A 50 year plan: Social Security

A facet of my 50 year plan that's going to take a combination of diligence, guts, and sacrifice is embodied in what I'd like to see done with the Social Security program. I personally feel that Social Security should be sunsetted.

There. I've said it.

Let the AARP bitch and complain, I don't care. I'm going to give the AARP a piece of advice - in less than 7 1/2 years I become eligible to join your organization (it is age 50, right?), but just save yourself the mailing because I'm going to tell you to drop dead.

And I know that there's millions of people who draw a Social Security check out there, and they were promised benefits for placing their taxes in the trust of the government for all those years that they worked. One myth is that you're only receiving the money you put into Social Security. I ran some basic numbers at the Social Security website.

A mythical person who was born on today's date in 1945 (so he/she turns 62 and is eligible for benefits) would receive the following per month based on these income levels at his/her last full year:

• $30,000 income would get $691 per month now, $965 per month if they retired at age 66, and $1,333 per month if they retired at age 70.

• $60,000 income would get $1,086 per month now, $1,537 per month if they retired at age 66, and $2,147 per month if they retired at age 70.

• $100,000 income would get $1,438 per month now, $1,980 per month if they retired at age 66, and $2,701 per month if they retired at age 70.

For this mythical example, I also found the tax rates for each year, starting with the 3.625% rate in 1963, the first year the SSA assumes earnings, and up to the current 6.2% rate in effect since 1990. (This doesn't count the Medicare tax.)

At the $30,000 income level and retiring at age 62, it takes until 1990 (27 years) for one year's taxes to practically equal one month's current benefit of $691. The first month of benefit collection exceeds all of the money put in during the first 10 working years. All told in this particular case, the total taxes paid by the individual equal $27,657.11, or 40 months' worth of benefits. If this person decides to work until age 70, the payoff is slightly shorter, about 32 months. (SSA assumes the same $30k income on out years though.) The person at the $60,000 income level has a little more room to complain because of the lower relative benefit; that mythical recipient has 51 checks come before the taxes are redeemed. Retiring at 70 bumps that down to 40 months, again assuming the same $60,000 income level.

And what of our executive drawing 100 large a year? His payoff works out to 64 months if he or she retires at age 62. Interestingly enough, Joe or Jill Executive contributes a bit less per dollar than the others because they occasionally bump into the top end of the tax scale, and it's even moreso for the out years in the SSA formulas. Thus the payback for retiring at age 70 drops a full year to 52 months. But in any case, living past retirement and drawing Social Security for more than 5 years or so fully exhausts all of the resources placed into it by a worker. After that they are on the backs of those working right now.

As far as that goes, I found my personal Social Security report that runs through 2005. (In a month I'll get my 2006 one.) Over 20 years of working, I've paid into the system $34,764. I don't know about you, but I would've liked to have that extra 35 grand during the time.

In his first term President Bush introduced a measure that sort of took my idea halfway with the concept of personal accounts. Of course, the Democrats and AARP (not that there's much difference between the two) accused President Bush of wanting to destroy Social Security. Well, go ahead and accuse me because I want to as well. The government had no business in the first place getting into retirement accounts, and much of the entitlement mentality that plagues America today can be traced back to the creation of the Social Security program.

On the other hand, there are millions upon million of Americans who put their trust into this program paying them their promised benefits upon retirement so they went on their merry free-spending way and didn't put anything away for their future. Thus, the program has to "wither on the vine" as Newt Gingrich was accused of saying about Medicare.

The other issue with sunsetting Social Security is that the federal government takes the money that is withdrawn from your paycheck and spends it on things not associated with Social Security - and has since the late 1960's. Part of the impending problems with the program have to do with this incessant raiding of the (so-called) "Social Security Trust Fund." To the feds, it's free money and I don't believe it's on-budget either.

So something needs to be done. I have one possible approach; granted it's a little arbitrary but at least I'm placing an idea in the hopper that I think merits study.

Anyone who collects Social Security now or in the fairly short-term future will get full promised benefits. People of a certain age were suckered into the thought that they would have their retirement supplemented by Social Security and it wouldn't be right to pull that rug out from under them. So I'd say those born prior to 1950 come into this group.

If you were born between 1950 and 1960, you still have several prime earning years remaining and it gives you time to sock money away in a retirement account. So at that point benefits would be lessened on a sliding scale depending on date of birth, I'd say 75% to 85% of full benefits. People in my age bracket (I was born in 1964) would have benefits decline at an accelerating rate, so eventually those born around 1980 or so would be left with zero - however, as they age and fewer and fewer receive benefits their tax rates to pay for the survivors would go down. However, they probably wouldn't pay zero taxes for their working life as more people reach a riper old age. Someone who's 100 years old right now has been collecting benefits for 35 years or so and more people than ever reach the century mark.

There will also have to be some sort of cutoff for survivors' benefits, perhaps on a similar sliding scale. Obviously the insurance industry would reap some benefits from my idea, but as I said the government should've never gotten into the insurance business anyway.

It took over 70 years to build this behemoth we know as Social Security, so it'll take at least two generations to restore sanity to the system. I'm counting on the next two generations to have guts and foresight in order to move the government out of a role it didn't belong in initially.