I know I usually post about marriage and parenting, but I thought given the economic crisis the world is facing I’d talk economics. Please forgive me, but I’ve had a thought, and I’d really like your opinions!
Here’s the issue: right now, through payroll deductions in both Canada and the U.S., working families are paying for seniors through Social Security (U.S.) and CPP (Canada). As we found out in the debt ceiling debate, Social Security money isn’t deposited into millions of little bank accounts; it comes out of general revenues. So your money isn’t being saved for you; it’s paying today for seniors. And many of those seniors have way more money than you do.
Eventually, with the budget crisis the Western World is facing, people are going to start to notice, and see that young people paying for wealthy older people, as young people receive fewer and fewer government services and older people more and more, cannot fly. So they’ll HAVE to means test Social Security and CPP, meaning that the wealthy won’t get as much. I don’t think they’ll have a choice.
I don’t like that idea, because as soon as you means test, you give a disincentive for being responsible. If people know, “If I save for my retirement, like I’m supposed to, then I’ll lose the government ‘free money’ “, then they’ll stop saving.
But is there another way? I think there is.
Here’s what it would look like. Instead of taking a portion of all paycheques and putting them into a vast account called “Social Security” and “CPP”, the government could deduct 5% or 10% or whatever from your paycheque and then deposit it into your personal retirement account that you now control. It isn’t going into general revenues; it’s your money. You can’t lose it. You’re not funding other poeple; you’re only funding yourself. But the government is forcing you to do it. If the government doesn’t deduct the money, most people won’t save. This way, the same amount of money is flowing out of your paycheque, but it’s going to you, not to anyone else.
If your investments tank, or if you never made very much money, then government help would still be available to the elderly poor. No one would starve or freeze. But in general, people would be responsible for themselves now.
Of course, the transition would be hard, because I don’t know how they’d wind down Social Security and then implement this. Probably for a few decades it would have to a mix of both.
But why isn’t this being talked about? Doesn’t this seem like a logical solution? Or am I missing something? I’m just genuinely curious what other people think, so I decided to throw it out there.
But one thing’s for certain: expecting struggling young families to pay more and more of their paycheque to the wealthy, who currently have more resources, can’t keep going on for very long. Something’s gotta change. This seems like a good place to start. What do you think?
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>What about those at poverty level whose meager 10% won't support them in retirement? I agree with most of your logic, but don't we at some point do means testing?
>I agree, Sheila! If the premise is to make sure that people have money when they retire, then it should go into an account just for you. My money should not be going into Social Security for someone else to spend. I worked hard for that money and it should remain mine. As it is now, I'll never see any of the money I've already paid into Social Security and by the time I need it, it won't be there for me. It has to change.
>Here's a crazy idea: How about the government just leaves my money alone and lets ME worry about saving for my retirement. It's not their problem. If I don't save, I will go broke. If I do save, I'll reap the benefits. But of course, I'm just a lowly citizen who can't be trusted to take responsibility for my own welfare. What a ridiculous idea!
One of the major defects of the Social Security system is that, due to the Baby Boom a few decades ago, there are more older people than younger people in America right now. Since the Baby Boomers didn't have enough kids to replenish the next generation with the same amount of people, a smaller group of young people are paying for the retirement of a larger group of older people. And the current young generation are having even fewer kids, so by the time I'm retired there will be even fewer young people paying for my retirement. In fact, I've heard that by the time my generation is retired, the Social Security system simply won't be able to function because there won't be a large enough workforce to support the retirees.
>To the first Anonymous: If everybody saved 10% of their paycheque and invested it through their entire working life, they'd have enough to retire. Of course, this doesn't help if you're a SAHM, but presumably you'd have a husband to help you. So even if you didn't make enough, you'd still be able to save.
To the second anonymous: In many ways, I agree. Our retirement SHOULD be our responsibility. But the problem is that we can't assume others will save, and as a society it's quite clear we're not willing to let senior citizens starve to death. So the only alternative is to force people to save. I don't like it either, but it's the only practical thing.
I don't like the forced aspect of it, but if we then controlled the accounts, and they belonged to us, I see it as a compromise.
That way people WOULD save, and we wouldn't have seniors starving, and the rest of us wouldn't be responsible for them. Because I agree, Social Security (or CPP in Canada) will not be there for our generation.
>Many people make very little money and cannot save 10% — or if they do, some emergency comes up and they have to take it out of the bank and use it, like for a medical expense. Most struggling young people need every penny and live paycheck to paycheck just for necessities. I don't have the answer to this one, but I do know that not everybody is able to save 10% of their paycheck when they make very very little, as they need every penny to make it till the next paycheck.
>I know what you're saying, Mary, but even those who don't make very much still have to contribute to Social Security, right? What I'm talking about is taking the amount that is currently going into Social Security, whatever percentage that may be, and put that towards your own personal retirement plan. So I don't think it would make a big difference in take home pay. It would just simply mean that the money that the government is already deducting would go your own plan, rather than to the general coffers!
>Because poorer people will not be able to keep that money in savings — it will come out for emergencies and they will be left with nothing. It is best if it is kept for them so they can't get at it no matter what. Sad but true. To have it go to your own plan would be ok as long as you couldn't get at it, which is the same as social security, the way I see it.
What I'm afraid is going to happen is euthanasia of older people, or limited health care for them if they cannot pay for it themselves, like they have in Europe, that is, no heroic measures to keep elderly people alive the way we do in our country now.
I would hate to see that happen. It is not honoring to the elderly, it is dishonoring them. I don't believe God would approve of that.
I lived in Europe many years, and the attitude there is different than it is here in the U.S. due to the medical system. Instead of "I've earned this," like we have here, the attitude is "You've had yours," which is quite chilling. "You've lived your life and now need to get out of the way for younger people." Not honoring "the hoary head."
Also, it is assuming that nothing catastrophic will ever happen to you — you'll always earn money and always keep it in your retirement plan, but life is full of surprises.
Yes, baby boomers had fewer children than their parents had, but the population of our country has almost tripled since then in spite of that, and nearly all the women work and contribute to social security, where they didn't a couple of generations ago.
>Not saying that all European countries have forced euthanasia of elderly sick people, but I've heard that at least one does. Chilling.
>Mrs. Multiple Comments again — Not only the young pay into social security. Middle aged people do, too. My husband is over 60 and still working and he pays into social security (both sides, since he is self-employed). Also, I'm wondering about the 10% savings plan — 10% of a low-paying (maybe minimum wage) job is not much. Anyway, people have to keep paying into social security, because where will the money come from to euthanize us baby-boomers? (I just hope it won't hurt…)
That’s a wonderful idea Sheila, but it will never happen. The government can’t dip it’s hand into personal account the way it can dip into general revenues. The government would never give up a place where they can make cuts for their benefit. I’m almost 39 and I am pretty much positive that by the time I hit retirement age in just over 20 years there won’t be a Pension plan left.
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I know. Me, too. Sigh.