With the implementation of the National Whole Life Pension Plan, one of the problems facing national retirement reform is removed from the puzzle. The Whole Life Pension Plan would replace the current system for future generations, leaving us to concentrate on salvaging the current system for those of us who have already been born. Unfortunately, there is no sure fire solution that is painless or equitable. Everyone alive today who is eligible to receive retirement benefits from the current program will be hit with unpleasant consequences of reform. Our task then, is to try to mitigate the pain without breaking the financial back of the nation or our retirees.

The 2005 Social Security Trustee Report clearly states that beginning in 2005, the program will experience a $4 trillion dollar shortfall over the next 75 years. To put this in perspective, the entire national budget for 2005 is just over $2 trillion dollars. To replace this imbalance would require the entire tax receipts for two years running, putting an immediate end to all other government functions, just to make up the difference. On a year-by-year basis, we would need to funnel $53.3 billion dollars every year for 75 years into the fund to make up this shortfall. And these would have to be actual cash infusions, not simply budgeted dollars that don’t really exist or are creatively accounted for. Clearly, the task is daunting, if not downright unfeasible. So what can we do?

First, and probably most importantly, we must discontinue the pay-as-you-go standard that the current system relies upon. This practice is what has led to the massive transference of money from the trust fund, a reserve specifically designed to accommodate changing conditions, by allowing the government to subsidize the general operating budget with surplus retirement account money. Now, after decades of exploiting this easy source of ready cash, our elected leaders have left our retiring citizens out to dry, and left our working citizens with an empty promise of future security.
But just as unscrupulous politicians have bled the fund at every turn, we the people must also bear some of the responsibility for allowing the situation to continue. After all, we elected them. Now, we must enact stringent restrictions forbidding retirement funds from being used for general budget expenses.

The system, if left unchanged both in tax rate contributions and benefit payouts, will still be able to offer a 68-74% return to people who are 26 years or older today and will retire in the 2040’s. Assuming we can’t find the revenue to fill that $4 trillion dollar gap, what changes can we make to help ensure that future retiree’s under this system aren’t celebrating retirement in the soup line?

Well, there is no “one-size fit’s all” solution, and there is no painless solution either. The simple fact is that some give and take will need to occur, some people will get less than they were promised, and other people will need to have some flexibility that could enable them to make up the shortfall. Many of the ideas have already been brought up, so I make no claim to originality. The problem has been the resistance to combine all of the so-so ideas in favor of doing nothing. There are no great ideas. We’ll all get the shaft a little bit. It’s time to accept this and move forward, doing the best we can with a bad situation, while instituting a new plan for the future generations.

People who are 55 years old or older, or are currently retired, should have no changes made to their benefits. They faithfully held up their end of the bargain with the government and should get back what they have put into the system. Legislation could be passed that encouraged well off individuals in this group to forgo their benefit checks if they had a retirement nest egg of $750,000 or more, or an annual annuity of over $37,500. ($750,000 divided by a life span of 20 years, assuming a retirement age of 70.) We could offer tax breaks or tax-free retirement withdrawals or other such incentives. Then, we must also slowly phase out the indexing aspects of the plan, starting with those who need the benefits least (the well off, as described above.)

Those who fall between the ages of 40 and 54 will be the first group to receive a lower percentage benefit than the group before them. They will be the first to swallow the bitter pill. To begin with, all individuals with a private retirement nest egg of at least $750,000 would forfeit their claim to social security. I know it’s not fair, but sometimes life just works that way. In return, they could expect an off the top 25% tax credit every year after retirement. Next, we begin phasing in benefit decreases, starting around 5-8%. Again, we could lessen the effects by offering tax-free deposits (up to a certain specified amount) and withdrawals on all personal retirement accounts, eliminate tax on interest generated by a retirement account on a yearly basis, and regulate retirement fund administration fees so that every person clearly can see what the costs of maintaining their retirement accounts are. Finally, we eliminate the inheritance tax permanently for this group, provided that all remaining financial assets are transferred into a retirement account for the receiving heirs.

People between 25 and 39 years of age will face a tougher road than those ahead of them, since this group will have to bear the largest benefit decrease compared to what they have paid in to the system. To begin with, if no taxes are raised, this group can expect to see reduced benefits, giving them monthly checks somewhere around 68-74% of what today’s retirees receive. As a result, these workers, in addition to the changes made for the proceeding retiree group, could receive a 50% off the top tax credit every year after retirement. They could also have tax-free retirement contributions to personal retirement accounts with no ceiling on deposit amounts.

This leaves us the group of people who are under 25 years old before the implementation of the National Whole Life Pension Plan. They would decrease their contributions to a system that will likely have little left to offer them. They would receive all the benefits of the preceding groups, but their tax credit on retirement funds would be 100%. In essence, they would divvy up the remnants of a dying system, with perhaps a specialized program being developed to fill in the gaps, funded through lowered expenses as a result of other government streamlining.

As I said, these ideas are all available, but no plan for this system is without pain, including increasing the tax base to levels that would likely have negative consequences in other financial areas. Essential is the task of repaying the borrowed funds as soon as possible and restricting any future raids on the account. This is a problem that will be felt for at least 75 years. There is no lottery big enough fill the void. Minor tax increases could ease the burden slightly, but too high of a tax increase could be just as harmful. A minor increase may be a necessary component of any plan, but realistic compromises will have to be made. Reforming our retirement program to ensure a graceful end to the present program and a smooth transition to the Whole Life Pension Plan will take patience and sacrifice. The down side is that we all lose. The upside is that our descendants won’t have to face this situation again.