Free to Plan a Secure Retirement
by Harry Browne
(From The Great Libertarian Offer)
Social Security is not your ordinary insurance program. It dispenses with such old-fashioned concepts as saving and wealth-building. There is no salesman to talk to. No long, complicated contract with fine print — and no actuarial tables to get in the way. No decisions for you to make.
It operates on a very simple principle:
For all your working years, 15% of what you earn (up to $60,600 of earnings per year) goes to the politicians as Social Security tax. They might spend your money on other people's retirements — or use it to buy votes, build monuments to themselves, or prop up the Russian government for another half hour. But the one thing they'll never do is put your money in an account with your name on it, where it can be invested and grow and build up for your retirement.
No matter how much you've paid into Social Security, the politicians have put nothing aside for your retirement. Every dollar they've taken from you has already been spent.
Anything Social Security eventually pays you will be taken by force from the paychecks of younger people — probably including your own children and grandchildren.
Of course, such a system is inherently unsound — robbing Peter to pay Paul, then robbing Patty to pay Peter, and then searching for someone to rob in order to pay Patty. Because the system is fueled by taxing and spending, rather than by saving and investing, keeping it going gets harder and harder.
So the politicians have to "save" Social Security every few years. They do this by changing the rules. The tax rate goes up. The amount of your wages subject to tax goes up. The retirement age goes up. And the benefit schedules change. If they keep "saving" Social Security this way, one day someone may have to pay 85% of his income in order to receive a pension of $100 a month when he retires at age 92.
In any event, keeping the program going is getting harder and harder as people stay alive longer and longer. And every advance in medical science makes the Social Security problem worse. Only for Social Security administrators would a cure for cancer be a catastrophe.
The latest forecast of the Government Accounting Office says that by 2014 Social Security will be unable to pay its bills if it doesn't get another fix soon.
Social Security isn't unique. It's a model of government in action — taking from some, giving to others, and promising more to everyone.
To keep the game going, the politicians make more and more promises without knowing who's going to pay for them. And so the liabilities mount up — until some future Congress has to deal with the situation by raising taxes, by reneging on some of the promises, and by restricting your freedom even further.
Economists have estimated that a young person entering the workforce today will have to pay 70% of his lifetime income in taxes just to cover all the promises already made for Social Security and other government schemes. But how many people will show up for work if 70% of their earnings is taken from them?
So eventually the government will be able to survive only by reducing drastically many of the "services" it has promised. One day your Social Security check will be cut. Or some banks will fail but the government insurance system won't have the money to cover all the losses. Or you'll get sick in your old age but Medicare will be so broke it can only hand you a booklet of first-aid tips from Dear Abby.
Most people know intuitively that the government won't keep its promises — especially those for Social Security. In fact, one poll found that only 32% of all Americans who haven't yet retired believe they will ever collect Social Security benefits. In the under-30 age group, more believe in flying saucers than in the survival of Social Security. And, of course, their skepticism is well founded.
You can't trust politicians with your health, or to make sure banks are safe, or to manage welfare, or to put your safety or financial future ahead of their own interests. So it should be obvious that you can't trust politicians with your retirement money.
Turning anything over to politicians makes it a political issue — to be decided in favor of whoever has the most political influence. And that will never be you or me.
Social Security doesn't invest your money, it spends it. So it will always be a poor alternative to the simplest system of saving and investing. This makes the Social Security tax especially painful because you could do so much more with the 15% the politicians are taking from you.
If you pay money into a private retirement account, you have a guaranteed contract you can count on. The contract never changes without your permission, and no one can take anything away from you. And in addition to providing a retirement income for yourself, you accumulate capital you can pass on to your children.
Suppose you're 25 years old today, starting out on a career. And suppose, instead of paying 15% to Social Security, you could keep that and save it on your own — perhaps doing nothing more sophisticated than keeping it in a bank savings account, earning yearly interest of only 5%. And, lastly, suppose your first year's salary is $25,000, growing from there by 5% each year.
When you retire, your savings would produce a monthly income of $4,510 (compared with Social Security's maximum benefit of $1,600). In addition, you would leave an estate of over $1 million for your heirs, whereas Social Security gives you no estate at all.
Or, if you'd be happy with Social Security's maximum benefit of $1,600, you could acquire that by saving only 6% of your income, rather than by pouring 15% of it into Social Security. And you'd still leave an estate of over $350,000 — compared with $0 for Social Security.
POLITICAL REFORMS OF SOCIAL SECURITY
Politicians aren't interested in plans to make your retirement secure through private savings, however. They want to keep you locked into the present system. "Saving Social Security" is a mantra for both Democrats and Republicans. To them, it means saving their control over your life.
No politician is suggesting you have the right as a free American to drop out of Social Security whenever you want. Or that you be allowed to control completely your own earnings or your own retirement. Or that Social Security should be operated like any prudent private insurance company — one that guarantees to meet its obligations by saving and investing the money it collects.
No chance. All the suggestions for saving Social Security are about gaining power and ducking blame — putting off the problem, raising taxes, or giving the government more control and calling it reform.
Democratic proposals include having the Social Security Administration invest some of its tiny reserves in the stock market — instead of keeping them all in U.S. government bonds, as is done now. This supposedly would increase the return and eliminate the need to raise the Social Security tax. Just think, Al Gore will be your investment advisor.
Even if the politicians could invest sensibly in stocks, actually producing more money, this would serve only to give them more money to squander. And they'd still be back every few years, pushing another tax increase to bail out a bankrupt system.
The Republicans, on the other hand, talk about "privatizing" Social Security. Does that mean the 15% they've been taking from you will be yours to keep and invest however you want? Not on your life. They have in mind letting you keep maybe 2% of the 15% they've been taking from you — just as serfs were allowed to keep a small portion of the food they produced for their masters.
Of course, you'll have to invest that 2% in ways the government approves of — which means dealing only with companies that have ingratiated themselves with the politicians. Expect oil futures to be included on the "approved" list.
And the government still will take the other 13% of the Social Security tax and send it down that big rat hole in Washington.
Some Republican proposals promise to increase the 2% gradually until one day you'll get to keep the entire 15%. When will that be? The foremost Republican plan estimates you'll have complete control in 60 years. Just think: your great-great-grandchildren might be completely free from the Social Security scheme.
Except, of course, that plans to reduce government control gradually are quickly discarded.
A multi-year transition program is usually a lie and always a failure. It's the diet you'll start next month and the weeds you'll pull when the weather's better.
Even if the politicians stuck to such a plan for the full 60 years, why should we have to wait decades to be completely free of Social Security?
Tax Increase Coming
When it's time to pay off on political promises, the money is almost never there. And if politicians can't weasel out of a promise, they have only one way to pay for it: Raise taxes. In fact, they've raised Social Security taxes 16 times already. That's an average of once every four years since the program started in 1935.
Each payroll tax increase is touted as the final solution for Social Security, but it really is just one more in a continuing series. So if we let the politicians continue to control Social Security, the next tax increase is inevitable.
Republican and Democratic politicians offer all kinds of reasons for hanging on to control over your retirement.
They say that some people don't know how to invest profitably. But, once again, government breaks your legs and then claims that only it can provide the crutch. Saving for your retirement is difficult only because the politicians have made it that way.
If they didn't tax interest earnings, and if their monetary policies didn't create inflation, you could assure a comfortable retirement simply by putting 5% to 10% of your paycheck into a bank savings account — or having your employer do it for you. Even if you know nothing about investing, you could easily take care of yourself — if the politicians would simply leave you alone.
They claim also that government must run your retirement because some people are too irresponsible to plan ahead.
Of course, some people wouldn't provide for their own retirement. But it is wrong to force everyone into a fraudulent system just because a few people won't take responsibility. It's like saying that since not everyone can drive well, no one should be allowed to drive — and we all have to ride in the government bus, even as it careens along the edge of a cliff.
Because government taxes away half our income, planning for retirement is difficult today. The obvious solution is to reduce taxes dramatically, end Social Security, and let you save the amount you think is right.
That was the system we had before Social Security was enacted. People saved for their own retirement. Those few people who wound up with nothing were taken care of by private charity; their retirement wasn't as comfortable as that of more responsible people, but they lived as well as people who are wholly dependent on Social Security today.
REAL REFORM OF SOCIAL SECURITY
So long as Social Security remains in the politicians' hands, it will be unsafe. We can't leave our retirement money lying on the table, for them to grab and spend.
The only way to make Social Security safe is by getting the government out of it.
And the only way to get government out of it is to do so now — completely and forever.
Millions of Americans have paid into Social Security. But since the politicians have already spent that money, they now tax you to make good on what they promised to others.
That seems to leave only two alternatives: either (1) you continue paying the tax collector for the retirement of senior citizens or (2) elderly people will lose their pensions.
Political methods always involve using force to take from one and give to another. So political methods can't free you and other Americans from servitude to Social Security without impoverishing those who are already dependent upon it.
But we don't have to solve this problem with political methods.
Real Security for Seniors
If you're retired now or about to be, the present system makes you dependent on the politicians' ability to take more and more money away from your children and grandchildren. No wonder you worry about your future.
In place of Social Security, I want you to have your own individual account with a private company that can guarantee to deliver a lifetime income to you without fail — an income equal to what Social Security has promised.
The politicians will never be able to touch that account or reduce it or borrow from it for their pet programs. It will belong to you and you alone, just like your car or your clothes.
Financing the Transition
It isn't necessary to tax younger people to provide private accounts for each person on Social Security now.
The federal government owns trillions of dollars worth of assets it doesn't need and shouldn't have. These include power companies, pipelines, idle military bases, business enterprises, over 400,000 buildings, oil and mineral rights, commodity reserves, and much more — including 29% of all the land in the United States.
When the federal government is reduced to just its Constitutional functions, there will be no reason for it to continue hoarding those assets. They can be sold to the public, putting them in the hands of people who will use them more responsibly and more productively. And the sales will generate the money to clean up the financial mess the politicians have made.
So that the market for these assets won't be depressed, I believe the sales should take place over a six-year period. I'd prefer that it be six days, but that would reduce the proceeds.
It is impossible to know in advance how much money the assets will bring because nothing like this has ever been done before. Estimates of the assets' market value have ranged from $5 trillion to $50 trillion. But if selling the assets brings even $12 trillion, it would solve two thorny problems.
First, the initial proceeds should be used to buy private retirement accounts for everyone now on Social Security — lifetime annuities from stable insurance companies that have never broken their promises.
The government will have no further Social Security liability to anyone. No retiree will be left in the lurch or dependent on the solvency of Social Security. And neither you nor your children will ever again have to pay the 15% Social Security tax.
Anyone between age 50 and retirement can receive an annuity that will begin paying out at age 65.
Anyone under 50 will save more from the elimination of the Social Security tax than he gives up in future Social Security benefits.
Second, the remaining proceeds from the asset sales will pay off the entire accumulated federal debt. You, your children, and your grandchildren will be free of the enormous burden of debt the politicians have piled on you. The government's yearly interest costs will be reduced to zero.
This is real reform.
It's the only plan that takes Social Security completely away from the politicians and gives you control over your own money.
It's the only way your retirement, that of your parents and grandparents, and that of your children and grandchildren, will finally be secure.
It's the only solution worthy of a free country.