Should Social Security Allow An Option Of PrivatizationÂ
By Dannie McIntire
If you’ve read some of my previous columns you know I often rant over the growth of federal and state entailment programs. However, I do digress into considering Social Security to be an entitlement program. First, some background on the Social Security program.Â
The Social Security Act was passed during the administration Of President Roosevelt in 1935, establishing the Social Security Administration. The main purpose of the original Social Security Act was to pay financial benefits to retirees over age 65 based on a lifetime payroll tax. People would contribute to their own future economic security by contributing a portion of their work income through payroll tax deductions.Â
The Social Security tax is a flat-rate tax, everyone pays the same rate on the first of their earnings, up to a set maximum wage base, which for the year 2021 was $142,800. Half this tax is paid by the employee through payroll withholding. The other half is paid by the employer. So employees pay 6.2% of their wage earnings up to the maximum wage base, and employers also pay 6.2% of their employee’s wage earnings up to the maximum wage base, for a total of 12.4%.
I’m now retired and receiving monthly Social Security payments, the fruit of my labor for having worked almost 50 years, in which, and my employer(s), paid into Social Security on my behalf. So yes, I am prejudiced when I hear any discussion of cutting Social Security as a means of reducing the federal budget deficit. To me, and my fellow retirees, it is our money, we’ve already earned it.
In its most recent report, the board of trustees that oversees the Old-Age, Survivors and Disability Insurance (OASDI) program predicts Social Security reserves will be depleted in 2034. I believe we need to take a serious look at our current Social Security system and enact reforms to ensure this benefit for future retirees while protecting the benefits current retirees are receiving.Â
Although the privatizing of Social Security has been proposed in the past, our congress had never seriously entertained exploring that idea. Why? Â
One reason may be because the US Treasury is required by law to invest surplus Social Security funds in special Treasury bonds. A market rate of interest is paid to the trust funds on the bonds they hold, and when those bonds reach maturity or are needed to pay benefits, the Treasury redeems them.Â
In simpler terms, the surplus Social Security funds are invested in special government treasury bonds, and our government uses the resulting revenue to help pay for its various annual expenditures.
Now, remember, our federal government is currently operating on a budget deficit, so part of the money it is annually borrowing from other various sources is used to pay the interest or pay back the principal on the special Social Security bonds.
Whew! I feel like I’m watching a masterful magician doing the old shell game, which shell is the money actually under? Is there a better way to ensure our Social Security benefits? Â
If you have a social security number, you can go online and set up an account on the Social Security website, (https://www.ssa.gov), part of which details your lifetime earnings by year, and the total dollar amounts both you and your employer(s) have paid in Social Security taxes “on your accountâ€.
Consider this scenario, instead of paying those taxes into the general Social Security trust fund, what if the federal government had allowed those tax dollars to be deposited into a tax-free personal Social Security retirement account in my name.Â
Let’s assume those funds were still required to be invested in the same special treasury bonds, the federal government would still have access to the revenue, however, the interest earned on “my money†would be credited to “my accountâ€.Â
The average effective interest rate on these special treasury bonds over the last 49 years is approximately 6.9 percent. However, for my fictional account, let’s assume a more modest interest rate of 3 percent compounded annually. At the end of almost 50 years of my employers(s) and myself paying into the account, I’d potentially have a modest retirement nest egg of approximately $1,138,219.Â
Now, when I retired at the age of 66, let’s assume that I began withdrawing a modest sum of 4 percent a year as retirement income, I’d be receiving a “Social Security†retirement income of $45,578 a year for the next 25 years, much more than I am actually now receiving.Â
Many workers fail to keep in mind that Social Security was never meant to be a primary retirement plan. It was designed as a safety net. For the year 2019, the average Social Security benefit was only 29 percent above the federal poverty level.
It is your responsibility to plan for your retirement, keeping in mind that Social Security
Income should be thought of as a supplement to what you have saved and invested over your years of working. Yes, in today’s times saving for many is difficult, but learn to put something away, no matter how small, out of every pay, after a while you may be surprised that you don’t miss it and your savings are growing. Â
I believe any reform of the present Social Security system should allow an option for the contributor to privatize their social security account in order to maximize their retirement benefit; after all we earned it by working,Â
FOOTNOTE: Â The City-County Observer posted this article without bias or editing.
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