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JimVanMeerten (45.53)

Save Social Security

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July 13, 2010 – Comments (6)

I just attended my 45th high school reunion, Fort Lauderdale High School Class of 1965 -- Home of the Flying L's and one of the hot topics of conversation was Social Security (SSI) and when you should retire. I retired last September when I turned 62 and decided to take my reduced benefits. My kids had both graduated from college and were employed, my debt is low and I'd saved for retirement since I graduated from college. My Social Security statement showed I'd been paying in to the SSI fund since 1962 while I was still in high school and had contributions every year since then.

Yesterday an article by David Lightman called " A push to delay Social Security benefits until 70" caught my eye. The article, like most articles on Social Security tells of all the problems but offers few solutions except for pushing out your retirement date further and further. Well I've got some ideas.

The problem with both Social Security and Medicare is that they are not actuarially funded. Revenues and expenditures have no correlation to each other. Half of the US is of the opinion that SSI is a bad deal. They think that after all the years of paying in they will not get their money back. Come on guys, if that was the case why is it going broke?

I'm taking reduced payments and I still get all my money back in just 39 months. I think that's a pretty good deal for me but it's also the reason SSI is going broke. My solution in simple.

First separate the SSI and Medicare funds. Open a government sponsored IRA and a Health Saving Account (HSA) for everyone. Use the present method of funding deposits and invest the money in Treasury Inflation Protected Securities (TIPS). When you turn 65 you will get a payout from your Social Security IRA based on your accumulated balance in the amount of your Required Minimum Distribution (RMD) just like you get from your regular IRA. If you have medical expenses you send a claim into the HSA fund and you get reimbursed up to the amount you have funded. You get exactly what you paid for.

Should you die with a balance, that balance is forfeited to the fund and redistributed to the accounts of the surviving participants. This is the way it happens in the private sector pension funds why not in the public sector?

Sometimes the simplest solutions are the most practical ones? What do you think?

Jim Van Meerten is an investor who writes on investing here and on Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.

Disclosure: No positions in the stock mentioned at the time of publication

6 Comments – Post Your Own

#1) On July 13, 2010 at 11:56 AM, outoffocus (24.55) wrote:

They think that after all the years of paying in they will not get their money back. Come on guys, if that was the case why is it going broke?

Um...What?

First separate the SSI and Medicare funds. Open a government sponsored IRA and a Health Saving Account (HSA) for everyone.

Why a government sponsored IRA? Why can't I just take my 15%, put it into my own IRA, and invest it however I want?

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#2) On July 13, 2010 at 12:16 PM, Schmacko (91.92) wrote:

Your plan is basically George W. Bush's individual retirement account plan that everyone seemed to hate.  Not saying in principal it's a bad idea just saying it's been proposed before and failed miserably to gain any momentum.

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#3) On July 13, 2010 at 12:40 PM, FracturedVision (27.01) wrote:

Allow me to turn your title into a question: "Save Social Security?"

 In this case I would argue that you are correct that the simplest solution is the most practical - end social security.  Perhaps too many are afraid to admit failure, but few rarely look back and say "Well that didn't work, lets try something else." 

The politicians are afraid to make the necessary changes because it will end with immediate and recognizable losses - people living today that would lose the money they've already paid into the system. But that's ok.  I realize that you and I are on opposite ends of the hill - I'm in my mid-20s and you've reached retirement and are fully entitled to that which you've paid into the system, but I think it has to stop somewhere.  I think that Social Security should be wound down over the course of the next 20-25 years, prorating payments, until the government no longer has this burden to bear and the people are free to invest as they please.

 Your solution isn't as much of a solution as a speed bump, splitting the payment into separate funds just slows the inevitable. A single payer system would help ensure equality in pricing for medical care, and begin to level the exponential increases in medicare costs. It's a dangerous gamble to limit the coverage someone can get with your HSA, to the point where they can't afford that expensive life-saving operation.

Let me know what you think.

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#4) On July 13, 2010 at 1:11 PM, miteycasey (96.52) wrote:

If you get all your money back in 39 months what happens if you live longer than that?

I'm all for pushing it back to 72. 

reward the people who take care of their bodies and start saving the day they graduate.. 

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#5) On July 13, 2010 at 2:20 PM, EnigmaDude (96.57) wrote:

I'm just amazed that you actually went to your high school's 45th reunion!

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#6) On July 13, 2010 at 3:13 PM, uclayoda87 (29.88) wrote:

I doubt that politicians will take any proactive measure to change social security so it will likely have to fail when no more bail out measures are possible.  Pushing back the qualifying retirement age would be a reasonable start, but since older people vote more than younger people, there would have to be an altruistic change in the retirement age population for this to happen.

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