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LETTER: An alternative to Social Security

Thursday, August 12, 2010 | 5:26 p.m. CDT; updated 7:38 p.m. CDT, Thursday, August 12, 2010

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.


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Comments

Ellis Smith August 12, 2010 | 8:41 p.m.

Agreed.

Of course allowing that would be to admit that Americans aren't stupid and profligate, are able to intelligently plan for their future, and that Americans can think for themselves, rather than having the nanny state do their thinking for them.

The nanny state's batting average isn't really all that great. :)

(Report Comment)
Carlos Sanchez August 13, 2010 | 6:43 a.m.

This is fine for those who are able to work who do not suffer from grave disabilities whether physical or mental in nature. What do you suppose happens to those latter mentioned above? Not always should everything related to the latter above be sloughed off or onto the Private 501c3 types of charities as some Libertarians suggest happen especially now that we have the ADA and Disabled Advocates working diligently to bring ADA more into the mainstream of society. Some might be able to work with a disability but a lot cannot. This issue is far bigger that just where a working man or woman's pay check goes. It is wide spread issue with huge repercussions.

The idea looks great on paper and yes some have gone that way but for the majority of the citizens you would have to have it enforced upon them much like prohibition, segregation or this new National Health Care Bill. Would that be fair?

My next question might be here is would Libertarians if elected into office do something of the latter nature which could be looked at as just another government intrusion into their lives? Is that what citizens want is more of the same?

I like the Libertarian idea of smaller government but I do not always agree with their after the fact plans. It tends to leave out hundreds of millions of the disenfranchised in the nation itself. That is just not acceptable to me and apparently a lot of others across this nation or the Libertarians would be taken more seriously as a party of change.

(Report Comment)
Allan Sharrock August 14, 2010 | 3:50 p.m.

Excellent story John. I think another idea may be to have people invest in the TSP program which is the same thing government employees get. This way we would be certain the feds don't steal from it like they are with SS.

(Report Comment)

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