An earlier blog here made the case for elimination of Social Security as a federal program. The primary argument against elimination of what many, myself included, see as a governmental Ponzi scheme is that the "little guy" should not be exposed to the vagaries of the stock market. Another argument is that people would not invest the money.
Let's look at the first objection. Since 1871, in any given consecutive five-year period (there have been 139 of them), the market has been up 129 times and down only 10. As you can see from the chart below, that means that nearly 94 percent of the time money invested in the U.S. stock market has made a positive return. I did not run the numbers on 15-year, 25-year or 30-year periods, but it is easy to see that in given 30-year periods (a typical working lifetime in the U.S.) stocks would nearly always have a positive return.
Total 5-year periods 139
Total Positive 5-year 129
Total Negative 5-year 10
Negative 5-years periods 7.19%
Positive 5-year periods 92.81%
Source: Robert Shiller and Yahoo Finance
But, some would say, "That's all well and good unless you hit one of the down periods." Fair enough, but that logic fails to account for the other 25 years of a 30-year career. If in that 30-year working lifetime I have accumulated $500,000 and the year I retire it drops by the worst 5-year period since 1871 (1937-1941), I still have 25 years of almost continuous positive growth, yielding far more than a 7 percent drop in that given period.
Compare the worst drop, 1937-1941, with the best 5-year period, 1924-1928, when the gain was 29.82 percent. Who in his right mind would not trade a 7 percent drop for a 30 percent gain? And remember, unlike the Social Security plan, all those dollars can be inherited by your loved ones.
Over the 139 years since 1871, the average gain has been 10.59 percent. If each worker averaged monthly deposits of $300 over a 30-year working lifetime (less in the beginning and more as income rises), he would accrue $770,000 and be able to withdraw $27,000 per year for 30 years. According to Smart Money, the average retirement today is 20 years, up from 8.1 years in 1950. One retirement plan would roll current Social Security, IRAs, 403b plans, KEOGH, SEPT and the other myriad plans into one coherent plan for a comfortable retirement.
Should that retiree die before that 30-year period ended, his family could receive the rest. Incentives to roll remainders into heirs' accounts would make the retirements of later generations even more comfortable.
A government system that guaranteed a monthly minimum payment should the averages work against any individual worker would cost the economy much less that we are now paying--given that since Lyndon Johnson the Social Security Trust has been raided every year.
Such a system would be much easier (and less expensive) to administer. Just as the current system automatically deducts dollars from every paycheck (with certain exceptions), the Worker Retirement System could do the same. Workers could (and should) elect to increase their deductions to maximize their fund at retirement.
Finally, there are some real benefits to the U.S. economy in general. All those dollars pouring into CDs, stocks, bonds and other investment vehicles would provide a huge pool of liquidity for use in building America's businesses.
And finally (finally really this time), all taxes paid as these dollars are withdrawn should by statute be required to fund federal budget reduction. A goodly portion of the current federal debt is money squandered from the Social Security Trust (yes, it is neither "secure" nor "trusted").
All that is required for such a system is will.
