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.

In my last essay, Crafting A National Pension Plan, I presented a case for developing a national pension system for retired workers based upon the concepts of gratitude for a lifetime of hard work and appreciation for participating in the continuance of the American Dream. In this essay, I will describe my thoughts for administering such a system in a way that is both equitable and economical. After much thought, I feel that this can best be accomplished by a short summary, followed by an imaginary “Question & Answer” period. So without further ado, I offer this plan to you.

The National Whole Life Pension Plan seeks to accomplish one goal and one goal only. Its task is to ensure that all citizens will have a standard minimum retirement fund available to them when they reach the end of their productive working years. It accomplishes this goal by recognizing that although all citizens may not be equal with regards to employment skills or desires, each task is of equal value to a smoothly functioning society. Whether you choose to rear children, wash dishes in a restaurant, operate an oil-drilling platform, or design computer programs; your financial security in old age should not be dependant upon how much money you earned in your lifetime.

As its name implies, the National Whole Life Pension Plan would begin at birth with $5000 placed into an account in your name. This account would belong to you and you alone, but would be pooled with all of the other personal accounts from people born in the same year. For the first 30 years of the plan, the government would deposit $600 per year into your account. At the age of 31, the government would end their yearly contribution and you would then be able to make contributions of your own until you reach age 70. At age 70, you would retire and begin to draw an annual stipend from your account, tax free, for at least 20 years. Once you reach the age of 90, all of your basic costs of living would be free, paid for through a separate social security program for elderly citizens.

Q: How much is this program going to cost compared to the current system?
A: At its inception, the program would cost approximately$22.5 billion dollars. This figure is derived from the average number of new births in the U.S. (4 million/year) times $5000 plus that same number of births (4 million) times $600. Each year the program would require an additional $20 billion for the new births, $2.5 billion for the yearly $600 deposits, and an additional $2.5 billion for each preceding years births up to 30 years. At its peak-funding requirements, the program would be paying out $95 billion dollars a year. ($20 billion for new account start-ups and $70 billion in account contributions.) The current system pays out $540 billion per year (for both benefits and administration costs.)

Q: Who pays for this system?
A: Unlike the current retirement program in which the employee and employer contribute a like amount into the national fund, under the new plan, only businesses would be required to contribute to the Whole Life Pension Plan. The reason for this is twofold: first, business is the main profiteer of an employees hard work, deriving its continually climbing profits from employee ingenuity and dedication; and secondly, because of the changes in the retirement system mentality, employers would no longer be contributing to a matching retirement pension like the 401k or other private plan, and would likely not have other benefit costs, or at least much lower ones, through reform of the medical industry. (Another topic to be sure.) Currently, the federal government collects $819 billion a year from employees and employers for social security programs, including Medicare and Medicaid. If half of that is the employer’s portion ($409.5 billion), then a yearly cost of up to $95 billion surely represents a tremendous savings to businesses.

Q: What is the average payout expected to be compared with the current system?
A: The answer to this question really depends upon what an individual decides to do once the account becomes their full responsibility at age 31. But for purposes of estimating, let’s assume that the accounts earn an average yearly return of 4.5%, compounded quarterly. (This number is based on average returns for long-term T-Bill investments.) At age 31, each personal account should have a balance of about $52,000. If a person simply left that $52,000 in the same account, growing at that same 4.5% rate, when they begin to draw on that account at age 70, they could expect an annual payout of $21,292 in today’s dollar value. If that same person decided to contribute an extra $1200 per year, their monthly income would increase to $30,652. The current average yearly retirement benefit under Social Security is $11,500.

Q: What about naturalized citizens who were not born here? How would they be covered?
A: Because naturalized citizens share in the hard work of creating the American dream, they too should have a way to benefit from their contributions. In that spirit, a separate but similarly administered fund would be created, funded with up to $1 billion dollars per year, to accommodate our naturalized citizens upon their retirement. This fund would not necessarily be a guarantee though, like the Whole Life Pension Plan. Each naturalized citizen would be required to contribute at least $600 a year for 5 years cumulatively in order to draw a pension. And they must have worked in the U.S. for at least 15 years prior to retirement. We must remember that our retirement program is being designed to reward our citizens for their contributions, not to act as a stimulus for the world’s poor to flood our shores in their golden years.

Q: Would the National Whole Life Pension Plan be guaranteed to all citizens who are born in America?
A: Except in cases of lifetime imprisonment or banishment, each citizen would be able to collect their pension funds upon reaching age 70.

Q: What happens to someone’s account if they die before they can collect?
A: The answer to this question depends upon when the person passed away. If they had not yet begun their working life, or if they were single and had no dependants, then their personal account would be reabsorbed into the general Social Services budget. If, on the other hand, a spouse and/or children survived the person, those survivors would have a claim to the account and could receive a single lump-sum payout, minus a 25% tax, which would be transferred to the general Social Services budget. If they were to die after reaching retirement, the remaining balance would be transferred to their estate for distribution to their heirs.

Q: Who administers these accounts? And if it’s the government, how can we be sure that they won’t just raid this fund like they did the original retirement fund?
A: Initial collection and disbursement of the account funds would be handled by a government administration, but would be subject to strict guidelines and frequent audits. Legislation would be enacted that would forbid inclusion of these retirement funds in any federal budgeting process and no Congress could never leverage another expense on the backs of o
ur retirement accounts. Any attempt to do so by a lawmaker would result in immediate impeachment proceedings, presided over by a combined citizen-judicial-legislative panel. Further, each personal account would be established as a deposit only account, and have a unique unlock code that was time dated for withdrawal activation only at the account holders 70th birthday.

Q: How can the money earn interest if it stays in one place?
A: In a personal bank account, the money you deposit is not physically in a box in the bank. Similarly, the National Whole Life Pension Plan lends out a portion of its balance through the purchase of long-term government bonds. A separate provision requiring the entire balance be available for lump-sum payout at age 70 could be instituted, allowing pensioners to transfer their funds into a private account if they so desired, but the same yearly disbursement requirements would follow.

Q: While this sounds pretty good, could I still invest in supplemental retirement accounts for myself?
A: Absolutely! A wide variety of investment options would still be available to supplement your retirement savings. These programs could have an unlimited, tax-free ceiling for contributions, but would have a graduated tax schedule applied for withdrawals, based on total non-national pension funds or purpose for withdrawal.

Well, that’s pretty much it. The National Whole Life Pension Plan could be a solution to the future insolvency of Social Security’s retirement program. It seems to be considerably more economical for businesses and government to fund and operate, and considerably more lucrative for individuals who will need to live off the funds for 20 or more years. This plan levels the playing field from the beginning, allowing workers to become more focused on the job they do today rather than worry about their retirement benefits, resulting in possibly better worker output and better corporate profit.

The beauty of this plan is that it could begin at any time, since $22.5 billion dollars is just a drop in the bucket of the federal trough. Even in thirty years time when the system is running full blast, the outlay is a mere fraction of what is being spent today. The adoption of this type of plan would also have the immediate effect of securing retirement benefits for future generations, taking that aspect of our current systems breakdown out of the equation and allowing us to concentrate on helping the program limp along until its last recipient has drawn their last benefit check.

(Note: Population figures derived from U.S. Census reports and projections. Current Social Security Administration budget figures derived from the 2006 U.S. Federal Budget. Pension fund estimates used retirement and compound interest calculators found here: http://www.moneychimp.com/calculator/retirement_calculator.htm)

You can believe what you want to, but I’m here to tell you that any success you may personally have is the result of many different people over many years and extends far beyond the powers of your own mind or capabilities. In order for society to function and progress, the combined efforts of all of its members are required, and as such, we all owe each other a debt of gratitude to some degree. Were it not for the care of our parents, we’d never make it into the world as responsible, productive adults. Were it not for our teachers, we would never learn the skills with which we support ourselves. Were it not for the desires or needs of individuals, we would not have jobs to support ourselves and would instead be a nation of subsistence farmers, scraping by just what we need to survive. We are all responsible to each other in this sense, and as such, we have a responsibility for each other too. One of those responsibilities is to assure that no one is left behind in poverty once their most productive years are behind them. As such, any national retirement program must have at its center this concept of shared responsibility, shared gratitude, and shared respect.

Like other tax-supported programs, the national retirement plan exists as a compact between the people and our government. The agreement has been that when you work, you deposit some of your wages into a social insurance fund. Your employer deposits a like amount as well. When you retire, you will receive a monthly stipend until you die. The government, who is entrusted to safeguarding the funds for their intended purpose, administers this fund. In theory, the number of workers paying into the fund at any one time would exceed the number of retirees withdrawing from the fund, keeping the fund solvent in perpetuity. But the theory has not held, and as a result, our national retirement program will be unable to hold up its end of the deal. The compact between citizens and government has been broken and the time has come to fix things up.

Although today’s retirees are receiving their promised returns, the rules for future retirees have been shifting over the years, raising the retirement age and preparing people for decreased returns. The reasons for this decline are fairly simple: there are more people retiring and drawing from the fund than there are to replace them, even in this age of dual income families, and wages haven’t kept pace to make up the difference. The other reason for the eventual collapse of the current system lies in the betrayal of government and their unwillingness to protect the funds for their intended purpose. Like so many other supposedly devoted taxes, our politicians have consistently raided the retirement funds over the years, replacing the actual money with worthless I.O.U.’s. Today’s workers have been told as much, the administration saying in effect that there will be no money for you when you retire. But go ahead and keep paying in anyway, because that’s how the system works.

Even without these major problems, the system itself fails to offer retirement security to all of our citizens equally, something that any tax based program should strive to do. The most glaring example would be for stay-at-home moms, who because of their absence in the business world have no earnings per se. But their indispensable tasks of rearing our young is worth its weight in gold and should be recognized as the valuable service that it is. Any national retirement program must be offered to all legal citizens equally.

Reform must occur in two separate phases. We must stabilize they existing system to the point that it will meet most, if not all, of its obligations to the citizens who are nearing or are in retirement now. Further, it must figure out a way to make amends to the workers who have and will continue to pay in, knowing full well that they will be getting the short end of the stick. But rather than try to patch a clearly breaking system, we need to let it phase out in favor of a more equal, and arguably more efficient national retirement program.

Retirement programs exist so that we don’t have to work until we die. But for most of our working years, we are either obsessed with saving enough money to retire on or are completely oblivious to what we will actually require once we do retire or how we plan to get it. In today’s business climate, private pensions (which are designed to supplement the national retirement program using your own dollars) are shaky for many, with companies going bankrupt and fleecing employees out of years of built up retirement funds. The relationship between employees and employers has also drastically changed, with the lifetime employee almost being unheard of. The result is any number of smaller 401k plans without the ability to achieve compound growth. It is painfully obvious to many that their best source of income in retirement is likely to be social security funds. This is the reality we live in, and so if we endeavor to continue to offer a national retirement plan, we must think of completely new ways of designing it.

While keeping the existing program on life support is important, first I’m going to propose a national retirement plan for future generations of workers. I think that even though we need to try to fulfill the promises to the people of today, it is also our duty to create a more lasting system than we have now. For any reform of the current system would naturally have to include plans for continuation of some sort, and I believe that our current system is too screwed up to rebuild. Sometimes you really do need to start fresh.

I had originally planned to present my plan for an entirely new retirement program for future generations of workers in this essay, but that will now have to wait until next time. I felt that I needed to defend the concept of a national retirement plan once more before I could go on to explain my ideas. For it is essential to understand that a national retirement program is more than just a reshuffling of tax dollars from one person to another. The essence of our working life is the ability to some day kick our feet up and retire. This is one of the promises of America. This is a part of the American dream. It is something the we, as a society, have affirmed over the last 70 years through our continued support of a system that once was good, but now is sinking.

It would seem to me though, that before we try to fix what will soon be broken, we should make use of this opportunity to reexamine not just the structure of our program, but our underlying reasons for having the program at all. What purpose does social security play in our society, beyond redistributing money from the working class to the retired class with the promise that today’s working class will be replaced by a future working class that will fund their retirement? Or does it represent some other values we hold? An honest answer to these questions should be essential in order to shape lasting reform, for each may necessitate completely different plans. And lasting reform should be the key, so whatever plan arises should remain flexible enough to accommodate changing future demographics and attitudes towards national retirement programs.

Why do we even have a social security retirement system? The original reason for creating a national retirement program was simple- that generation of Americans decided that no citizen should have to continue to labor day after day to make ends meet after reaching a certain age. And further, that no citizen who had spent their productive adult years working as a member of society should have to worry about starvation or poverty once they became too old to work. The former is a tribute to our elders, a thank you for years of service and a chance to enjoy ones later years free from the daily grind of making ends meet. The latter is a security blanket for ourselves, ensuring that even if things go bad, we will always have something to fall back on. At the programs inception, many millions had lost their life savings, their jobs, their homes, or all three in the Great Depression. A nation that had enjoyed decades of progression towards a modern society was suddenly plunged backwards leaving whole areas in abject poverty. At that time, families and neighbors had to depend upon each other for survival, sharing the resources they could get, passing along clothes and furniture and the like, and dividing up the bread so that everyone got at least a little bit each time. Social Security became an extension of this attitude where everyone helped everyone else just a little bit so that no person went without at least the basics of life.

So if Social Security was designed to keep those at the bottom from falling through the cracks, how did it become the massive behemoth of entitlement that it is today? Was social security ever meant to be an unqualified payout, a reward for reaching the finish line in one piece? To the generation now coming into retirement age, the largest retiring generation in history no less, Social Security was sold just that way- as a reward for reaching the finish line. And to that end, it has been left to flounder about. After all, government promised them it would be there, so why worry about it? Somebody should have been worrying though.

Originally, the number of able workers paying into the system (once it was established) outnumbered those drawing out by something like 15 to 1. Such a ratio was more than adequate to fund retirements and build future payout reserves. As a result, Social Security was widely touted by those of the middle and lower economic classes as a future nest egg that no one could take away, something unknown to previous generations of workers. Then, society was still largely agrarian with more children per family, so who could have foreseen the trend towards urban living and smaller and smaller families, resulting in a shrinking worker/retiree ratio? Even as the situation became more apparent, the focus of social security remained entrenched in the attitude that those monthly checks were a right of birth and any kind of reform was framed from that point of view.

So at this moment of change, we need to ask ourselves just what do we want social security to be about? Do we want a system that promises everyone a guaranteed payout by age 65? Do we want a need-based system that just supports those who don’t make enough money to quit working at age 65? Do we want both? Ironically, the answer to how someone views social security can be found in the name they use to describe it. The words “social security” imply a kind of safety net, something to keep someone from hitting rock bottom. Increasingly, the current debate is being described in terms of “retirement accounts,” which imply a guaranteed pension of sorts, regardless of ones financial situation. Perhaps we are actually talking about two separate issues that have been rolled up into one.

Personally, I have no problems with a national guaranteed retirement program, provided it was equitably applied and designed to account for disparate earning potential. Designed properly, such a program could cover everyone and would alleviate an individuals concern about generating enormous hordes of cash in order to survive ones golden years. Such financial freedom could allow more people the opportunity to fulfill career paths that typically offer less financially but may be more personally rewarding. It would offer people the chance to switch careers throughout their lives without worrying about losing their retirement savings. It could be flexible enough to allow people to increase its potential themselves while strong enough to provide real security in later years without additional personal contributions.

At the same time, we must recognize that social security is a term for helping people through tough times, but not necessarily a means of long-term support. Social security should more accurately describe our efforts to eliminate poverty and hunger and homelessness among our working class and families. Describing this debate in terms of “social security” only clouds the matter at hand. It is a debate about funding our retirement, about who should pay the bill, and about who reaps the rewards of a lifetime of hard work.

Defining general welfare is at the heart of the matter. General welfare encompasses the obvious things like roads and parks and public buildings. General welfare covers the formation and administration of laws and justice and legislation. But general welfare goes beyond these tangible items that government is obliged to provide based upon our own insistence that it do so. Government, as defined in our own Declaration of Independence, is formed by men to secure life, liberty, and the pursuit of happiness, and it is in these areas that my focus on general welfare will now be directed. For it is also in the general welfare to have a citizenry that is healthy, educated, and free from poverty. It is in the general welfare to provide services that ensure that a basic level of life is sustainable for all people. Over the last century, American politicians and citizens alike have made efforts to provide these “quality of life” services, and with varying levels of success. We have enacted programs to educate our young, feed our hungry, heal our sick, and shelter our poor. But instead of eradicating the number of citizens who need help, or even reducing their number, our social programs are a shambles, costing billions of dollars annually with little to show for their effort. It is an over regulated, often over lapping effort as well.

Take a look at the public institution of education. Education is a basic necessity for any civilization to advance and improve its quality of life. Many nations, ours included, recognize the importance of educating the youth and have empowered government to collect taxes to pay for a base level of public education. The supposed goal of public education is to teach young people how to master basic skills that they will need to operate as productive adult members of society. Additionally, public education is supposed to ensure that all students are exposed to science, history, and arts, as well as teaching social skills among ones peers. In America, study after study appears to show that our educational system is failing across the board. But putting all those studies aside, I am still constantly amazed at the lack of the depth of knowledge that is being taught in our schools, as evidenced in daily written communications or verbal conversations.

Or we could talk a bit about medical care and the correlation between a healthy society and the promotion of “general welfare.” Our professed belief in creating a level playing for all citizens has not yet reached the point of understanding that equitable health maintenance is critical to a prosperous society. We accept the necessity of public health care programs because we want that assurance for ourselves if we fall on hard times. But at the same time, we allow our government to use medical care as a game piece between various special interest groups without much regard for the real life consequences beyond which corporate donor gets paid back. Health care has become a complex web of corruption and indifference.

Retirement security is another member in the social program family of general welfare. One measure of a society is the manner in which they treat their elderly people. Government funded retirement security programs, like medical programs, are embraced by a public unsure of their own ability to provide for themselves in their old age, and are seeking some level of reassurance that they will not be left out in the cold. But our own social security programs, aside from being manipulated by our unworthy public servants, are entangled in a web of bureaucracy that only serves to make the days of seniors more aggravated and less relaxing.

Other socially funded programs include assistance with housing or food or childcare or programs for our military volunteers. Each of these efforts are borne out of a genuine desire by citizens to assist each other in hard times through the collections of taxes to pay for these services. But once the taxes get into the hands of the politicians, the special interest groups and corporate donors come knocking at the door, hands outstretched, trying to get the money without regard to the public desires or needs. The public, getting no relief from either political party, becomes embarrassed at first, angry in time, and apathetic at last at the seemingly endless line of corrupt politicians and business leaders.

It sometimes seems that government has some resentment at being placed at the center of social programs. Indeed, one could almost believe that the sheer inefficiency and lack of broad based successes were something of a master plan of incompetence in the hopes that the public would somehow withdraw their desire to provide social programs that ensure that everyone has the same chance out of the gate. If I wanted to get myself fired from a job, I would only need to adopt a work pattern like the government’s and I’d be out the door by lunchtime. In our desire to help each other, we have created a monster out of our government, a monster that is gobbling ever more tax dollars while placing ever more restrictions on what we can get back from our investment. Instead of operating in the best interest of the public it is tasked to serve, governments increasingly embark on missions that tinker with aspects of an already broken system instead of having the courage to point out the problems and work to get them fixed.

Entrenched ideological constructs have only enabled the morass to grow larger. Citizens have been deluded into thinking that the only reforms necessary come in the form of larger taxes, while politicians craft disingenuous policy that benefits corporations before the citizens. Breaking through that wall of complicity requires a strong dose of information and Common Sense. My next several essays will explore our public social programs of education, medicine, retirement, housing, and the others mentioned as well. I invite you to come along as I tell the truth about the state of affairs and offer some ideas for change that could really benefit society. It’s time for a fresh look at our methods. Our money, and more importantly our lives, are in the balance.