“Social Security was an extraordinarily good deal for the first beneficiaries. Over time, the program has become less and less of a good deal, and will continue to do so. And it looks even less attractive relative to plausible alternatives. In 2012, the average Social Security benefit ran just over $1,200 a month. For that, you’re taxed 12.4 percent of your take-home pay from your first day of work until your last. All but a small group of high-income workers pay that tax on nearly 100 percent of their income. Compare that to this: A married couple, each earning ten dollars an hour and investing only 10 percent of their earnings at a modest 5 percent return, retires with an annual income of about $50,000 a year—assuming they never touch the nearly $1 million principal they’ll leave to their children. (That 5 percent is conservative: The average inflation-adjusted return on the S&P 500 since 1950 has been 8.62 percent. Assuming an 8 percent return gives the theoretical couple above nearly $3 million for retirement. That $50,000 a year represents about three and a half times the average Social Security benefit—and, unlike Social Security, it is not subject to downward revision should politicians decide doing so is desirable. President George W. Bush was mocked for calling his proposal to cultivate such minimum-wage millionaires the “Ownership Society,” but it was the most important initiative of his presidency, one that would have entirely remade the American economy. A pension system in which workers spend fifty years investing in the real marketplace and earning real returns will radically transform everything from retirement planning to corporate governance—and will shift trillions of dollars in capital away from politics and into investments in real goods. Most important, such pensions would be heritable—enabling the building of multigenerational wealth in communities in which that currently does not exist. Solving the problem of poverty among the young begins with solving the problem of pensions for the old. We can do that for less than most Americans are paying in Social Security taxes today.”
“The simplest method is to begin with an opt-out provision for Social Security. People who understand the benefits of deferring consumption in order to invest for retirement should have the option to act on that knowledge using their own resources. Laws should be reformed allowing parents to invest on behalf of their children, and the tax code should be reformed in such a way that retirement savings can be taken out of pretax income with no taxes on the proceeds and no taxes on inheritors of such accounts. If we want people to make responsible decisions, we should begin by ceasing to punish them for making responsible decisions. On the individual level as on the macroeconomic level, much useful social innovation happens through imitation: When people see the benefits of lifelong investing, they will want to realize the same advantages for themselves and their families. Critics will point out that this opt-out would contribute to the deteriorating financial condition of the traditional Social Security system. My own inclination is to regard that as a benefit rather than a cost: The sooner we start moving capital away from politics and into productive enterprises, the better.”
Excerpt From: Kevin D. Williamson. “The End Is Near and It’s Going to Be Awesome.” HarperCollins, 2013-05-01. iBooks.
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