Why Don't They Just Create Individual Social Security Accounts?
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“In this podcast, Rusty explains to someone who favors Social Security benefits being based on individual contributions to the program, why that isn’t really a good idea. That’s because SS benefits based only on contributions might very well run out before the person dies, likely causing many people to live their later years of life in poverty.”
Dear Rusty: Regarding Social Security’s financial issues, three people contributing to Social Security for every one beneficiary sounds to me like a surplus. If they had given workers their own accounts, similar to a 401k, where they could manage their own money, it would have worked out more favorably for retirees. President George W Bush suggested these changes, but it was shot down by Congress.
The average worker now pays a 6.2% Social Security tax. If the government had bumped it up to say 7%, I don’t believe that me or anyone else would have cried too hard. There are ways of correcting this before the SS reserves are depleted and, hopefully, Congress will address Social Security’s financing soon. Signed: Skeptical Senior
Rusty’s answer in brief
Individual accounts sound appealing, but they would put retirees at risk. Most people get back everything they paid in payroll taxes within about five years of collecting, and today’s system keeps paying for life. Separate investment accounts could run dry for people who live a long time, and their purpose, reducing poverty in old age, would suffer. President Bush’s 2005 plan stalled over its transition cost and market risk.
A small payroll tax increase would help but would not solve the funding gap on its own. AMAC and the AMAC Foundation have developed a reform plan for Congress and are promoting it in Washington.
This recording presents the viewpoints of the AMAC Foundation’s Social Security Advisory Staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA and the AMAC Foundation are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. To request additional information, contact our Advisory Staff at 888-750-2622, or email us at SSAdvisor@AmacFoundation.org.