Excepting its role as provider of income to the pre-retirement disabled and minor children/homemaker-spouses of those who die before retirement age, Social Security as we know it should be phased out in favor of a national retirement plan that invests in supporting growth. The national retirement plan should be invested by the Social Security Administration in bonds/federal debt repayment (58%) until all federal debt is erased and in all publicly-traded American securities (42%), up to a maximum of 15% of the total market capitalization for all stocks and with the understanding that the government will waive any voting rights earned through its holdings. In periods of zero federal debt, the SSA may use the resulting surplus funds to purchase investment-grade American corporate bonds and/or foreign debt, either through direct loans to foreign governments or through their publicly-traded bonds, though never dealing with those countries on the list of rogue nations as laid out in the attachment below. This plan should give us a return at least five times higher than the current return on SS funds.
The actual payout for retirees should be based on total lifetime wages in relation to aggregate figures for the same period. And because all workers would participate, all would benefit: the annual maximum payout cap would be very high at $96,000 (2005 dollars and revised annually not by the CPI but by the growth in wages), a step that would help ensure national consensus. The only steps necessary to ensure that the system be progressive, would be the inclusion of a sliding scale of percentage of pre-retirement income and the continuance of income tax on the benefits. Income up to or equal to the national average for the bottom quintile (as of year of retirement) would need to be funded at 100% of pre-retirement income; the second at 75%; the middle at 50%; the fourth quintile at 25%; all income above the average for the fourth quintile at 20%, respecting the maximum annual payout as above. The rule for determining the basis salary would be simple: the sum of all wages, expressed in dollars of the retiree's last full calendar year of work, divided by 49 (maximum number of years in adult workforce). After retirement, the determined amount of pay-out should be increased automatically each year by the trailing CPI (minus the energy component) minus 0.2 percentage points. There should be no "death payment": seeing to one's burial and estate should be the responsibility of the retiree and his or her family.
As for homemakers, the legislation must set an annual equivalent salary basis for homemakers, as well as conditions for qualifying as such. For example, a homemaker might receive credit for his/her work for the period from nine months prior to the birth of the eldest child until the 18th birthday of the youngest child. At a minimum, the pay-equivalence should be equal to the average national SS pay-out for the period in question.
The retirement age must be dynamic, a function of estimated life-expectancy at birth as determined by the CDC. In the coming decades, life-expectancy might well reach triple digits and we simply can’t afford to have people working less than half their lifetimes. It is an economic impossibility. For example, an American born in 1985 can expect to live to the age of about 75 and retire at 67. Using this as the basis, the retirement age should thus rise to 71 1/2 for people born in or after the year the life-expectancy raises to 80, 76 for 85, etc. Obviously, this would also affect the above-mentioned divisor for determining pay-outs, raising it, for example, to 50 for someone retiring at 68. Finally, to encourage but not force people to stay in the workforce, any income earned after the retirement age will be credited towards retirement without changing the divisor.
Finally, as for funding, as stated above there should be no separate SS tax, but rather an annual set-aside based on current funds in the SS pool and long-term averages on returns v. its current and future obligations. By doing this on an annual basis, we assure proper funding on the principle of 'pay yourself first' with respect to long-term income security. The SSA must advise the executive each year on its projected need for the coming year's budget in order to meet their goals, based on dispassionate, non-political analyses of investment performance and the relevant demographics, as agreed with the GAO, OMB and CBO.
