The proposed use of personal savings accounts for Social Security tax investment fundamentally changes what Social Security was meant to provide.
It was meant to be a minimum guaranteed platform of financial security in old age. If everyone could and would save a material amount of their lifetime earnings, investing in a disciplined diversified manner, we wouldn't need Social Security. But the reality is, that's never going to happen. The poor, non-earners and the profligate simply aren't up to the challenge. For these folks, an industrialized nation needs an old-age pension. Social Security must provide the basic necessities for survival for a majority of Americans.
Personal savings accounts are a sleightof-hand that won't guarantee this will happen. Suggesting the taxpayer invest a portion of his or her Social Security taxes to potentially improve the amount of benefits reflects a transfer mechanism adopted by most employers over the past couple of decades. The growth of the "save-it-yourself" 401(k) plan and simultaneously diminishing availability of actual pensions has shifted the burden of adequate retirement security from the employer to the employee. It lowers the employer's financial obligations, but if the employee screws up the investments Ã la Enron, oh, well.
Return to the basics-don't pass the buck. Social Security was established as an old-age safety net following a Depression that devastated all but the most financially secure households. It has morphed into a cost-of-living-adjusted pension plan, death benefit insurance and disability benefits program. Benefits are payable regardless of financial necessity. We should consider means testing for benefits and taxation. There are wealthy citizens who use Social Security benefits to pay for expensive travel or greens fees. Wellheeled widows are using Social Security survivor's benefits to pay expensive private school tuition for their children.
Some may not think means testing is fair to the affluent who have paid their Social Security taxes over the years. But there are many taxes we pay to benefit the most vulnerable of us, but not ourselves. It has long been the price for supporting and living in a humane democracy.
Eliminate the $255 burial benefit and save about a half-billion dollars. Again, it's a throwback to the 1930s in amount and concept, a time when so many could not even afford to bury their dead, as graphically depicted in "The Grapes of Wrath." Encourage the use of IRAs by eliminating complicated rules for eligibility. If you work and want to contribute to a deductible IRA, you should be allowed to. What is the difference between having someone fund an IRA of their choice or investing their Social Security taxes? By encouraging IRAs, we combine an adequate, guaranteed pension with personally controlled retirement assets.
Medicaid guarantees health care for the aged who have no other resources. Social Security should be the same kind of guarantee. We can afford this. We can't afford the continued expansion of entitlement programs that include every political constituency. And we can't afford to entrust the investment of retirement taxes to most Americans, who have neither the knowledge nor the discipline to guarantee a successful accumulation of assets for future benefits.
If the powers that be determine that investing tax revenue would be beneficial to building adequate benefits, let the Social Security Administration hire and direct professionals to manage a broadbased stock-index pool for a portion of the trust assets. Don't give the average Joe the money to squander in ill-advised personal savings accounts. Social Security must remain a guaranteed, predictable benefit in its entirety.
Worley is a practicing financial planner and president of Worley Financial Group Inc.