Jed Graham: A Well-tailored Safety Net

How Does It Work?

The most significant idea put forward is to reshape retirement benefits so that they pay-out more as you increase with age.

Strengths

This plan is refreshing compared to the traditional Washington mindset of “raise the price/shrink the box.” It changes the system to fix a problem rather than changing the price to save the system.

The plan restructures the benefits formula to provide increasing benefits as the retiree grows older. This change means benefits would be reduced from the current levels in the first year of retirement. Benefits would increase over the course of retirement to higher levels than today for those who live to advanced age. This provides more incentive to work longer.

The plan introduces a personal account which will encourage people to work longer. This idea is consistent with what we have suggested. His version is more wide-spread where as our plan is much more highly concentrated and targeted to specific groups.

The plan also incorporates a way to charge for survivor benefits.

This plan actually attempts to fix a major problem within Social Security. People retire too soon. In 2009, 73% of all first time beneficiaries collected before full retirement age.

Weaknesses

The primary weakness with this plan is the age of the concept.  The financial imbalances in Social Security have exploded over the past 5 years.

The plan seeks to increase the mandate of Social Security at a time when the system cannot complete its basic task : provide security. 81% of Americans believe that Social Security is heading for a crisis without a major change. We need to fix the system before we expand it.

Distortions

“Under both options, “A Well-Tailored Safety Net” would offset additional progressive benefit cuts with accumulations in mandatory add-on savings accounts invested in Treasuries. Average earners would face a 1% tax, deposited into their accounts.”

Using a supplementary tax to fund a private account when you are cutting benefits looks like a tax increase. What is the difference between this idea and keeping benefits the same and just raising the tax. It is a tax increase. This is just a more expensive way to travel to the same end.

Other Reviews