Click Here: <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Ponzi Schemes Let Me Out of Social Security by James Freeman Are you better off keeping and investing the money you make, or sending it to Washington and relying on the government to take care of you? It’s an easy call, right? You want to keep the money. You want control of your personal finances. And you’re not being selfish. It’s the basic lesson of the 20th century: Free people and free markets do better than big government and central planning. Most people have accepted that freedom works in general, but we seem to have trouble with the specifics. Take Social Security, for example. Given the choice, what sane person would forgo all the savings and investment opportunities in our economy and instead choose to contribute to a government program offering neither competitive returns nor a guaranteed payout? Nobody. Would any personal finance magazine recommend Social Security if the program were voluntary? Not a chance. So why is everyone debating how to save Social Security? The question is how to kill it, without breaking the promises already made. I think part of the problem is that political reporters, not financial reporters, always cover Social Security. If journalists evaluated it as an investment vehicle, they’d be telling us to run as fast as we can away from this stinker. To be clear, I absolutely think the government should take care of the people due to receive benefits. I also think it’s essential that we shut this thing down at the earliest possible opportunity. And there’s a way to do both. First of all, let’s get a few things straight. The politicians love to talk about preserving the Social Security "trust fund." In fact, the trust fund does not exist, at least not in the way a reasonable person would define the term. The "trust fund" is a large pile of IOUs from the federal government to the Social Security system. The government has basically said, "I owe myself trillions of dollars to provide the benefits that I have promised." This is not cash - it’s a promise to increase taxes or run deficits to fulfill the promises already made. Secondly, although politicians like to portray Social Security as a government-run retirement benefits program, it is actually a tax. The funds deducted from your salary are not deposited in an account with your name on it. Instead, the money removed from your paycheck on Friday is sent to a current beneficiary on Monday. You may have heard critics refer to Social Security as a legalized Ponzi scheme. That’s not just rhetoric. The system literally uses the money from new contributors to pay off previous investors. And you do not own the money you have "put away" in Social Security. Unlike a private pension plan, benefits are not guaranteed. So whether you actually receive money in retirement is at the discretion of whoever happens to hold elected office at that moment. Before long, those elected officials will be under intense pressure to break Social Security’s promises. In 2013, America’s 77 million baby boomers will begin retiring. In 2015, the system will begin paying out more than it takes in (sooner if the economy doesn’t continue it’s fantastic growth). This is not a matter of debate. The math just doesn’t work anymore. In 1945, right before the baby boom, there were 42 workers paying taxes for each retired person collecting benefits. Today there are a little more than three workers for each beneficiary. By 2030 - when almost all the boomers will have retired - the ratio will be two to one. Basically, if you’re a Generation Xer or younger, you will personally be responsible for providing a retired person’s entire benefits for six months of every year. We’ve been blessed with a prosperous society and great medical technology so people can live much longer in retirement. Now let’s recognize that the game has changed and improve our retirement financing while we have a few years before the crisis. How do you let young people out of this flawed system without sentencing the baby boomers to poverty in old age? I think the best plan out there is the one that I described in this space in 1998: a proposal from Marshall Carter’s 1996 book, Promises to Keep. He wants to create "Personal Social Security Accounts" (PSSAs). Every person currently enrolled in Social Security would have the option to switch to a PSSA or to remain in the current system. All new workers entering the labor force would be given PSSAs instead of Social Security. And every current retiree would continue to receive Social Security benefits. Here's how it works: PSSAs would be mandatory savings accounts controlled by you, not by politicians. Instead of sending 10.7% of your salary each month to Washington in the form of Social Security taxes, your employer would only send half that amount to the government and then deposit the other half in your account. You would be free to invest the money in stocks, bonds, or CDs through a government-licensed broker or banker. Your PSSA would be similar to an IRA in that your money would grow tax-free, but you wouldn't be able to withdraw any of the funds before retirement. Basically, Washington cuts your retirement taxes in half. In return, you accept the responsibility for taking care of yourself in old age. You give up traditional Social Security benefits, but you also get the freedom to invest on your own. The stock market delivers a long-term annual return of better than 10%. Social Security will give today’s younger generations about one percent - assuming the system doesn't collapse. Since the government will continue to receive half of your payroll deduction, without having to provide you with benefits, the economics improve for the current system. To finance retirement for boomers who choose to stay in the present system, the Treasury Department will issue long-term bonds. As the government continues to receive taxes from more and more workers who are never due to receive benefits, it gradually pays back the money it borrowed to take care of the boomers. So today's old folks continue to receive their monthly checks, the government keeps its promise to the baby boomers, and younger workers get financial freedom. They’ll build much greater wealth for retirement when they’re able to pursue competitive returns. Don’t save Social Security. Save the people who need it. And let the rest of us have our freedom. USA Today, May 15, 2000 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. 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