As our government sits around the table trying to figure out how to handle our debt ceiling issues, so many topics have been thrown into the mix spanning from government cuts to social program cuts, and so many more that we cannot even discuss in this short post. Here are my two cents in regards to Social Security...
I actually believe that social security should function like an insurance policy, something similar to how your home or auto insurance is handled. Let me clarify... In the case of homeowners insurance we pay premiums yearly to insure the safety of our homes and personal financial security. In the lucky outcome that we do not need to use that insurance we should thank our lucky stars, although all that money was spent and is not recuperable. Do we complain that we spent all that money and got nothing back? Yes, we do, and I myself have been guilty of this in the past as well. The truth is that we pay for the security of knowing we are covered in the event of tragedy and should be thankful if we never need to make a claim as tragedy to our home and family in many cases can be far greater than the premiums paid over the years.
Now getting back to my point. Why shouldn't Social Security work in the same fashion as an insurance policy? Why not use it as an emergency benefit in the event of financial need in our elderly years. I know Americans in general have had difficulties saving money in the past and I am sure that to some extent this bad habit will continue going forward. Hence the need for a government mandated Social Security program. We should continue to pay into Social Security as we have done in the past. The huge difference from today's program is that at the time of eligibility payouts of Social Security funds should be based on your income levels for that particular year, or in more clear terms, your actual needs. Do we all need to collect our Social Security benefits? I do not believe so. Let me give an example. I know some people that are of Social Security age and they are very financially sound. They have several hundreds of thousands of dollars a year in dividend income, other miscellaneous income, and very little debt if any at all. I know this is not the norm but why not start here. In the case of these people, the absence of their Social Security benefits would not affect their lifestyle in any form. In fact I would propose that payouts to these people are not made at all so long as their income situation continues to be strong. In return, those not receiving their Social Security benefits should become eligible for a Federal Tax Credit in the amount of what their Social Security payment should have been for that year. In this case the government would not have to make the payout out of the Social Security funds, retaining the money for more needy individuals and further strengthening the Social Security till. In the case of the tax credit the net effect to the government should be just a small percentage of what they would have had to dole out if in fact the Social Security payment was distributed. Lets look at an example...
My friend makes over $200k per year in dividend income and has additional rental income as well. I would say that he is doing fine and no matter what his Social Security benefit is, it probably does not make a difference in the way he lives. I believe that he takes in somewhere around $18k per year in Social Security. Lets assume that the U.S Government does not disburse these funds because of my friend's income level being strong enough to demonstrate that Social Security benefits are not needed at this time. My friend would get a Federal Tax Credit for $18k and the U.S Government and Social Security Fund would be left untapped in regards to my friends benefits. Without deferring to the CBO or a tax accountant, my kindergarten accounting leads me to believe that this tax credit would end up resulting in a very small tax revenue decrease for the U.S. government, but at the same time improving the solvency of the Social Security Program.
Of course this is just a broad based idea, but I believe it could have some merit and worthy of at the very least a simple study. In order for this program to work it could not be an across the board application, but better yet specifics would need to be considered. Unlike the present commentary that those who make over $250k per year are wealthy, I would say that whether one needs or does not need their Social Security benefits depends on many factors, including but not limited to where one lives, historical income/expense ratios, and surely many other factors as well. The bottom line is that there are many people out there that do not need their benefits today. If tomorrow brings a different scenario then those benefits can be kicked back into service all over again, as benefits are not sacrificed or redistributed, but just held in abeyance until needed in the future if at all. In fact it would probably work best if the decision to take or not take your benefits was based on previous years income / financial stability so that the benefits would always be ahead of the curve if actually needed.
In the end if financially solid individuals do not need the money why take it? Leave it in the system to create more strength, get a tax credit of some sort, and help to create a better, stronger system so that our future generations can enjoy the same security that we have today. Of course I would also recommend that the government stop considering Social Security funds as fungible with other government money.
Once again, this is just my opinion as to how we can get closer to resolving our Social Security problems. Is it perfect, far from it. However it is simple and easy to implement and would most likely work better than what we have in place today. Please feel free to comment and offer suggestions.
Sincerely,
TraderJive
Contact me via Twitter: @TraderJive
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