The Coming Retirement Problem
A common misconception about the coming retirement
problem is that it will only affect Social Security. The retirement problem
involves potential problems with private investments as well as possible
shortfalls in Social Security taxes.
The stock market could be in serious trouble
if an insufficient number of new investors can be found to purchase stocks
sold to finance retirement. A shortage of workers would force American
companies to increase wages and reduce dividends paid to retirees.
Someone will need to provide goods and services
to retirees. A shortage of providers would raise the prices of goods and
services reducing the ability of retirees to pay for them, particularly
those whose retirement income cannot increase with inflation. Increases
in productivity will alleviate this problem to some extent, but the nation
will have to increase immigration to insure an adequate number of workers.
The fastest growing segment of the population
is the group over 80. This group will start growing explosively when baby
boomers start turning 80 in 2026.
Private retirement accounts may not be inflation
proof over a long period. Those investors whose accounts aren't large enough
may run out of money before they die, particularly if they spend their
last years in a nursing home. This situation would also apply to persons
with individual rather than group Social Security accounts.
Social Security is a true retirement insurance
program. Unlike private retirement accounts which may provide only a preset,
fixed income or total investment, Social Security guarantees an income
for life that adjusts for inflation. Allowing individuals to remove part
of their money from Social Security would limit its ability to support
all recipients as long as they live, even those who live to be 120 or more,
as some baby boomers are likely to do.
Social Security is part lottery. Those wishing
to collect need to live to retirement age or their investment will go to
others. The biggest winners under Social Security are those who live the
longest. Social Security guarantees an income as long as the recipient
lives with the amount increasing with inflation.
A major problem with private Social Security
accounts is that some investors will make bad investments, particularly
if no controls are present to prevent investment in fraudulent stocks.
Will those who make bad investments starve because they don't have enough
money? Or, will Congress decide to step in and rescue those who have insufficient
Preservation of Social Security should include
a provision taking it out of the general fund budget and adding to the
Social Security fund an amount equal to the interest the money "loaned"
to the budget would have earned if it had been invested in federal securities
instead. Congress should do this now while the federal budget has a surplus.
If Congress pays off the national debt, Social
Security will need some other income producing investments. Shifting the
large sums in the Social Security fund among investments could destabilize
markets by dramatically changing prices. Some safeguards will be necessary
to prevent using Social Security funds to bail out future Lockheed and
One alternative would be to change the way
the federal government finances new technology, particularly military and
space technology. Instead of just giving money to private companies, Congress
would invest Social Security money in the technology through purchase of
stocks or bonds in the companies developing the technology. The public
through the Social Security fund would benefit from all profits generated
by the new technology rather than just receiving benefits from aspects
of the technology used by the federal government.
If Congress pursues this option it should guarantee
that the Social Security fund won't lose money from such investments.
Allowing people to take money out of Social
Security for their own personal retirement would be a mistake, but the
system could be structured so that individuals could move money around
among different accounts such as is done with some private employer pension
funds. Those whose funds did well would receive higher benefits than those
with less productive investments.
Instead of completely eliminating the estate
tax, Congress should consider reconfiguring the tax as a tax on inheritance
received by an individual with the funds going to Social Security. The
tax would generally only apply to inheritance of cash and other intangible
assets over some specified amount such as $50,000 to $100,000. Businesses
and real property such as the family home would be exempt from taxes unless
Many people don't understand the vital economic
role Social Security performs. We live in a mass consumption economy in
which workers produce more than they can consume. Without sufficient consumers,
employers must lay off people. Retired people whose productive ability
has declined provide a ready market for many goods and services. Social
Security insures that retirees will be able to continue to consume and
provide jobs for others.
In the past, parents relied on their children
to support them when they were no longer able to support themselves. Parents
needed to raise large families not only to spread out the cost of supporting
them, but also to allow for those children who died from disease, accidents
or serving society in time of war.
In an age of smaller families that option isn't
practical. Many retirees have no children to support them. Some never had
children. Others may have lost children from natural causes or participation
in war. Many "children" no longer have parents to support.
Instead we need to provide for those who supported
us as children collectively. The adult population of our day, rather than
just our parents, paid for our education. Even many private grade and high
schools rely on donations to pay part of their costs. Therefore we should
collectively support those who supported us when they retire.
Any good investment counselor will recommend
that clients rely on a variety of different investments with different
levels of risk. Low risk investments provide less return, but insure some
type of income. High risk investments can provide a much higher income,
but at the risk of not providing any income.
Social Security is designed as a no risk investment that guarantees a limited income to provide for basic needs after retirement. Stock investments can provide a much higher income, but even seemingly secure stocks can quickly lose value such as has happened recently with California electric utility stocks.
You can support this site through PayPal.
I also write at Mediard