In the previous post, I introduced a premise for a policy, which would involve dividing up the social security funding allocation pie. I believe that we should divide up the pie into four separate (but not necessarily equal) slices:
- Funds paid out all to current retirees
- Funds reserved for specific generations of retirees
- Funds diverted to personal investment funds
- Funds diverted to paying down any outstanding national debts
1. Funds paid out to all current retirees
The reasoning behind the first slice "Funds paid out to all current retirees" is perhaps the most obvious. This appears to be the original intent of the social security program, allowing funds from the actively working body politic to help support the currently retired. This helps senior citizens mitigate the negative impacts of any short-term personal financial hardships during or immediately before retirement.
Thus, as long as social security survives, a certain share of any social security funds will need to be spread across all current retirees, who are actively receiving benefits. Perhaps this slice might appropriately be renamed the "we (the living) are all in this together" slice... to indicate that we are not going to leave senior citizens to fend for themselves.
2. Funds reserved for specific generations of retirees
The reasoning behind the second slice "Funds reserved for specific generations of retirees" is a new, subtle adjustment to the current social security scheme. Originally, (when social security was created) there would have been an expectation that with most citizens not surviving long enough to collect social security (or not surviving long enough to collect it more than a few years) that there would always be a sufficient number of active workers to fund the needs of living retirees.
However, today, with the 20/20 vision afforded to us by basically 80 years of practice, it is clear that for social security to function in perpetuity from generation to generation: each individual generation needs some certainty about their own retirement. By immediately spreading all incoming social security funding across the needs of current retirees, we will inevitably encounter situations (such as the crashing of the baby-boom retirement wave) where the working generations cannot reasonably be expected to support the needs of current retirees without putting in peril their own needs in the future.
Thus, I would suggest that one way to mitigate the impact of these fluctuations over time is to move away from a current workforce supporting current retirees model toward a current workforce supporting future retirees model. In this way, each generation would more directly be supporting itself, and (likewise) the size of each generation of retirees will be proportionately supported by a generation of roughly the same size (i.e. the younger version of itself). As such, perhaps this slice might appropriately be renamed the "we (our generation) are all in this together" slice... to indicate that we should not forget about our future selves even as we work to support the ones we love.
3. Funds diverted to personal investment funds
While the original version of the social security program appears to have had provisions that limit the level of benefits an individual is eligible to receive based on the amount of money they paid into the program during their working life, it does not appear that the program was ever intended to give individuals any autonomy over how their own funds were invested. As a result, citizens, who do not (whether by choice or circumstance) set up other retirement plans (e.g. pensions, 401k's, IRA's) for themselves, have little-to-no direct control over the future of their own retirement funds.
Understandably, this format runs contrary to the 'spirit of rugged individualism' upon which many citizens pride themselves, and I believe that ultimately the degree to which this 'spirit' is real or perceived (a not uncommon point of contention) is irrelevant. Politicians (typically on the left) will ignore this popular sentiment at the peril of the program they support.
I believe that for social security to have any real chance at surviving in the long-term that: (1) it is necessary to offer some autonomy to those who desire it, and naturally (2) the government should only offer up such a concession under auspices of a mutual understanding that - for those who opt for autonomy - there is some risk of failure (and some risk of loss).
In practical terms, I am suggesting that individuals be able to designate (each year they are working) a certain portion of the social security funds (that would otherwise be withheld from their pay) to be diverted to some sort of personal retirement account. Then, in a complementary manner, whatever portion of a retiree's pay had been diverted to their personal retirement account over the course of their working life would be deducted from the pay-out they would otherwise receive from the more traditional social security fund(s).
At this point, I do not have any preference regarding who would run such an account (whether run by the government or -more likely- the private sector), and I do not think that the administration of such a program would need to be any more complicated than the current system of claiming a tax credit for money deposited in an IRA at the end of each tax year. Instead, it is more important that Congress just settle on something that works - politically and practically.
All things considered, this slice of the pie might easily be renamed the "rugged individual" slice of the pie... allowing those who would desire it, the ability to take a chance to earn (or lose) a little bit more than their neighbors.
4. Funds diverted to paying down the national debt
The reasoning to include this "Funds diverted to paying down the national debt" slice of the pie may be much less obvious (and much more controversial) than any of the others. However, this slice of the pie stands firmly on principles of sustainability and inter-generational equity.
It has been rightly pointed out (no pun intended) that the United States federal government is spending a large amount of money that it does not have by borrowing money from other countries... and in essence from future generations, who will be forced to pay off that debt (or possibly go to war to avoid paying the debt if it is too burdensome). In any case, it is a fundamental issue of inter-generational equity that each generation do their best to pay for the governmental programs (especially those with one-off benefits) they benefit from in their own lifetime, rather than leaving that burden to those that follow them.
Also, in perhaps a more tangible way (especially for those born of since 1970 and/or those familiar with the Greek debt crisis): what good is it to have retirement benefits promised to you in the future, if the overall functionality of your government may come into question due to astronomical national debt?
I believe that by tying the overall pool of social security benefits to the amount of national debt (or lack thereof) incurred by each generation, every generation will be incentivized to manage government spending more prudently. While this concept may seem intimidating - and I can't promise that it isn't - it may be less intimidating than trying to address the national debt issue from fiscal year to fiscal year.
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I have offered the best (brief) reasoning that I can muster for including each piece of the social security funding scheme that I am proposing. In the next post, I will do my best to offer a good way to implement the social security reforms that I am proposing.Regards,
Sean
This "Recutting the social security pie" series:
Introduction: Recutting the social security pie (Part 1 of 3)
Reasoning: Recutting the social security pie (Part 2 of 3)
Implementation: Recutting the social security pie (Part 3 of 3)
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