Social Security can be saved

Why can't we simply have a system where deposits equal expenditures?

By Jim Van Meerten Jul 13, 2010 11:42AM
I just attended my 45th high school reunion -- Fort Lauderdale High School class of 1965 -- and one of the hot topics of conversation was Social Security and when you should retire.

I retired last September when I turned 62 and decided to take my reduced benefits. My kids had both graduated from college and were employed, my debt was low and I'd saved for retirement since I graduated from college. My Social Security statement showed I'd been paying in to the SSI fund since 1962 while I was still in high school and had contributions every year since then.

Yesterday an article by David Lightman called "A push to delay Social Security benefits until 70" caught my eye. The article, like most articles on Social Security tells of all the problems but offers few solutions except for pushing out your retirement date further and further. Well I've got some ideas.

The problem with both Social Security and Medicare is that they are not actuarially funded. Revenues and expenditures have no correlation to each other. Half of the U.S. is of the opinion that SSI is a bad deal. They think that after all the years of paying in they will not get their money back. Come on guys, if that was the case why is it going broke?
I'm taking reduced payments and I still get all my money back in just 39 months. I think that's a pretty good deal for me but it's also the reason SSI is going broke. My solution in simple.

First separate the SSI and Medicare funds. Open a government sponsored IRA and a Health Saving Account (HSA) for everyone. Use the present method of funding deposits and invest the money in Treasury Inflation Protected Securities (TIPS). When you turn 65 you will get a payout from your Social Security IRA based on your accumulated balance in the amount of your Required Minimum Distribution (RMD) just like you get from your regular IRA. If you have medical expenses you send a claim into the HSA fund and you get reimbursed up to the amount you have funded. You get exactly what you paid for.

Should you die with a balance, that balance is forfeited to the fund and redistributed to the accounts of the surviving participants. This is the way it happens in the private sector pension funds why not in the public sector?

Sometimes the simplest solutions are the most practical ones? What do you think?

Jim Van Meerten is an investor who writes on investing here and on Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.

Disclosure: No positions in the stock mentioned at the time of publication
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