Social Security is in trouble. Money going out should exceed money coming in within three years. Of course, the current income on the Treasuries in the Trust Fund are counted as real, even though those Treasuries are little more than IOUs from Uncle Sam’s left pocket into his right pocket. In real world terms, the Trust Fund already is in Deficit.
Even with the rosy Treasury assumption, the Trust Fund balance should be zeroed out within 15-20 years, depending on whose projections you use.
Economics Professor Laurence Kotlikoff of Boston University calculates that the actuarial deficit is around $100 Trillion, so anyone who says that we can tinker here and adjust there to save Social Security is just not living in the real world.
Social Security is dying. Social Security will end. The only question is whether it ends in a collapse – causing tens of millions of retirees to become destitute overnight – or whether Social Security is phased out, allowing current retires to get all they expect.
I suggest a phase out – a very long phase out.
- Today, end filing for early retirement for Social Security benefits. Seniors who already are receiving early benefits may continue, but no further applications will be accepted or processed. Transfer all non-retirement portions into one of the Welfare programs.
- For all Americans currently over 60 years of age, they may file and receive full Social Security benefits when they reach the current full retirement age.
- For all Americans currently under 60 years old, their full retirement age will be raised by one month for every two months until they reach 60. For example, a 50 year old has 120 months before he reaches 60, so his retirement age will be 60 months later than the current full retirement age.
- Americans under 60 may choose to opt out of Social Security. By opting out, they forfeit any accrued Social Security benefits. They will be allowed to deposit their FICA deduction tax free into a Roth IRA – that’s double Tax Free. The employer match, and self-employment tax, will continue to go into the Social Security Trust Fund. (This will cause large deficits near term but large surpluses down the road.)
- At some point, every American will be off Social Security, either by dying or by opting out. Any money remaining in the Trust Fund will go into the General Revenue Fund.
- Employer match after that point either:
- May be ended
- May go into the General Fund
- May by added to the employee’s Roth IRA
This phase out easily could take 60 years to complete. It will not be painless as the younger an American is, the less he will receive in benefits. But, it will put the burden where it can be handled most easily – with younger workers who have more time to plan. And, it sets up a system which still requires putting money aside for retirement, but that money is owned and controlled by each individual American worker.
It should be noted that Medicare is under the same pressures, also with a calculated actuarial deficit around $100 Trillion. A similar phase out for Medicare also makes sense.