Sunday, November 2, 2008

Social Security Should Be Voluntarized

Jim Crum has forwarded a link to a September 22, 2007 ABC News article about Barack Obama's plans at that time for "a major tax hike" with respect to Social Security. Obama had said that he aims to raise the wage base ceiling to include all income. As Jim points out in his e-mail, there is a demographic shortfall due to the baby boom bulge.

No matter how you slice it, unless you are a low wage earner and so a recipient of the higher accrual rates that social security pays to the lower salary bands, Social Security is a terrible deal. The actuarial value of $25,000 payments beginning at age 67 are about $250,000. Someone who earns $50,000 per year and works for 40 years puts in $248,000 over a lifetime, excluding interest. If you include interest the value is more than three times as much. Moreover, the employer contributions are not free to employees because they have the effect of reducing employees' wages. The "incidence" of the employer contribution falls largely on employees, so we are really paying the full 12.4% rather than the 6.2% we see taken out of pocket.

I think a good solution would be for the government to allow employees to receive back their contributions to date, perhaps not including the employer contributions or any interest. They're not paying any interest anyway. If they were, a $50,000 lifetime employee would receive a social security benefit of $75,000 per year at age 67, three times what you get.

I would rather get half my money back (the employee portion) without interest at this point than to continue to participate in Social Security. I feel this way on moral grounds alone, but I believe that since I have 13 years to age 67 (I'm being honest there) it would be better for me to have the $75,000 or so than to wait for the piddling benefit that Social Security pays. Washington isn't competent to run Social Security or any other retirement plan. I find it offensive that I have been forced, essentially at gunpoint, to participate in the Social Security boondoggle.

Of course, Barack Obama would rather raise taxes than allow me to invest for my own retirement. I find the violence of social democratic ideology to be intolerable.

Enough people would likely take half their money in cash rather than participate in Washington's crummy Social Security Plan to make the terribly designed and conceptualized plan work. As a result, despite falling demographics the chumps, beggars and slaves who wish to continue to participate in Social Security would be subsidized by those who love freedom and prefer to think for themselves.

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