Current projections for Social Security’s future are bleak. The Social Security Old Age and Survivors Insurance Trust Fund is expected to run out of special issue government bonds in 2033 and the gap between Social Security expenditures and Social Security receipts, already growing, is expected to widen at an accelerating rate.
This accelerating shortfall threatens to rob current recipients of the income that they were promised and currently rely upon and could very well lead to the bankruptcy of our country. Meanwhile, younger taxpayers largely believe they will never see the money they put into the system.
An actuarially sound approach does exist which would help reduce the shortfall risk those currently relying on Social Security face while giving new hope to those in their twenties and thirties who are set to retire during the worst days of the crisis.
To reiterate, this proposal would not alter the current program for present or future beneficiaries except to improve projections. Those beneficiaries who do not wish to make any changes to their accounts would simply choose not to do so. The decision to participate is entirely voluntary.
In return for choosing to accept a permanent reduction in benefits (similar to the current reduction one takes when one starts receiving benefits at age 62) a percentage of a young taxpayer’s monthly FICA payment would be deposited in a Freedom Retirement Account at a local bank in his or her name. Importantly, the amount invested would always be a smaller percentage of his or her FICA payment than the percentage by which future benefits are reduced. In this way, while aggregate revenue declines slightly, aggregate projected benefits would decline further, thus narrowing, instead of widening, the projected shortfall.
This option would allow the owner of such an account to take a small amount of money and, with the benefit of compound interest, enjoy a far greater amount at retirement than Social Security promises to provide.
Investment options would be restricted to commission free mutual funds, the sole investments of which must meet those required of fiduciaries: investment grade bonds, investment grade securities, or a combination thereof. These accounts would be restricted and withdrawals could not occur until the owner reaches retirement. The account would be the accountholder’s property and, within the aforementioned limits, completely under the owner’s control.
An additional, and very significant benefit of Freedom Retirement Accounts would be the resulting increase in private investment capital.
Since the government’s projected shortfall would decline whenever an individual exercised the option to establish a Freedom Retirement Account, exercising that option would be encouraged. The accounts would be tax exempt and an increasing percentage of monthly FICA payments would be available for investment as Social Security Investment Account holders advance in age.
Young professional men and women who establish Freedom Retirement Accounts will be significantly closer to real retirement security.
Freedom Retirement Accounts will not entirely solve the Social Security crisis, but they would be an important step in the right direction.
Freedom Retirement Accounts:
- Reduce the likelihood of Forced Reductions in Social Security Payments
- Extend the Social Security Old Age and Survivors Insurance Trust Fund’s Solvency
- Require No Change in Social Security Recipients’ Options
- Permit Limited Private Accounts to Supplement Social Security at Retirement
If returned to the Senate, I will work to ensure Freedom Retirement Accounts become a reality.