Just a couple of easy steps!

Split the system into two parts: Implementation of the new system is quite simple once everyone agrees this is the best route to follow. We are already breaking the 6.2% FICA tax into two internal budget items, our suggestion is to do this up front to visually separate the amount going toward retirement from the amount going toward other programs.

Convert from an age based to a ratio based system: We keep all of our current income tracking and “full retirement” benefit calculations the same, no changes there! The only real change is to replace the existing calculation of each individual’s percentage of full benefits from a fixed age based system to a fixed ratio based system. The existing age based system is doomed to failure as each generation lives longer. The fixed ratio system will automatically adjust to the increasing life expectancies.

The new system will be totally fair to every American. Every average American will get back the same salary percentage as the salary percentage they paid into the system.

So, how do we get started?

The biggest thing we have to do is make a decision if we want to keep a system that requires the government to constantly modify how it works so it doesn’t keep breaking, or one that automatically self-adjusts to the changes in our longevity. Basically, do we want a system that every American can rely on without relying on the government to keep fixing things?

If the answer is yes, then there are a few steps that we have to accomplish:

  1. The first step will be the hardest to get congress to agree to; split the current payroll tax into two parts:
    1. A fixed forever earned benefit fund which goes into Al Gore’s lock box and requires a super majority of congress to ever change it. (OASI)
    2. A supplemental income fund which adjusts as congress makes more or less money available for non-earned benefits. (DI)
  2. Put together a staff of statisticians and actuaries to work with the social security administration to determine the actual averages that would be needed for a new system.
    1. The average percentage of income that the average American currently receives if they work to their full retirement age.
    2. The proper age at which we should lock in a person’s lifespan.
  3. Based on these numbers determine the make/take ratio that everyone will be happy with. This will not be a simple task.
    1. Higher make/take ratios result in lower tax rates and higher retirement ages.
    2. Lower make/take ratios result in higher tax rates and lower retirement ages.
    3. This argument will go on for a long time in congress as well as within every special interest group.

Step 1: Spiltting OASDI!

We mentioned on “The Problem” page how the 90th Congress dipped into the Social Security Surplus to offset their overspending habits. This is probably going to make splitting the fund the most difficult step to get through Congress. We are now at a point where our lax policies on Social Security Disability are about to dip into our actual retirement budget. If we split the payroll tax into retirement and other spending, congress will no longer be able to say that there is a problem with Social Security because the Social Security side of the equation will be stabilized and secure.

Side Note: The Disability Issue

As we have previously mentioned on our home page, “this website was not created to discuss the problems with Social Security Disability”, but since this is a major issue, we have created a side note page to further explain the problem.

Steps 2 and 3: Things to consider!

Let’s start by looking at how changes in a person’s birth year and the age at which we lock in their lifespan interact with each other. The green decade columns come from the CDC‘s life expectancy table. Those born in 1947 have reached their full retirement age of 66 in 2014. 1964 represents those who are 50 and older who would not be affected by the new system, and 1974 would be the end of a 10 year phase in period.

72.98 74y 74.40 75.29 75y 7m 75.93 76y 9m 77.94
74.31 75y 2m 75.57 76.37 76y7m 76.99 77y 9m 78.85
75.91 76y 8m 77.04 77.71 78y 78.34 79y 80.02

Note how an individual’s life expectancy increases with age because at the older age those who died at a younger age are no longer part of the average. Note also how estimated lifespan is increasing with each generation.

Now let’s consider how the life expectancies at various ages for the individual born in 1974 would affect the age at which that individual would have to start work if they wanted to retire at age 67 with full benefits at various make/take ratios.

50 76y 9m 9y 9m 26y 1m 28y 29y 11m
55 77y 9m 10y 9m 21y 10m 24y 26y 2m
60 79 12 16y 7m   19y   21y 4m

Our previous examples used the age 60 lock in because the exact 60 year span from 19 to 79 made it easy to demonstrate the 3, 4, and 5 to one ratios without the need for a calculator. Age 60 would lock in lifespan just before the early retirement age of 62, but may not take those who dies before receiving Social Security into account in the proper proportions. Age 50 or 55 might be a more reasonable age for the actual lock in.

Finding the proper make/take ratio and lock-in age combination is going to require the work of a lot of actuaries, mathematicians, and other assorted “geeks” to determine the proper combination that will maintain a continuous balance in the system, and that balance is the entire goal of the new proposal. The proper combination does exist, we just have to calculate it!

The most important thing to remember here is the primary purpose of this website. Once we do determine the proper balance between our lifespan lock in age and the work to retire ratio, the system will stay in balance for all future generations. The new system will be mathematically balanced and will treat every individual fairly and equally.

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