There is much talk these days about Social Security, how to save it, how to reform it, how to partially privatize it. I have a better idea — one that I’ve been thinking about since 1982. Here’s what I wrote back then in a column in a local newspaper:
In the matter of old-age retirement, we’ve created a government-controlled social security system which has collected billions from American workers but which is now on the brink of bankruptcy. Social security has produced a lot of social insecurity. May I suggest a better plan to deal with the problem of old-age. Why doesn’t the U.S. government place $1,000 in a private IRA trust account for each newborn child in the U.S. and let the money accumulate compounded interest at a rate of, say, 10% a year until that individual has reached the age of 65. At that age the person would have about $490,000 in the account for his retirement. He could pay back the government $10,000 and live very nicely off the yearly interest earned by the account, paying taxes on whatever money was drawn out.
Such a system would have enormous benefits for the economy and it would cost the federal government a mere $4 billion a year — the price of one nuclear aircraft carrier. It would provide the economy with a large pool of lendable capital, eliminate the need for social security payments by these individuals, thereby lowering their tax burden, solve the problems of the aged by making them all rich, providing them with wealth that could be passed on to their heirs. It would also give Americans a vested interest in economic growth and stability to insure that inflation did not destroy the value of their IRA accounts.
While the scheme would not solve the problem of poverty during the pre-retirement years, it would solve it over the long run by building family estates that could be passed on to future generations thus breaking the cycle of poverty. A retirement system of this kind would require a minimum of bureaucracy. An account for a newborn child could be opened at any private financial institution authorized to handle such accounts. Once the U.S. government made its initial deposit of $1,000 it would have no further supervision of the account. The bank would automatically pay back the government when the beneficiary reached 65.
Meanwhile, the beneficiary would receive periodic statements on interest earnings. It might even be possible for the bank to lend money to the beneficiary secured by the account itself. In short, there is no end to the possibilities of such a retirement system. Its greatest benefit, however, would be psychological. It would eliminate the fear of growing old, permit senior citizens to enjoy their retirement and give all of us something wonderful to look forward to: a jackpot at the end of the rainbow.
That was my plan in a nutshell. Of course, the federal government’s yearly expenditure for the program would probably now be more than $4 billion. But in 65 years, it will be getting its money back tenfold. Also, a l0% interest rate is probably unrealistically high. But a bank would have to pay you its highest Certificate of Deposit rate on such an account, which might run from 4% to 10%. In addition, the individual owner of the account would be permitted to add money to it at any time, thus increasing its balance at a faster rate than by interest accumulation alone.
The present Social Security system ought to be phased out in favor of the Birthday Account Retirement System (BARS). Taxpayers pay twice for Social Security. First, they pay into their Social Security account through payroll deductions or income tax returns. The federal government then spends that money on whatever its needs may be, placing in the lockbox of the Social Security Trust Fund, IOUs in the form of Treasury Bonds. Now, who do you suppose will be taxed to pay off those Treasury Bonds? The same people who were taxed in the first place for Social Security.
As we all know, no senior on Social Security can retire on those monthly payments alone. It was never meant to be a retirement program. It is, in reality, only an old-age assistance program. However, the Birthday Account Retirement System would be a genuine retirement program which, at minimum, would consist of balance accumulation by compound interest and, if added to by the account owner, could eventually turn into a nest egg of millions. Such an account, protected from the ups and downs of the stock market, better than any insurance company annuity, protected from government pilferage, safe from the greedy hands of unlovable children, would provide seniors with the psychological and economic security they need.
Should the account owner die before reaching 65 and, by the way, the age 65 is not chiseled in stone, money would then go to a spouse or children according to the will of the account owner. It could go toward paying off a mortgage or paying for a college education, which may or may not be necessary 65 years from now.
If this program can be started this year, a whole year’s worth of babies will not have to worry about what they will be living on when they reach the age of 65. Many of those babies will turn out to be highly successful men and women by 65, but many others will have been living at the edge of poverty. How nice that at 65 they will suddenly be rich. A heck of a lot better than trying to win a lottery!
So far, I can see nothing wrong with this plan. If you can, please let me know. But if you like the idea, inundate President Bush’s desk with copies of it and send your Congressman a few copies too.