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We got Trouble, Trouble, Trouble, Right here in the USA, it starts with “A” and that stands for Apathy Ver. 1.0.0

The Top Gun National Crises Troubleshooter, Retired

https://thephilosopheronpolitics.wordpress.com/Apathy

10/27/2014

Introduction:

The Social Security Administration (SSA) will need a major adjustment or be replaced by a better retirement plan for USA Taxpayers to stay solvent.  A new retirement plan is proposed.

History of the SSA:

The Social Security Administration was formed during the Franklin D. Roosevelt (FDR) administration in the 1930’s.  It was spearheaded by a Social Worker, Francis Perkins, aka Miss Perkins, aka, Madam Secretary, aka Mrs. Wilson, who worked with FDR when he was the governor of New York.  An appointed Cabinet Member as the Secretary of the newly formed Labor Department, she meant The Social Security Administration to be insurance for the old aged.  When FDR offered her the position as the Secretary of Labor, she made it clear to FDR that she would only accept the position if he agreed to support her agenda: Minimum Wage and Maximum Working Hours, a ban on Child Labor, Unemployment Insurance and Insurance for the Old Aged.[i]  FDR made it clear that he would not support a “Dole” by the Federal Government.  Secretary Perkins then devised ways to support these proposals, through taxation.

Today we see the fruits of her “Labor”.  A federal Minimum Wage, a forty-hour workweek, although she proposed a fifty-four hour maximum workweek, Federal supported State Unemployment Insurance, Federal-State Workers Compensation, and the Social Security Administration (SSA).

The Federal Insurance Contributions Act (FICA) (Insurance contributions for the SSA and now Medicare) would be collected by the employers and deducted from the paychecks of the workers.  The collected funds go to the SSA general account to distribute funds to those qualified based on their “Quarters” of contributing to the SSA, today the minimum to qualify is forty “Quarters” of contributions to the SSA.  These funds have not and are not going to an account designated for the Taxpayer, but to a general fund of the SSA.  Therefore, this is not a retirement account for the Taxpayer, but an account where the workers are paying for the retirement of those that qualify for SSA benefits (New investors are paying for the matured investors, aka the Ponzi scheme).

This SSA system brought relief to the aged, of those qualified, by supplementing their retirement.  The system worked somewhat as long as the population of Taxpayers was increasing and the expected life of a Taxpayer was sixty-five years of age.  Therefore, about half of the Taxpayers that contributed to the SSA general fund did not receive benefits because they succumbed before the age of sixty-five.  The average age for the general population of males in the USA is now eighty-two and for females age eighty-five.  In milder climates like Florida, Arizona and California, the average age is higher.  The “Baby-Boomers” are now retiring.   The “Baby-Boomers” are those born after WWII when our service men were returning back from the war and starting families, resulting in a larger average population for a generation (a large bump in the population curve).  The result is that there are now many fewer working taxpayers per SSA Beneficiary than in the past, increasing the burden on both the working Taxpayer and the retiring Taxpayer.   There is much discussion about how long it will take for the SSA to become insolvent; a popular date range is 2025-2045, when funds will no longer be available from the SSA for the aged/qualifying Taxpayers.

Solution Alternatives:

Solutions include 1) increasing the age of retirement for the Taxpayer from sixty-five to as much as seventy years of age to qualify for full benefits. Given that the average mal lives to the age of eighty-two, it seems reasonable that the qualifying age would be eighty-two to receive full SSA benefits to make the existing SSA system of Taxpayer supporting other Taxpayers in their retirement to work. 2) Alternatives in place are a mixture of self-investing for retirement such as the 401k and the 403B savings plan.  The Taxpayer and sometimes the employers make contributions to the investment and the employers offer investment vehicles for their employees giving their employees some latitude in their investments. This is in addition to their contributions to the SSA through FICA.  3) Another proposal on the table is a Federal Reserve Saving Account for the Taxpayer, guaranteed by the Federal Government, to not lose any money.

Case (1) the SSA Plan:

In the first case (1) SSA plan, we will have some very aged workers in the workforce that will need to be accommodated for limited abilities to compete with younger Taxpayers and make meaningful contributions to the overall economics of the USA.  Employers do not want to carry non-productive workers as this will increase the cost of doing business.  So it will fall on the Federal and State governments to make up these extra costs to the employers.

Case (2) 401k and 403B Plans:

In the second case (2) 401k and 403B plans, the average Taxpayer is not an investment broker and may well make investment decisions based on their emotions rather than on a sound long-term investment plan.  If they notice from news reports that the market is declining, they will want to move their investments from an aggressive fund to a much more conservative fund to prevent loosing “dollar value” to their retirement accounts.  The problem then arises of when to move their funds back from the conservative funds to an aggressive fund that can compete with inflation. 

Inflation:

“Inflation” was another alternative chosen by the Roosevelt administration to combat the great depression of the 1930’s by going off “The Gold Standard” and allowing the Federal Reserve to manage the inflated-dollar as needed to make adjustments to our economy.  Therefore, an investment must at least match the inflation-rate to not loose “Purchasing Power” (Value).

Timing Investments:

Timing the move from a conservative investment, which is marginal at best to exceed the “Inflation-Rate”, is next to impossible.  The market usually goes up faster that it declines and if one thinks the market is going up and they make the change in their investment strategy, the Market will unmistakably go down. Visa versa, if they think the Market is going down, it will unmistakably go up.  The Market, however, has shown to progress upwards over a long time span.   A successful long-term investment strategy must be based on objective reasoning and not on emotions.

Investment Advisors:

Investment advisors come in all sorts of varieties including “Fraudulent Advisors”, “Sales Advisors” (earning a commission for recommending an investment fund), to “Fee Based” advisors that receive a percentage fee from the total of the Taxpayers investments.  Some of these “Investment Advisors” are not much more capable than the Taxpayers themselves.  To quote one of our long-term advisors “Stock Brokers have the highest turnover of any profession, a lot of people want to be “Stock Brokers” but very few are successful at this vocation”.   Where does this leave the Taxpayer who is in charge of their own individual retirement investment?  In many cases they lose either their “dollar value” or they lose their “Purchased Power” of their investments.

Case (3) the Fed:

In the third case (3), requiring a mandatory contribution to a Taxpayer account with the Federal Reserve, the Taxpayer will not lose their “dollar value”, because the “dollar value” is backed by the Federal Government, but again they will lose “Purchasing Power” because the Federal Reserve cannot offer a Rate-of-Return on the investment that exceeds the Rate-of-Inflation, and the Taxpayer will lose “Purchasing Power” from this investment.

A New Alternative for the Taxpayer to Save for Their Retirement. 

The University of California (UC) probably has the best pension plan management in the country, or is among the best, and could be used as a role model to restructure the Social Security Administration (SSA).   Breaking apart UC to its component parts results in a “Non-Profit, Academic Institution, managing a pension plan for its members”.

The model of UC can be multiplied several times over using “non-profit, academic organization to manage pension plans for our Taxpayer citizens”.  With a choice of academic organizations there will be competition between the academic organizations which should produce excellent rate of returns on investments for our citizens, especially if the non-profit organizations are required to publish annual rate-of-returns after fees.  The Taxpayer can move their pension plan from one academic organization to another of the non-profit academic organization.  If the Non-profit academics would be allowed to collect a small management fee (less than 3% prorated) of the funds invested for managing the pension funds, they will have even more incentive to produce excellent rate-of-returns on investments.  This program results in smaller government, the funds will be out of the control of the government, so legislators trying to balance a budget will not have access to the pension funds, this should produce long-term stability.

The Federal Budget:

The Federal Budget will benefit as the nation will not have the expense of operating the SSA and the government will be only be in a subsidizing position. The transition from the present SSA system of paying the mature investors with new investor’s funds will probably have to be a negotiated transition and could be coordinated with the 401K and 403B programs.

There are several advantages to this proposal:
1) Allowing citizens to choose their pension provider, the nonprofit academic organizations would be in competition with each other for funds to manage; this will result in them striving to make good investments.
2) Several portfolios could be offered depending on the level of risk the Citizen Taxpayer feels comfortable with and the time line when they will need the funds in retirement.
3) Authorizing the nonprofit academic organizations to charge a small management fee of less than 3% of invested funds prorated, will also provide incentive to fund good investments and the funds they manage will grow in value creating more income from the fee charged to each account.
4) The nonprofit academic organizations will be receiving income, therefore; they will be able to lower their tuition fees for their academic organization providing education to more of our future GDP producers at a lower education expense increasing income to the federal budget through taxes collected on a highly paid, highly educated work force.
5) The federal budget will be reduced by eliminating the existing Social Security Administration overhead expense and reduce the obligation of the federal budget to subsiding the retirement of those qualifying for benefits. This will be a big budget cutter. 

Our Federal Representatives:

Congressmen are elected to serve their constituents.  When a Congressman’s constituents let their Congressional representatives know what they want, the Congressman are duty-bound to represent their requests.  Senators are elected to “Serve their Country” that is they are duty-bound to do what they think is in the “Best interest for the country”.  When a Senators constituents let them know what they think is “Best for the country” the Senators are duty-bound to consider these thoughts on how to improve our country.  A president is elected to lead the country and has the final signature on any law that congress has enacted.  When the citizens of the country let the president know how they feel and think are in the best interests of the country, the president is duty-bound to consider these views when they chose to sign or not sign a bill that is presented to them by congress.

“The Only Thing we have to Fear is Apathy and Apathy Itself”.

As long as the citizens and Taxpayers of the USA chose to let someone else express their desires for the restructuring of the Social Security Administration (Kick the can down the road) or its elimination in favor of “Non-profit, academic organization to manage pension plans for our Taxpaying citizens” they will have only themselves to blame for their inaction when the SSA is no longer a solvent institution.

Action Now:

[i] Adam Cohen, “Nothing to Fear”, p192, The Penguin Press, New York, 2009