Social Security

Or

Social Insecurity?

What type of economic system is Social Security?

For those who admire the Social Security system as it is funded today is a socialist policy.  It is mandated participation backed by the rule of law for redistribution of monies from one group (current workers) to current retirees.  It is what it is – what it is not, especially those who put this program on a pedestal, a program brought down from Mount Sinai by Moses himself proclaiming God’s 11 commandments (number 11 is Social Security).

A National Socialist retirement program is mandated participation backed by the rule of law into individual investment accounts.  This would serve the state in attaining significant increase in savings along with a secondary effect of increased investment.

A libertarian - a major freedom issue - would have neither program thus ending mandated taxes allowing the individual to devise and fund their own retirement.           

Social Securities Birthrate Problem:

The social economic change that advocates refuse to address for maintaining Social Security in its present form as a generational monetary transfer program is the declining birthrate below replacement.  As long as the U.S. birthrate (currently 1.6 to 1.7) remains below replacement overtime there will be less future tax-payers for Social Security requiring higher taxes in one form or another to maintain current level of transfer payments. 

The cap on income (currently $184,500) can be raised significantly (or outright repealed) along with surtaxes on dividends and capital gains extending Social Security for another 30 to 40 years.  The Boomer generation will have aged out along with a portion of Gen X’ers,  However, the Millennials’ and early Gen Z’s will be right back in the same boat as todays Boomer’s with Social Security needing ever higher level of taxation to maintain the system.

The Solution:

Add on private investment based accounts similar to 401k’s with strict cost controls (expense ratio less than 0.15%) maintained by the rule of law disallowing Wall Street using these accounts as a cash generating machine.  There will be no early withdraw (unless totally disabled) and no borrowing against the account, only used for retirement with a 4% withdraw rate or purchasing an annuity.  Any remaining value upon the death of the owner will go to the beneficiary as stated in the plan documents.  All accounts will be set up along the lines of Harry Browne’s Permanent Portfolio.  25% worldwide stocks – 25% worldwide long term bonds – 25% in worldwide bills and notes – 20% gold and 5% in silver.  Account is rebalanced on the anniversary date of inception.  An 18% levy (deposit) creating enough savings to effectively out compete Social Security in any poor return environment.

The reason for the Permanent Portfolio method is its very low downside risk while historically having near the same return as a 50% bond – 50% stock portfolio.  This significantly reduces the risk of major drawdowns when an individual nears retirement.