While there were certainly good intentions with the Social Security program, it was based on a questionable concept where current workers would pay to support workers who were now retired. At the time it was set up, there were many more workers than retirees, so each individual didn’t have to contribute all that much. Along the way, the money coming in for Social Security was not saved for that use, but was distributed out in the general funding pool and replaced with I-O-Us. Also, with the size of the Baby Boomer generation, the number of retirees will soon exceed the number of those in the work force. The Social Security system can be nursed along for a while longer, but that would mean increasing the contributions from workers and/or reducing the retiree benefits. Neither option is a viable solution.

Instead, Social Security will be phased out and replaced with legislation requiring a secured retirement account (SRA) for all working individuals. The account would be set up with an individual’s first job after reaching the age of 18. There would be any number of options for companies who could set up the account and administer it. The rules of the account would be very similar to those of existing IRAs, including setting a retirement age for withdrawals and providing for some loan and hardship provisions.

The key difference with an IRA is that the account is funded directly out of the wages paid by the employer. Five percent of all wages paid to an individual will be directed into their SRA account. For example, a worker with a weekly salary of $1,000 will get a check for $950 and $50 will be deposited in the SRA account. Also, these SRAs will require the investments to be made in “safe” government-backed securities, such as treasury bonds, for the first $50,000 in the account. Above $50,000, the individual owning the account can invest the money in any allowable investment vehicle and can self-manage the money or hire an investment professional. Also, individuals can authorize any amount over the five percent to be taken out of their wages and deposited to the account. IRAs, 401k accounts, etc. would no longer be needed since there are no tax advantages any more (see #3 Tax Revolution) and the SRA will accommodate all the retirement funding needs.

Essentially, this change forces all workers to have, and fund, their own retirement accounts. Anyone that works most years from 18 to their retirement age will have a nice nest egg and not need government assistance to support them. Compound interest and dollar cost averaging should produce significant gains in the five percent contributions being made during the working years. Couple the SRA with the health insurance and other benefits provided by the unions through retirement, and retirees will be able to keep a high quality of life throughout their lives.

A few other things to note…when a man and woman get married, they are automatically given joint ownership of each other’s SRA account. If one spouse had not worked and does not plan to, then there will be only one account between them. If a divorce occurs, the funds in the account, or accounts, will be split up equally based on all the contributions made during the time they were married. Upon the death of an owner of an SRA account, the money in the account is passed on to a beneficiary’s SRA account, unless it is needed to provide child support for beneficiaries under age 18.