It's really simple, actually. Simplicity, however is not ease, and the kind of reform I am proposing would not be politically easy. The toughest part is that it would require educating a lot of Americans who may not be very numerate as to how they will benefit. However, the political difficulty I will not address here; this is just a simple illustration intended to outline how the process can be made to work.
The idea is that the Federal government would hold a reverse auction for Social Security benefit buyouts. Uncle Sam would offer lump sums to people in exchange for the following:
- Forfeiture of all future Social Security pension benefits
- Must continue to pay all FICA taxes as presently
- Must hold lump sum amount in a special account (like a Roth IRA), subject to substantial penalties for disallowed distributions.
That's basically it. To control expenses, Uncle Sam could earmark a certain amount of funds that, once exhausted, would terminate the program for that year.
Let's say we start the first year with a modest budget (for Washington, anyway) of $50 million. The Social Security Administration (SSA) could allow those with a certain number of years of work history (perhaps 5+ years of W-2s) to auction off to the government the rights to their SS benefits. Offers will vary from a couple thousand dollars to perhaps hundreds of thousands of dollars.
A young worker who believes that his pension fund won't exist in 40 years might offer an amount like $5000, since the bird in the hand is so much more valuable. That $5000 at age 25 would be over $51k by age 65 at only 6% (and at 10%--the rough average return of the stock market over time—the amount grows to over half a million dollars). However, the future expense to the SSA of that young worker could be hundreds of thousands of dollars. The government is getting a sweetheart deal, selling the benefits for pennies on the dollar. But the buyer is also getting a good deal. He doesn't know if he will live to ever draw his retirement. He's also getting a hard asset he owns (and can pass along), rather than a potentially empty promise from the government.
Other workers of older age would obviously make much higher offers, because they have far less time. But the amount each person may offer is really irrelevant for two reasons. First, we've capped the annual expense (at $50 million in this case) to the government. Secondly, the program is complete optional. No one will be taking advantage of anyone else. The taxpayer bids, and the government chooses to accept or reject based on its estimates of that person's future pension expenses and their future contributions.
The major downfall of this idea is that it provides a means to solve a problem that nobody in Washington apparently cares about: the massive unfunded liability of Social Security.
Still, it would allow each taxpayer to have the chance to receive a small percentage of something rather than 100% of nothing, which seems like a worthwhile trade.