Spring Break
Social insecurity
Lewis Carroll
Issue date: 10/16/08 Section: Opinion
Prepare to work until you die.
For anyone unaware, Social Security is a supplemental retirement system that was implemented in 1935 as part of Roosevelt's "New Deal." The system is funded by dedicated payroll taxes, with the purpose of securing a threshold where anyone who has paid into the system. However, according to Bruce Bartlett, a senior fellow with the National Center for Policy Analysis, by 2014 current tax revenues will be insufficient to pay current benefits. By 2029, the Social Security trust fund is projected to be exhausted. Unavoidably, a change must be implemented. That change is switching the current Social Security system to the Cato Plan.
Demographic issues, such as longer life expectancy by 12 to 15 years, and a falling fertility rate from 3.6 children per woman to 1.9 as of 2020, have a strong negative impact on Social Security as well. A fertility rate of 2.1 would be needed just to replace the existing population. Numbers alone cannot be relied on to fix the problem, but a more lucrative means of supplying funds. I agree with a widely considered solution to the problem, which is switching to a system of personal investments.
Many people think that the stock market would simply be too risky, but that just isn't so. Throughout the last 80 years, private investments have earned an average return of nearly 8 percent. This period includes the Great Depression, World War II, several smaller wars, the dot-com decline as well as more recent problems. Workers currently can expect a return on their Social Security taxes of 1.5 percent or less. When it comes to the aspect of benefits, the stock market is no less risky than politics. Congress can choose at any time to change benefits, because retirees have no legal right to them.
According to the Cato Plan, individuals would be able to invest their half of payroll, which is 6.2 percentage points through individual accounts. There will be a limited series of investment options, with a life cycle fund as a default mechanism. The remaining 6.2 percentage points will be used to fund the transition costs, as well as survivors' benefits. Those who choose to remain in the current Social Security system would receive whatever level of benefits available to them with existing levels of taxation. This system would give people a chance to convert to a better system, while not excluding those resistant to change.
The time to switch from Social Security to the Cato Plan is now. When considering risk management and rate of returns, there is no comparison. For every year after this one, reforming the system will cost American taxpayers an additional $600 billion. With Social Security running into deficits within 12 years, time is limited. We should be thinking not only about the well-being of our parents and ourselves, but also about beneficial systems that can be established for our children and future generations.
This writer can be contacted at opinion@theeastcarolinian.com.
For anyone unaware, Social Security is a supplemental retirement system that was implemented in 1935 as part of Roosevelt's "New Deal." The system is funded by dedicated payroll taxes, with the purpose of securing a threshold where anyone who has paid into the system. However, according to Bruce Bartlett, a senior fellow with the National Center for Policy Analysis, by 2014 current tax revenues will be insufficient to pay current benefits. By 2029, the Social Security trust fund is projected to be exhausted. Unavoidably, a change must be implemented. That change is switching the current Social Security system to the Cato Plan.
Demographic issues, such as longer life expectancy by 12 to 15 years, and a falling fertility rate from 3.6 children per woman to 1.9 as of 2020, have a strong negative impact on Social Security as well. A fertility rate of 2.1 would be needed just to replace the existing population. Numbers alone cannot be relied on to fix the problem, but a more lucrative means of supplying funds. I agree with a widely considered solution to the problem, which is switching to a system of personal investments.
Many people think that the stock market would simply be too risky, but that just isn't so. Throughout the last 80 years, private investments have earned an average return of nearly 8 percent. This period includes the Great Depression, World War II, several smaller wars, the dot-com decline as well as more recent problems. Workers currently can expect a return on their Social Security taxes of 1.5 percent or less. When it comes to the aspect of benefits, the stock market is no less risky than politics. Congress can choose at any time to change benefits, because retirees have no legal right to them.
According to the Cato Plan, individuals would be able to invest their half of payroll, which is 6.2 percentage points through individual accounts. There will be a limited series of investment options, with a life cycle fund as a default mechanism. The remaining 6.2 percentage points will be used to fund the transition costs, as well as survivors' benefits. Those who choose to remain in the current Social Security system would receive whatever level of benefits available to them with existing levels of taxation. This system would give people a chance to convert to a better system, while not excluding those resistant to change.
The time to switch from Social Security to the Cato Plan is now. When considering risk management and rate of returns, there is no comparison. For every year after this one, reforming the system will cost American taxpayers an additional $600 billion. With Social Security running into deficits within 12 years, time is limited. We should be thinking not only about the well-being of our parents and ourselves, but also about beneficial systems that can be established for our children and future generations.
This writer can be contacted at opinion@theeastcarolinian.com.
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