1st, very rough draft of my proposal to reform Social Security

I’ve been working on a Social Security reform proposal for a few weeks now.  The government doesn’t explicitly collect a lot of the data I need to flesh it out, so I gotta comb through an insane amount of mind numbingly boring data to find what I need, so it’s been a ridiculously slow process.  I'm hoping to have all the data within the next few weeks.

Anyways, without many of the numbers to back it up and score the proposal, here’s my rough draft—once I actually find all the pertinent data, I most likely will have to modify this to make it work.

• The retirement age will be raised six months every two years until it reaches 10 years less than the median life expectancy for the US (currently at 78.3, meaning the retirement age would be raised to 68.3)
• After it reaches that benchmark, it is adjusted every four years to maintain that 10 year mark
• Everyone’s Social Security taxes will be immediately rolled over into a private market IRA administered by the government
• The government will charge a 1% fee on interest earned by the account—that will pay for the government’s admin fees and overhead
• If you are 60 years or older, your benefit amount will not change
• If you are 55-59, 95% of your benefit amount will roll over
• If you are 50-54, 85% of your benefit amount will roll over
• If you are 45-49, 75% of your benefit amount will roll over
• If you are 40-44, 65% of your benefit amount will roll over
• If you are 35-49, 55% of your benefit amount will roll over
• If you are 18-34, 50% of your benefit amount will roll over
• The government will guarantee the amount you have contributed into the account during your lifetime
• Any interest the account has earned is yours (minus that 1% cut the government takes as its admin fee)
• If you’ve contributed $300,000 in SS taxes in this system and it has earned $40,000 in interest, you’d get a payout of at least $340,000 (I’m not counting the compound interest in this figure, so it would most likely actually be a good deal higher than $340,000)
• If the stock market has tanked and you’ve had net negative growth on the account, resulting in an account only worth $280,000 at retirement, the government would make up the $20,000 shortfall, giving you a net payout of $300,000
• Upon retirement, your account is converted into an interest earning annuity and you are given several different term payout options
• The default would be equal monthly payments from your account for 15 years (so if you had $340,000 from the above example at retirement, the default monthly payment would be $1,888.88—again, I’m not counting compound interest in this calculation)
• You could also select 10 or 20 year payout options (which would give you monthly payments of $2,833.33 or $1,416.66, respectively)
• Your selection could be changed once a year
• Any benefits left over once you die could be willed to someone else
• All the money that the younger folks forfeit when the taxes are initially rolled over into the new accounts would go towards paying the benefits of those currently retired or about to retire under the existing system
• On the face of it, that sucks for the younger crowd, but…do any of us actually think we’ll see a dime of the money we’re paying into the system now under the current plan?  I know I don’t, so given the choice between getting none of my money back at retirement or getting half of it back at retirement is a no-brainer choice for me

Besides getting the numbers to back everything up, there are a couple details I need to hammer out:

• Ideally, for each age group, there would be a tiered rollover amount.  For example, someone who is 35 might get 55% of the SS taxes they’ve paid rolled over into the new account, while someone who is 36 might get 56% rolled over.  Something along those lines—just need to figure out how I’d go about setting the increments.
• The whole thing about using the money folks forfeit during the rollover period for paying those who are currently retired/about to retire needs a lot of work.  I don’t have any numbers to back it up, so the end result might look substantially different.

And not a point that needs to be hammered out, just some background—private market IRAs have had much better historical returns than has Social Security.  That would allow folks to get bigger bang for their buck and the 1% fee on interest would give the government enough overhead/admin fees to run the program with and not have to dip into the actual accounts to fund the operation.