A sound retirement system
By Bob Costello
web posted January 3, 2005
No issue in America is more contentious than how to address the impending insolvency of the Social Security System. Social Security is the largest and most popular government program. Our system started in the 1930's and is modeled on a plan from Bismarck's Germany in the 1880's.
The failure of Social Security stems from its pay-as-you-go nature in which your payroll taxes are never saved or invested for your retirement. We have a retirement system designed without savings.
Changing demographics make the current system unsustainable. Pay-as-you-go works when you have 16-1 workers to retirees as in the 1950's. Today there are about 3.3 works per retiree. In 20 years, we will only have 2 workers per retiree. The system's finances are not sustainable as it is currently designed. Even if the system could make the payments a worker today can expect a rate of return of less than 2 per cent on their payroll taxes. Also the Supreme Court has ruled that workers have no legal right to Social Security benefits. Americans are at the mercy of the Washington politicians regarding what benefits they receive for their payments.
We can design a better system. Currently payroll taxes are 12.4 per cent of wages. Putting a portion of these payments into Personal Retirement Accounts (PRAs) is the answer. With PRAs every worker is a saver which would increase national savings, productivity, wages and the strength of our economy. Each worker would be a stakeholder in this growing economy.
The wealthy already have savings and investment accounts but the lower and average income workers, after they pay their payroll taxes, mortgage or rent and put food on the table don't have any money left over. They are forced to put almost all of their retirement savings into a program that gives them a lousy return.
The world has changed but today's workers deserve the same level of security as their grandparents. People retiring in 2035 shouldn't have to be in the same retirement system that was modeled in the 1880's or created in the 1930's. In 1935 there were no personal computers, no cheerios - not even a Mount Rushmore. It is time to modernize.
We need a system where we can own and control our retirement assets – funds not controlled by big corporations or big government. The assets in these accounts will compound and create real wealth. Albert Einstein called compound interest "the most powerful force in the Universe." It is time for this force of compound interest to be working for every American. PRAs give American workers dignity and a sound retirement - a true lockbox that politicians can't touch.
HR 4895 "The Individual Social Security Investment Plan Act" introduced by Congressman Sam Johnson is the best plan. 2005 is the time to address this issue. Every two years we delay will increase the cost of reform by $320 billion. It will be expensive to move to a funded system but it will cost 10 times more to prop up the current bankrupt system. The goal is a sound retirement system for every generation designed with real saving. 
© 2004-2005 Bob Costello, President of Social Security Choice.org, lives and works in the Chicago area.
Other related articles: (open in a new window)
- From Deutschland to New Deal to now: How old is old? How secure is Social Security? by
Marion Edwyn Harrison - The disastrous deal of 1972 by Gregory Bresiger (December 13, 1999)
Gregory Bresiger traces the problems of Social Security back to a 1972 deal that few opposed. Problems that will continue as long as Social Security is around - Save Social Security: Bring back the balanced budget amendment by Amy Moritz Ridenour (April 1998)
Borrowing from Social Security is the thing that will kill it says Amy Moritz Ridenour - Empowering workers: The privatization of social security in Chile by Jose Pinera (September 1997)
It's time private industry take over government handouts and the man who did it in Chile, José Piñera, tells how it's done
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