by Rod D. Martin
January 29, 1998
President Clinton’s State of the Union attempt to deal with Social Security is admirable, if a tad disingenuous. While failing to point out that the great budget surplus of 1998 exists only by raiding Social Security’s coffers in the first place, the President did at least address the issue.
Clinton’s solution is more of the same: throw money at the problem. But Social Security is not a problem that money can fix.
Social Security is not at all what it appears to be. People are told that they pay into a “trust fund” which will provide for them in old age, but of course this is lie: whatever monies Social Security taxes take in are spent immediately, both on the program itself and on other federal programs as well. This should be obvious. If your money was really in a trust fund, there would be no issue as to whether it would be there when you retired.
Your Social Security “investment” presently earns a 2.2 percent return. You would earn more with a passbook savings account; adjusted for inflation, you will lose money. Meanwhile, the government will use your retirement savings to fund $15,000 hammers and NEA grants for people who dip crucifixes in urine. If your private fund-manager tried this, he would go to jail.
If the President really wanted to set things right — instead of merely distract America from his latest scandal, what some wag called “Tailgate” — he would. And anyone who owns an IRA knows how.
The solution is simple: privatize the system. Do that, and even people earning just minimum wage could — thanks to compound interest — retire millionaires.
Suppose you are 20 years old and earning $10,000 a year. You and your employer are paying $1,240 a year in Social Security taxes. That’s 12.4 percent of your hard-earned income, for benefits that you will likely never see.
Suppose instead you could invest that same $1,240, as well as an additional $2.50 a week. Assuming a long-term return on your investments of 8 percent a year, by the time you reached 65, your portfolio would be worth $1.3 million. If you work until age 70, it jumps all the way to $2 million.
Now let’s adjust this for inflation, assuming a historically reasonable 4 percent long-term rate. Your portfolio of $1.3 million after 45 years would be closer to $230,000. That’s still a larger nest egg than most working Americans even dream of. With that amount of capital, you could purchase an annuity at age 65 that would give you $18,256 a year (in today’s dollars) during your retirement years.
Note that this $18,256 is almost double the $10,000 annual income we assumed at the beginning. Pick an income any income, save a proportionate amount for your retirement, and under our private system you will retire on almost double.
The current system has given us a nation full of young people who can’t afford to save and old people who can’t afford to eat. Privatization, by contrast, would utterly eradicate poverty among the old, resolve most of the problems in our health care system, and allow people to look forward to their futures with excitement and hope.
State monopolies didn’t work in Russia, and they don’t work here. The President has called for town meetings to discuss this issue: this is what we should tell him. It’s time for America to take its money back, quit engaging in Ponzi schemes, and stop robbing the widow and the fatherless.