Should Social Security be Reformed to Include Personal Retirement Accounts – No

Instead of reforming it with personal accounts, or leaving it alone, I propose to completely replace it. While the social security system has been robbed and mismanaged to the point of turning it in to what is effectively a pyramid scheme, with 4 current workers paying into the system to pay the benefits of each retired or collecting person, there is a chance to replace it with a system that will work, and work for perpetuity. The idea derives much of its principle thought from the State of Alaska’s Permanent Fund. This 40 billion dollar fund was created with budget surpluses from oil revenue and has been wisely invested over its life span, to provide the citizens of the state a check each year of around 1000 dollars. This fundamental idea of a fund whose principle is never spent out, only the earnings, and that perpetually grows, could be established to create what would be both an economic breath of life to us in our old age, and a way to invest in the country and its infrastructure.

The first thing that would have to be done is create this fund. It could be seeded with some money from resource development, where by taxes on resources from federal lands are put into the fund. A board of directors for the management of the fund would need to be hired. Once the authority and nuts and bolts is figured out, the social security tax would have to be raised slightly to start investing in it. Say raise the amount withdrawn from our paychecks from 2 percent to 3. The old amount is still put into old social security, the new amount is put into new social security, which is not paying out anything yet.

Anyone entering the workforce after a decided on date (say the a year from the bills passage) would pay the opposite ration. The bulk of their social security tax (2, or what ever it is) would be paid to new Social Security , the 1 percent into old. There would be a date set, say 20 years, where the fund just collects these revenues, both from the social security tax and natural resources tax revenue, and doesn’t pay out anything, letting old social security do that. At the end of that 20 years, the money accumulated would be massive, especially with the earnings being reinvested completely. At that point, you could start to pay out benefits. Replace the old social security completely, and start putting the whole amount of tax revenue into the remaining “new” system. The key here is that each year, pay out only the earnings. Pay out 90% of the earnings (after administrative overhead) and put the remaining into the fund to grow.

The fund could also be required to invest a certain portion in America specifically. This would help with forming and growing businesses in the country, as well as getting infrastructure items built, like roads and bridges. Communities could apply for a loan basically, to build large items, like hydro electric dams, or road projects, and the fund could invest in them, letting them pay it back over 20-30 years, using sales tax as the return means, or fees from the use of the item. This would allow growth in the country to be controlled by our own investors instead of outside influences such as China and the Middle East.

In closing, there are many difficulties that would need to be overcome, but a system like this could be made to work, with the change over from old to new social security being the most difficult part of the equation. The change is needed though, because we must take care of our elderly, and eventually ourselves, if we expect to be able to excel earlier in life. Removing the worry of financial stability in our golden years is an important step towards improving productivity and reducing the costs of benefits on small businesses.