In a July 29 column, George Kennedy praised Social Security and offered several ways to improve it, if raising payroll taxes or directing the estate tax toward an over-burdened program sounds like a good idea to you. I offer what I feel is a much better approach, one that will eventually get the government out of the retirement business, allow people to save independently for the post-employment phase of their life and possibly provide a substantial nest egg they can leave to their heirs once they pass.
Social Security payments should still be an option for those over a certain age that are either already retired or have a short time left to provide their own retirement savings. These people have worked a full career with the government taking 6.2 percent of each paycheck and are entitled to the retirement they were promised. I am also not opposed to extending Social Security disability for some period of time, though not funded by a tax on workers' paychecks.
For younger people like myself, allow us to redirect that 6.2 percent into private retirement accounts that we control and own. Several court cases have determined you do not have a right to receive Social Security funds; your own retirement monies are a bit more difficult for the government to claim. Additionally, Social Security does not, to the best of my knowledge, allow for a lump sum disbursement of survivor benefits. Indeed, any money that one might have in the Social Security program that would be considered yours in the real world is not available to your heirs if they are not a spouse or dependent. Witness the numbers in Kennedy's article that show the average black man lives just five years past the age of 65. What could that hypothetical man's money have done if he could have passed the legacy of his work to his family? Imagine the changes that could occur in your heirs' lives if you could leave them enough money to have a down payment for a house, fund college educations for your grandchildren or endow your favorite charities.
The median income in the US is $25,149, according to the Census Bureau. An annual 6.2 percent of that would be $1,559, just a bit more than $100 per month. Putting that amount into a Roth IRA from age 21 until age 65 with an 8 percent return gives you a tax-free nest egg of $601,000, or about 43 years of the average Social Security benefit of $13,860 cited in Kennedy's column. The average yearly return after 44 years would be more than three times that average Social Security benefit, and it's tax-free. A 5 percent rate of return nets you almost a quarter-million dollars. To paraphrase the credit card commercial, what do you want in your wallet?
I remember the first time a 401k was pitched to me when working a part-time warehouse job while attending college. I found the possibility of losing the money I contributed was a horrible proposition and did not enroll in the 401k program. Luckily, my first post-college employer had a talented HR staff that helped me see beyond just the risk side of the investing equation.
Yes, nearly everyone's retirement accounts have taken a hit after the economic roller coaster of the past few years, but proper planning and the power of compound interest over decades can more than make up for those recent challenges.
John Schultz is chairman of the Boone County Libertarian Party and a resident of Columbia.