Higher Taxes Or Lower Benefits Are Out:
Today Social Security reform offers two choices: higher taxes or lower benefits. Neither addresses the core problem with Social Security, which is what you get for what you give. It has a terrible economic return. It is impossible to fix poor returns with lower returns. At this point, Social Security is like spending a quarter to buy a dime. The solution coming from DC to that problem is for us to convince our kids to spend a quarter to buy a nickel.
What Is In:
The structure of Social Security needs to change. The system is highly inefficient, see our blog on the Post Office Of The Investment world. The inefficiency stems from a one-size fits all approach.
These are examples. Social Security should not subsidize divorce. The country should ask whether a retirement system is really the right place to deal with the needs of those 18 and under.
We invite people to suggest new ideas. It is however our opinion that you can't get people to spend a quarter to buy a nickle over a long period of time.
How Does Social Security Affect Me?
Today, the largest expense that a worker makes in retirement planning has a negative return for most workers entering the system. It should surprise no one that more people are arriving at retirement near poverty. Social Security was suppose to supplement outside savings. The high cost of Social Security now makes outside savings much more difficult.
Our Doubts About Privatization
Generally we are concerned about the cost of these plans, and the openness to the voters about those costs. We are skeptical about privatization because it changes the nature of Social Security. It changes Social Security from something- insurance - that is not readily available in the private sector to something - savings - which is abundantly available in the private sector. What is not clear in any of these plans is why anyone should be forced to buy the less efficient version of what they already have.
Insurance and savings go together. Savings provides income on which a retiree lives. The insurance provides the retiree some measure of certainty that they will not outlive their assets. Replacing insurance in this equation with more savings isn't necessarily wise.