How to Fix Social Security

For millions of elderly Americans who would otherwise live in poverty, Social Security is their single biggest source of income, the financial bedrock of their retirement. Receiving its benefits does not carry the stigma of welfare because it is something they contributed to all their working lives.

Many of todayís younger generation, the so called "25 year olds", are honestly concerned that Social Security wonít be there for them when they retire. Others call the system a Ponzi scheme. And, because of the ever increasing level of disability fraud, many are beginning to see the system as another form of government welfare.

The system is indeed broken, but it can be fixed, and fixed permanently. This website was designed to point out the benefits of the social security system and also the problems that it is currently experiencing. We will talk about a simple change to the system that would insure that its benefits will not only be there for you and your children, but also their grandchildren.

The biggest problem with the proposed solution is that it is simple, logical, and fair; so it will be resisted by our Political establishment and all of the special interest groups who would therefore lose much of their control over our lives.

Letís start this discussion with a quick overview of the problems.

This website was not created to discuss the problems with the 1.45% Medicare tax, which is a completely separate issue. We are going to concentrate on the 6.2% collected for OASDI, the payroll tax. This tax goes into a trust fund and is then paid out in two parts: Old Age and Survivor Insurance benefits (OASI) and Disability Insurance benefits (DI), and there are problems with each side of the payout picture.

As with Medicare, this website was not created to discuss the problems with Social Security Disability, but the problem is so critical that we will devote the next two paragraphs to it; the first to define the problem, and the second to suggest a simple first step to fixing it.

In 1981 the system paid out 11.24% for disability benefits and 88.76% for old age benefits. In 2011 the payout was 17.97% for disability and 82.03% for old age. That is a 60% increase in the percentage of the budget paid out for disability claims in 30 years, and the growth rate does not seem to be slowing down.

There is a simple change that could be made to help with this issue; stop hiding disability payments as if they are part of our Social Security retirement. Split the payroll tax into 2 parts, one for OASI and the other for DI. We could call the first SSB for Social Security Benefits and the second SIP for Supplemental Income Programs. Once the American taxpayer starts to see just how much is being spent for non-retirement payouts, they will demand action on the issue.

The third problem is what this website is all about, the Old Age and Survivor portion of the system. The problem with OASI is well defined, we are living longer. Each generation is collecting more benefit checks for the same amount of work. This problem is relatively simple to fix if the government and the people want the problem solved.

Many of todayís editorial writers have suggested raising the withholding rate, changing the retirement age, or lowering the benefits. This country was based on freedom of choice. Why should the government impose a single solution on each of us? Why not let each American citizen choose their own personal solutions?

What if we changed the system so that your Old Age benefit was based on working a fixed amount of time for each benefit check you receive, a fixed ratio? The rate would remain constant and everyoneís "full benefit" retirement age would automatically self-adjust based on how long you have worked and the life expectancy of the average person born the year you were born. You could still retire at any age you wanted, but as with the current system, the longer you work the larger the check and vice versa.

Under the current fixed age retirement system the amount of time you work and contribute to the system remains relatively fixed while the amount of time that you receive benefit payments increases with each generation as their life expectancy increases. The system is designed to go out of balance as each generation lives longer!

You may be tempted to jump around to the different pages of this website, but if you do, you might miss the entire concept, so please follow the "next page" links at the bottom of each page. During your journey we will explain:

  • How the system was intended to work and how benefits are calculated.
  • Why the Social Security Amendment of 1983 only fixed the system for a little while.
  • What we can do to fix it forever.
  • One possible step by step plan to implement the fix.
  • We will also make a few suggestions for ways to eliminate some of the abuses of the system.

Now letís move on to how the system was intended to work and how the benefits are calculated.

Next - How the System Works