Wednesday, March 11, 2020

Boomers: You Did It To Yourselves

Many of you supported the scare tactics of Democratic Party leaders such as Chuck Schumer, Nancy Pelosi and Joe Biden in your 20s, 30s, 40s, and 50s. You heartily voted for them when they said they would “never change or touch Social Security!” You loudly cheered and applauded when Democrats and the AARP ran ads in the 1980s and 1990s showing mean old Republicans pushing Granny in her wheelchair off a cliff.
You started to become eligible for full Social Security benefits in 2012. You can look forward to getting a monthly check of around $3,000 if you contributed the maximum amount each month either as a self-employed person or were matched by your employer.
The average SS benefit Boomers will receive is $1503 per month in 2020. The last Boomer will become eligible in 2031.
What if you had had the option at age 18 to put the Old Age part of your payroll tax into a self-directed investment fund that built up equity over time?
Setting aside the Survivor (S) and Disability Insurance (DI) part of OASDI for a moment, had you been able to put the maximum amount into a private investment account annually since 1978,  you would have paid in $466,000 in combined employee/employer (or fully by self-employed) taxes over the course of your working career. With interest over time at a market average of 7%, that $466,000 in withholdings would be worth $2,186,146 today. If your spouse worked full-time and reached maximum income thresholds each year, your combined assets today could be double that or well-over $4 million in Social Security funds alone.
A middle-income couple could have retired today with close to $2 million in SS assets as well.
Exxon is paying a 7% dividend payout today. If your entire SS portfolio consisted solely of Exxon stock, you could take home close to $140,000 in your golden age retirement years and never touch the principal underlying that investment, far in excess of the $36,000 annually you can get under the current SS system.
On top of that, you would have had inheritable assets to pass along at death at any age to your spouse or to your children. There is no lump sum payment from your Social Security “contributions” to your survivors, ever. You pay the flat tax of OASDI; you get some or most of it back in retirement if you are lucky, and that is it.
The current SS system has adverse civil rights and equality issues deeply embedded in it.  If an African-American male was born between 1950 and 1970, his life expectancy at birth was around 61 years. He would have been far more likely to never get $1 dollar in SS benefits, and certainly not recoup his full “investment” into SS during retirement, due to lower expected longevity.
How fair is that?
Forced contributions into a private investment account for each working person should satisfy partisans on both extremes. Socialists should be happy that everyone gets very generous coverage during retirement. Capitalists should be happy to see a real investment fund account set up for each person made directly from the fruit of their own labors.
The biggest drawback is that some generation has to sacrifice to help with the transition.
Why not us Boomers?
Once anyone receives the maximum Social Security amount in retirement, now roughly $36,000/year, they will be frozen at that level for the rest of their lives. In return, the various earnings taxes on Social Security will be eliminated since they generate so little in tax revenue to begin with — $37 billion or 1% of all revenue. People entering the workforce would see their payroll tax to SS diminish over time to support the remaining Boomers on retirement and be allowed to start diverting increasing percentages of their payroll tax into individual accounts.
Raise the retirement age to 70 by 2030. It has to be done.
Our parents and grandparents sacrificed a lot to save us from the Nazis in WWII. Would it really be too much if Boomers became known as the “Generation that Made Social Security Really and Truly Great…For the First Time?”
(first published in North State Journal 3/11/20)

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