Archive for December 15th, 2011

December 15, 2011

The Trickle-Up Theory of Economics and the Case for Privatizing Social Security

For every force there is an equal and opposite force.

By Jeffers M. Dodge 12-14-2011

Privatize Social Security "Make the Poor Wealthy"

Privatize Social Security "Make the Poor Wealthy"

The Democrats say they are opposed to the Privatization of Social Security for many reasons. One preeminent excuse is that it will “put people into an insecure place for their retirement.” They call it the “eat dog food plan.” But the real reason Democrats hate the idea is that it will create a class of citizens that are invested in the success of America instead of becoming dependent on Big Government.

Also, Democrats won’t tell you that President Obama confiscated $500 Billion from the Medicare Trust Fund. They will not mention that just this year he took $150 Billion from the Social Security Trust Fund putting seniors in jeopardy of having their benefits significantly cut. He also threatened to stop issuing Social Security checks to retired folks if the Republicans did not agree to raising the debt ceiling. This means, for the first time, we are at the mercy of big government politics to secure our future retirement. Talk about an insecure place.

I am going to tell you why I want to opt-in to a Personal Saving Account that is molded after the privatized retirement systems in Peru and Galveston, Texas and proposed by Newt Gingrich.

I was born in 1950 and went to work at the age of 21 (in 1971) earning about $10k per year and I plan to retire at the age of 65 in 2015 earning about $90K per year. I will have worked 44 years and earned and average of $42,000 per year.  Under the current Social Security system I will collect about $1,500 per month in benefits, provided that it is still solvent.

If I had started putting 15% of my gross earning into a personal “Universal Savings Account” at the age of 21 and tied it to the S&P 500, I would be able to retire at the age of 61 with about $25,000 p/month and have a $3.3 million nest egg to leave to my children and grandchildren when I die.

Here are my figures;
Average Hourly rate – $20.00
Weekly earnings – 40 hours – $800
Average 40 year earnings – $41,600
Yearly Withholding – at 15% – $6,240
Invested in S&P 500 Rate of return – 10%*
Years invested – 40
Total Nest Egg – $3,331,463
Monthly Payment of Interest @ 10% -$27,762**
(Data developed by Dick McDonald***)

Basically, the Government has been taking my money at $6,000 per year and spending 80% of it on entitlement benefits to current retirees and the other 20% on buying votes. In other words my rate of return with the government has only been 1/2 of 1%. And to add insult to injury, I do not have a nest egg to leave to my heirs. So, in essence the government stole $3.3 million dollars from my offspring.

Think about it for a moment. What does the stock market represent? It reflects the health and strength of the American business sector. (Not the U.S. Government, but American businesses – main street, its workers and entrepreneurs.) So why not work, save and invest in America? More than 50% of Americans have some skin in the game. The benefit of this program will be a healthy private sector which means more tax revenue for the city, state and federal treasuries.

Question: Would workers need to set up additional 401ks and other retirement and pension plans? No, the 15% per month allocated to your future retirement will be all you need. This would mean more disposable income for all workers. Consider the wife that makes the choice of staying home and raising her children? Now she can do it. Taking 18 years out of her professional career to raise a family knowing that in the long run it is the best (and most fulfilling) thing to do. And with the advent of technology more and more people are working from home.

Consider the fact that Black Americans do not live as long as other races and statistically do not live long past retirement. With a personal account one can choose when to retire after the age of 50.

From a macroeconomic perspective, imagine transferring $1.3 trillion dollars collected in payroll taxes every year out of the government coffers and into the capital markets. What do you think would happen to the stock market returns, year after year? Businesses would be expanding at record levels, the competition for skilled labor would increase, the average wage would increase and we would have to loosen our immigration policies just to satisfy the demand for labor. What would happen to the $100 trillion in future unfunded entitlement liabilities of the Federal Government? They would be wiped out. The size of government would be cut in half.

This is the smart way to go and this is the fundamental transformation that we hoped Obama was talking about; private sector growth and prosperity, instead we got abject failure.

What would happen to the value of the Dollar if we transferred $1.3 trillion back into the private sector year after year? It would become the strongest it’s ever been. This is not necessarily a good thing so we need to temper the rise in value of the dollar by printing the money to pay for the transition costs associated with privatizing the entitlement programs. This sounds tricky, but is a clever way to separate, for good, the dysfunctional socialist aspects of our federal government in a slow and methodical way.

The entitlement programs are not the only destructive big government institutions that need to be done away with. The Department of Education and ObamaCare can be rendered obsolete with a few well-appointed tax incentives to the owners of the Universal Savings Accounts. The retirees can leave their nest eggs to their offspring in the form of trust funds that would pay for the basic financial necessities of life, such as, funding the best private education and insurance for their children. Consider private health, life, auto and homeowners insurance. Even a janitor making minimum wage can leave enough money for his children to attend the best schools and have the best healthcare. This would go a long way in reducing gang membership, crime and poverty.

After thinking through this new way of looking at our retirement there becomes one big question that begs to be answered. Why haven’t we moved to personal accounts sooner? The only answer is because Big Government could not exist without these big socialistic institutions. Both parties are to blame and a lot can be gleaned from watching this video about how “How Congress admits to skimming trillions of dollars of overpayments from the Social Security trust fund”.

WATCH PopModal Videos – Senate Democrat admits to skimming trillions of dollars of overpayments from the Social Security….

In effect, Congress has been enjoying a subsidy of about $200 billion each year from Social Security overpayments every year for 50 years. Congress owes in excess of $2 trillion dollars to the Social Security Trust Fund that as of this year has become cash negative. What’s up with that?

Lets get back to the subject at hand — transforming Social Security to the private sector. The administrative costs involved to manage your USAccount should be a flat fee for the life of the project. In the beginning the USAccount balances will be as low as perhaps 1% of gross appreciation. A 1% fee may not cover the costs initially but as time moves on the balance in your USAccount grows and the 1% fee grows with it. This provides an incentive for the administrators to do their best to ensure a robust growth and adequate safety (insurance and a diversified portfolio like the S&P 500 Index Fund) for your money.

Trickle down economics never really reached the bottom rung of our society. This is a direct result of the destructive nature of the socialistic entitlement programs. Once these have been replaced, even the minimum wage janitor could retire wealthy. This is why it is called the Rise Up America Plan and this plan will make the poor rich and the nation smaller, stronger and smarter. This is the Trickle Up Theory of Economics.


** The S&P 500 had a total return of 15.1% 

*** Dick McDonald the author of the RiseUpAmerica Plan to Privatize Social Security and make the Poor Rich.

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