The extreme libertarian position is that Social Security is a huge Ponzi scheme and should be abolished immediately and completely. I differ in that I believe a true Ponzi scheme is at least voluntary for the investors. For almost 75 years, millions of people have had money removed from their pay totaling billions of dollars, with the implied, if somewhat shaky promise that it will be returned to them as retirement funding. I believe the social and economic disruption from a sudden termination of the “plan” would be catastrophic. I therefore propose the following steps:
1. Establish a credible Consumer Price Index based on the living needs of retirees: food, shelter, utilities, medical care, and clothing. Cost of living increases in benefits to be both determined and limited by this. (I suspect this might actually add to the cost of the system.)
2. No other changes for EXISTING retirees.
3. For everyone aged 55 or younger at the effective date of the appropriate legislation end the option of eligibility for retirement earlier than the full effective retirement age except in cases of medical necessity.
4. With the effective date of the appropriate legislation, retirement effective date for anyone aged 40 or younger would be life expectancy minus 15 years. For those born after the new system takes effect, retirement eligibility would be life expectancy at birth minus 15 years. (When Social Security began, five years was a normal retirement life expectancy.)
5. Allow an individual to opt out of the system at age 35, 40, 45, 50, and 55. To opt out, the individual would be paid the full amount of contributions to date in his or her choice of five or ten year government bonds at the prevailing rate of interest. Eligibility for any other benefits would be waived at opt-out. The individual could hold the bonds and roll them over as they matured or sell them at any time, but would be responsible for their own retirement in any case. (For years the argument has been, as Congress borrows from the “trust fund” that “we owe the money to ourselves”. Since much of what “we” owe is now to the Chinese, the Japanese, the Saudis, and anyone else who has bought large quantities of U.S. government bonds, this would return choice to the individual as to whether he or she wishes to entrust the government with retirement savings. This should, at least in theory, require Congress to take more seriously the levels of debt it is willing to incur, though I remain a bit skeptical that anything can really accomplish that, short of more frequent changes in the membership of Congress.)
6. Ultimately, this should allow a gradual phasing out of the current system, with all its complexity and bureaucracy. People who wish to do so could invest all or part of their retirement savings in government bonds, but would do so entirely by their own choice and would retain full control of those savings. The only control they would cede to the government would be of the creditworthiness of the bonds, which could be influenced by the fiscal responsibility – or lack thereof – of their representatives in Congress
I believe this system would return to the individual citizens increased control over their own financial destinies while reducing the cost of government by eliminating (gradually) a huge bureaucracy and spurring people to take a much more active interest in both their own financial affairs and in the spending policies of their government, while potentially raising their incomes by the 15.3% currently withheld for retirement benefits by the Federal government.