Privatization of Social Security will Help Solve Healthcare

 

Imagine America had started with privatization of Social Security Act in 1935.  If we had, U.S citizens would feel no need to reform social security.  Instead they would feel rich and in control of their own destiny and the destiny of their families.  There would be no Trust Fund scheduled to reduce benefits by 2034, but instead the pockets of Americans would be full.  The pros seem to outweigh the cons.

1935

If the year was 1935 and FDR had asked me to create a plan to protect people in their senior years the following is the plan I would take to him knowing what I know now.

  1. Make it mandatory that all workers put 15% of monthly wages into a retirement account with their name on it.  (This is the percentage we use now)  The emphasis today would be the individual would own their retirement instead of leaving it to politicians to raid or to dole out to you as they see fit.
  2. I would save the government 6 billion dollars a year by using private companies to manage these funds just like we do today with IRA’s and pensions.  (This would save the country 6 billion a year in today’s dollars in SS administrative costs.)
  3. Funds must be placed in approved conservative investment portfolios.  No approved portfolio can have more than 25% of funds in suitable equity investments.
  4. Money in these accounts can never be used for any reason except retirement income but for a few exceptions.
  5. Money in these accounts would not be accessible to the individual until a specified retirement age with a few exceptions.
    • A small portion of amount saved will go for disability insurance in the event an individual is permanently disabled.  It would be mandatory to bid this disability insurance protection among capable bidders.
    • Another minor part would go for a life insurance plan that would be paid out in installment to spouses and minor dependents.  Estimated cost about a third to a half of 1 percent of annual contribution.
    • The following allows exceptions for an individual to borrow against his funds or even future funds at a rate of 1/2% over what the funds are drawing at interest.  Once an individual has recovered from the issue allowing the exception they begin paying back into their security account in appropriate monthly installments.
    • Exception 1 – An amount could be accessed in the event individual is diagnosed with a terminal illness (death expected in 12 months) and needs funds.
    • Exception 2 – A portion of funds could be accessed in the event of a long term nursing care need.
    • Exception 3 – An individual or immediate family member has a catastrophic medical expense up to a predetermined amount.  (This exception helps the individual who chooses the market approach to holding down healthcare with a Medical Savings Account.  See later post)
    • Exception 4 – An individual desires to gift all or a percentage of his retirement funds to another person. No payback required.
  6. Money in these accounts could never be taken as a lump sum, but only taken out in monthly income based on lifetime annuity with a period certain.
  7. If a person dies prematurely before eligible for distribution the individual can designate a beneficiary to transfer the funds to, but the beneficiary may only use the funds as retirement benefits to be paid out monthly.
  8. If a person dies after receiving benefits and has value in his account those funds go to his beneficiary to be used at a predetermined age for retirement..
  9. An individual could delay taking benefit indefinitely and pass his benefit on to beneficiaries or gift them to individuals of his choosing to be used exclusively for retirement income.
  10. An individual can continue to work and earn without any effect to what he receives from his retirement funds.

A Truer Benefit to Americans

This plan would become a multi generational plan that would increase financial security to Americans as well as give generous Americans an opportunity to be charitable with their funds when they see a person in true need.

Currently our system has favored those individuals with more education and higher incomes.  They typically live much longer and reap more benefit from the SS system.  Studies have shown that individuals with less education and less skilled employment die sooner and reap less from the SS system.  Those families would certainly benefit more if the individual is able to pass on the remainder of his benefit to a family member.

The average American worker who started working in 1972 with an annual income of $7100 and who retired in 2016 with an annual income of $48,100 would have between $390,000 to $694,000 depending on an invested return of 5% and 7% respectively.  In addition, they would have any other funds inherited as beneficiaries of others. As you can see the average American worker would have a significant amount of funds at his disposal giving him or her a truer sense of financial security as well as accomplishment.

Social Security Privatization would be a source of pride and motivation as the average worker sees the fruits of his labor accumulate in his retirement account.  It would also give the average worker a broader sense of security and motivation knowing that he will be passing a benefit on to his children or family members.

Wouldn’t this be a better social security system than we have now?  It would take an act of Congress, but that is what they are there for isn’t it?

Watch this 2:30 video and hear American Economist Thomas Sowell on the future of our current Social Security System.  

The Real Solution to Healthcare Costs

In the next post we will discuss a real solution to high health care cost.  It is a system that Americans have thrived on in most areas or our economy.  It is a market based system.  A market based system does not currently exist in American healthcare today.  What do I mean?  Stay tuned.  A link to this post will be coming soon.

 

See three other articles in this series about reducing healthcare costs in America.  The first is 10 Steps to Lower Healthcare Costs in America.  The second is the Fundamental Problems in American Healthcare System.  The third is Winners and Losers in National Healthcare .

 

 

 

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