Personal Accounts

The US Debt is inching toward the $8 trillion mark.

This massive debt is the thing that is putting social security in jeopardy.

The problem is that the Pay As You Go retirement system has placed the bulkwark of American retirement income on a single financial tool - taxes on income.

There really is no guarantee that our children's incomes will rise to meet the challenge of our retirement demand.

I favor personal accounts because the accounts could help diversify this retirement bundle. Failure to diversify the retirement incomes leaves the future elderly at a greater risk than they have in the market. A drop in incomes or a continued drop in the employment rate could devastate the future elderly.

The goal of private accounts should be to diversify retirement investment...not to destroy social security. It should be an optional thing. There needs to be only a modest percent of people opting for private accounts. Allowing some people out of SSN makes SSN stronger.

The problem comes in implementing a switch from a Pay As You Go to a diversified model. The money going into social security at this moment goes to pay liabilities assumed decades ago. The money being paid into the system creates liabilities that we will not see for decades.

Moving from a Pay As You Go system would require shifting liabilities backwards. Those people who opt for private accounts take money out of the current system and remove a future liability. The problem is that the government today would then have to borrow money to pay current retirees.

Since the goal of private accounts is to diversify future retirement incomes and not to destroy SSN, I think the initial phase of retirement accounts should be both modest. Opting out of SSN should also be costly. Let's say a particular future liability was $1000 at current prime rate, a person opting for a private account would only get $750.00 in their private account. The other $250 would in the main SSN pool.

The goal of SSN is to guarantee that people have an income. As such, you may want the private accounts to have saving requirements. For example, you may only be allowed to have a private account if you have x number of dollars in an IRA or savings.

The goal of private accounts is to diversify and reduce the demands placed on future paychecks. Diversifying does not mean and end to SSN. I think the ideal solution would be to adopt private accuonts but to make it costly to switch to a private accounts.

Looking at the current US deficit and the massive increase in entitlement payments, the US is placing unrealistic demands on future paychecks. If we cannot figure out a way to diversify retirement income, we could create a systemic crash.