roths. It was implied these tax-deferred private accounts would reap great benefits for the participants enabling them to retire in blissful luxury.

But, these widely touted high growth investment plans have not fared as well as promoted and will again suffer when the market experiences another dramatic fall. Greed has not proven to be a great provider for most Americans. This is the reason we need a safety net.

So how do we strengthen Social Security and guarantee a reasonable retirement for seniors in the future?

There are several things that can be done -- moderate and fair -- that will stabilize the program immediately, and others that will ensure solvency in perpetuity.

First, Congress should enact immediate legislation to accomplish the following:

  1. Create a separate and untouchable account, strengthening the Social Security Trust Fund.
  2. Create a safe investment vehicle for the surpluses with strict investment parameters.
  3. Introduce a repayment plan to return the $2.6 trillion the government owes 'the recipients.'
  4. Immediately repeal the 2% payroll tax deduction and raise the payroll tax to 17%, equally split between the individual and their employer, 14% to Social Security and 3% to Medicare.
  5. Adjust the schedule of current and future payments and correct and simplify the COLA formula.

For the future, Congress could secure Social Security by enacting the following:

  1. Immediately raise the cap, which has not been adjusted in 28 years, and phase in adequate increases at specific intervals for the next 25 years.
  2. Create a simple formula for means testing with progressive but fair adjustments at elevated levels, adjusting current indexing.
  3. Introduce an opt-out provision that would save the program money in the present while enhancing the recipient's family members' accounts in the future. A provision named the Plus Program.

Social Security is currently experiencing a near neutral status with regard to income/outflow and affords a perfect opportunity to fine-tune the program; an opportunity to stabilize Social Security in perpetuity without raising the retirement age or privatizing it.

Social Security is one of the most efficient government programs, with Administrative costs a mere three percent. Private accounts would be considerably higher.

In order for the restructured program to be effective Congress must adhere to a strict repayment program and have limited access to Social Security funds. It must also be protected from privatization. Some things must be changed, but some must remain sacrosanct.

Social Security has provided security for 76 years and, with the proper adjustments, could provide the same security for another 100 years.

Congress must make an effort to strengthen Social Security and at the same time strengthen America's future.

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