Necessary Roughness

Reuters reports that the first U.S. baby boomer, born in 1946, has filed to receive her Social Security benefits at age 62.

Social Security Commissioner Michael Astrue said the agency is bracing for some 80 million Americans to apply for retirement benefits over the next two decades.

I am fairly certain that my family is not going to see a dime from Social Security when and if I hit 70. The rate of people drawing from the Social Security (or the General Fund) will increase until the replacement-only birth rate catches up in 50-60 years. Immigrants who draw more on the fund than they paid in will make the problem worse.

It was a terrible promise to make, reducing the incentive to save, circumventing the Constitution by giving the money to the states for redistribution, and serving in perpetuity as a foil for elections. Threatening our “seasoned citizens” with the loss of Social Security has kept liberal Democrats and Republicans in office and has made a ton of money for the AARP.

The retirement age for those born after 1960 is 67. I think it will go up, so let’s assume 70 for those, say, 1965 and younger. That gives people about 30 years notice to start saving for their retirement if they haven’t already. The government should come clean and say, look, you weren’t getting this money any how, we’re not going to promise you any benefits any more. You’re still going to pay until the promise FDR made expires for those born 1964 and younger, but now we’re going to be honest about it. Retirements would be funded with 401(k) and profit sharing accounts already offered to even McDonald’s and Wal-Mart employees.

Next, we maintain the promise for those people who actually expected the promise to be kept. As people assume room temperature, the program will start to save money. The FICA rate can then be reduced, which will make hiring employees and entrepreneurship cheaper. The current FICA rate is 7.65% for employer and employee each, unless one is self-employed, where they get hit with 15.30%. Ouch.

There are those who are on Social Security disability. Social Security disability benefits are revoked when a person makes around $900/month. If one makes $800/month, they collect somewhere between $979 and $1646 in 2007, for a total of $1779 to $2446 a month. Make $900/month, and that’s what you get. This is a terrible disincentive to work.

I think at first for those who were promised disability, we make the benefit a guaranteed floor. Make $900 a month, you keep it, but it comes out of your check from the government. If you make more than the floor, you don’t take the hit for passing the floor; you just don’t get a check from the government. The floor would be lower than the current benefit in order to pay for it. We have to let those who can work, work. Finally, we privatize the insurance program and subject it to multiple-supplier competition, which will cut its cost and finally get to a point where we aren’t violating the spirit of the Constitution.

These ideas aren’t original, but this is the first place I’ve seen them all together. It isn’t perfect, but it’s a lot better than throwing good money in after bad. It tries to keep the promises we made, because we owe it to the people who believed them. I know the Democratic party would lose a big lobbying block, but it would be worth it.