Libertarianism 101: Terminate Social Security

President Bush's proposal to privatize part of social security is a plan that, unfortunately, has pretty much been killed by Congress. It was killed because Congressmen and Senators want to continue to have the social security "contributions" to spend on vote buying schemes. Surprising? Hardly. Were I a member of Congress, I probably would have rejected the idea, too ... but for a different reason ... the proposal didn't go far enough.

I believe Social Security should be completely abolished. The Federal Government does very few things with any level of adequacy, let alone excellence. The last thing I want them to do is to take my money, invest it for me, and then not be obligated to ever give it back. Assuming I live long enough to receive benefits, the rate of return is about the equivalent of a passbook savings account. In addition to being low, this return must also be viewed as risky. First, the plan is subject to change from future political actions. Who's to say that Congress won't change the rules? Second, to ensure the long-term solvency of the existing program, something will have to be done. And, depending upon where you are in your life, it could mean an increase in "contributions", a reduction in benefits, or both. Some great plan, huh?

Regardless of what you may think about the government providing some type of safety net for the truly needy (see my previous post on Government Welfare or Private Charity), don't we all want to be in control of our own financial well-being? Some would argue that not everyone is able to manage their own finances. To them I say, well, that's the responsibility that comes along with freedom. If you can't manage it, that's what spouses or children or friends or PROFESSIONAL FINANCIAL MANAGERS(!!) are for! How much intelligence does it take to open an online trading account (I use Ameritrade), set up an automatic monthly withdrawal from your checking account, and pick four or five mutual funds to invest in? The Internet is just crawling with sources of information from Yahoo! Finance to MSN's MoneyCentral. A high school student should be able to realize at least a 10% return. In fact, many high school students have class projects where they invest "money" in the market. And, if my son's class is any indication, they do pretty well.

Another common complaint is that transition from the current plan to another plan would be too complicated or too costly or too this or too that. And I agree that this presents a problem. The President's proposal was an attempt, I believe, to address some of these transition issues. Here's my plan for transition to a private system ... and remember, I'm an engineer, not a financial analyst.

1. Current Recipients

Much like winning the lottery, allow current recipients to take either a lump sum payment or continue to receive their current benefits. Emphasize that future benefits may be changed (which is, of course, the case now). The lump sum amount would be based upon the present value of the payments a recipient would be expected to receive over their expected lifetime (this is where age, gender, and other actuary-type statistics would come into play).

2. Current Payees

Give those of us still working and contributing to the system the ability to opt out. The opt out would only include the portion that is directly taken out of our paychecks. Employers would be required to continue to make their portion of the contribution (which we all know comes out of our paycheck one way or another). When we "opt outs" reach retirement age, we'll get the same choice as the current recipients. We can get a lump sum or receive a monthly payment. The amount we receive would be based upon the amount we paid in before we "opted out."

For those who don't opt out ... they continue to participate until they retire and then get the lump sum/monthly payment option.

3. Youngsters Who Haven't Started Working

These folks won't even be part of the system. They're on their own ... with one caveat. As more and more people enter the workforce that won't be making their "contributions" and more and more people are receiving benefits there will, obviously, be a shortfall. I believe A LOT of folks will take the lump sum option as soon as they are able to because they can earn A LOT more investing it on their own. So, some of the shortfall will be made up this way. In addition, for those entering the workforce, their employers will still make some type of "contribution." How much? I don't know ... like I said, I'm not a finance guy. I would expect, however, that this amount would gradually decline and completely disappear once a sufficient surplus has been built up which is sufficient to pay all anticipated benefits. This, of course, also assumes that Congress stops spending the money contributed into the system and allows this to grow. Otherwise, this continued employer "contribution" would be at a higher rate and would probably need to continue until there were no more retirees receiving benefits.

Is this workable? Hell, how would I know? Is it better than what we've got now? How could it not be?"