Michigan USA - Despite the much written and talked about demise of the Social Security Program in the coming years, here is the current status. The FICA payroll tax takes in about 700 Billion dollars a year and pays out more than 800 Billion dollars a year. This creates a current financial shortfall of more than 100 Billion dollars a year.
The Federal Government also owes the Program more than 2.9 Trillion dollars. This is the amount of money that the Government has borrowed since the inception of the Program 80 years ago. By legitimate Standards of Accounting, the Program is already Bankrupt! When the Government states that the Program is still solvent, it means that the now annual deficit of more than 100 Billion dollars is backed by the more than 2.9 Trillion dollars of Treasury Bonds that are IOU's representing money owed to the Program.
This is money owed by the General Public to the Program. It is not money already available. It is money that must be paid back by taxing the ordinary citizen through the Income Tax System. The same Americans that pay their FICA taxes every pay check are now paying additional Federal Income Taxes because the money they are paying in FICA taxes, instead of being actually invested, has always been loaned to the Federal Government for the increasing cost of supporting the Federal government.
Eighty years ago, in 1935, when the Social Security Act became law, there was a single sentence in the Social Security Act, [(Section 201 (b)] that has created a financial nightmare for the working poor and the average, middle class American:
Section 201 (b) It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgement, required to meet current withdrawals. Such investment may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.
There has never been any real money in the Social Security Program since it’s inception in 1935. After the small amount that was paid out every month by incoming FICA taxes to retirees, the much larger amount remaining in the account was loaned to the Federal government and the Federal government spent the money. Even more absurd is that the FICA taxes paid into the program by each American did not go into their retirement account because it was immediately borrowed by the Federal government. So the next generation of tax payers FICA taxes are used to pay for present retirees benefits.
Currently the highest monthly Social Security Benefit at full retirement age is $2,663. This amount of Social Security monthly benefits is based upon a gross, annual salary of $118,500. The FICA tax rate for Social Security Benefits is 6.2% and the Company employing the individual pays an equal amount. The individual employee earning $118,500 month pays an FICA tax of $7700/yr. and the company pays in an equal amount. The Federal Government then takes in $15,400 a year for each employee. If the individual is self-employed, i.e. Consultant, independent lawyer, artist, plumber, author etc that individual pays the total amount of FICA taxes of $15,400/ yr!
Annual Ave. Salary for 35 years: $10,000 $20,000 $30,000 $40,000 $50,000 $118,500
Retirement Benefits: $8,500 $11,700 $14,900 $18,100 $21,300 $31,900
Monthly Social Security Benefit: $700 $1,000 $1200 $1500 $1700 $2600
Depending upon various calculations based on the year retired, COLI, etc., the monthly Benefits as shown could vary by as much as $100. Remember that each new generation of Retirees is paying for these benefits in both FICA taxes and income Taxes! The money each retiree received is being paid by future generations not by their originally invested FICA payments.
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THE SOLUTION
Eliminate one sentence in the Social Security (refer to Section 201 b) and add these two paragraphs:
• FICA payments are only to be used to purchase shares of stock, representing a weighted average across the S&P 500 on the NYSE.
• The Federal Government can never borrow or remove the funds for any reason other than for paying benefits to recipients as covered under the Social Security Laws. And the retirement age is any time after 30 years of FICA contributions or age 65 which ever comes first.
Under such a long-term financially secure investment program here are the corresponding monthly Social Security Benefits and Estate values at the end of life. These calculations are based upon 30 years of FICA contributions, not 35 years necessary under the present Act. And monthly benefits can begin after the 30 years,regardless of age.
These monthly benefits are based upon the exact same FICA monthly taxes as currently being paid.
The FICA monthly Taxes are invested in the S&P 500 weighted stocks at a compound interest rate of 8%, including reinvestment of dividends. There is a tremendous cushion because the historical average return is over 10%.
Annual Ave. Salary for 30 years: $10,000 $20,000 $30,000 $40,000 $50,000 $118,500
Value of retiree investment at the end of the 30 years: $166,000 $333,000 $500,000 $666,000 $833,000 $1,966,000
Monthly retirement Benefit: $1100 $ 2200 $3333 $4400 $5500 $13,000
There are many modifications that can be made to account for recessions, fees, reinvestment after age 52, handicapped payments and child benefits until age 18 due to parental deaths. All of these can easily be managed by limiting Estate Values, limiting Annual payouts and setting aside reinvestment of compound interest rates exceeding 8% for emergency funds
The difference between 8% return and the historical average of 10 to 11% return for the stocks on the new York Stock Exchange would beset aside to cover payments including when on occasion (about every ten years) the market tanks mostly because of lack of proper over sight control.
The Federal investment program would only be for the benefit of taxpayers. The Federal Government would be forbidden to borrow from investment assets. Benefits would be paid from each individual’s investment, not paid by each next-generation or General Income Tax Revenues.
There must be a complete cut off point wherein, at the time the ACT is amended, those retirees at 40 or 50 years of age, will remain on the current system, with COLI and a guaranteed equivalent monthly income just as current retirees. Their monthly pensions paid for by the 2.9 trillion dollar obligations now on the books and General Income Tax Revenues. The amended ACT will then have 30 years of long-term investment before having to payout any significant amount of interest earned on each future retiree’s investment after those 30 years.
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