Our Social Security system is really a safety net, not a retirement plan. When you put money away for retirement you invest in, and build, a nest egg – assets you can spend in retirement. After handing over 15.3% of their working life income in the form of payroll taxes to the government there is no nest egg waiting for Americans at retirement. Instead the government sends you a paltry monthly check only large enough for many to avoid starvation.
Politicians call Social Security a retirement plan to fool the people into believing the all-giving, all-knowing, all-powerful government has got their back when they retire. In reality, the government and their “common good” politicians have been stabbing Americans in the back for over 70 years. They justify their con with the sound bite that 50% of the people would fall below the poverty line without their Social Security check, After investigating the truth this article reveals that line should make you ill.
The “con” is what you could have done with the 15.3% of your lifetime income if you didn’t have to pay it to the government. This year the government’s payroll tax collections will be over $1.3 trillion or $7,650 for each of America’s 170 million households. That means the average household must earn just shy of $50,000 per year.
Now what could this household do with the annual $7,650 it pays to the government to prepare for retirement. If it had invested that amount on a weekly basis for 40 years or 2,080 weeks into indexed stocks (funds with 500 or more different stocks in them) it would have compounded into a nest egg of $9,878,000 at the average rate of return for the S&P 500 stock index for the last 30 years or 12.8%. That rate is just about half of the 25% return on investment that Warren Buffet, the multi-billionaire investor, has made on his investments over the last 30 years.
Now if the taxpayer just earned 10% in the first year of his retirement – his 41st year – he would get a $82,000 monthly retirement check just off the income from that nest egg. His yearly income would be $987,800 or nearly 50 times his last annual salary. Now the 12.8% includes a price inflation factor of 3% but doesn’t include a wage inflation factor in the computation. A lower rate of return will generate a smaller nest egg - even a 4% real growth rate and 3% inflation rate or a 7% combined rate generates in 40 years a $1,700,000 nest egg. and a $14,000 a month retirement check.
The proof of the con can be understood in the recent study of the net worth of the average non-Hispanic black and non-Hispanic white. The average black has a net worth of $11,800 and the average white $118,000. What is really important is not the discrepancy between black and white but the enormous difference between these amounts and the millions they would have accumulated if they had “personal investment accounts” for the last 40 years. Roughly speaking Americans would have over $500 trillion in stocks and bonds instead of the $23 trillion households presently hold. If one concentrates on just reforming or replacing Social Security – you miss the bigger picture of wealth creation altogether.
Personal investment accounts will not only make the poor and middle-class rich it will vault the American economy to new levels. Annually diverting payroll taxes of $1.3 trillion into each taxpayer’s personal account and immediately investing such amounts in the capital markets (stocks and bond funds) will explode the growth of the American economy – explode it geometrically. As the nest egg can be willed to their kids succeeding generations will be wealthier and further explode the growth of the economy by the investment of those inherited funds in the capital markets.
Personal account legislation has ancillary benefits. It cuts the American budget in half as mandated entitlements are extinguished along with their many unfunded liabilities. As the payroll taxes are eliminated, the tax cut will be the biggest in the history of the planet. As this plan we call “Rise Up America” really delivers the “common good” utilizing free market principles capitalism will relegate socialism to the dustbin of history. By having one personal account for every person, millions of other retirement plans can be scrapped, played out or merged into a person’s personal account.
Business has incurred substantial retirement costs with which foreign manufacturers aren’t saddled. They say a new American car has as much as $2,200 of costs associated with retirement plan costs for older workers. Personal accounts will eliminate the need for business to incur and be saddled with these costs thereby improving their competitive position in the market.
There are so many benefits we can’t list them all here. For blacks personal accounts will act as a substitute for reparations. Women can stay home, rear the kids, never work a day in their life and retire a millionaire by means of automatically accumulating 50% of her husband’s personal account in her own personal account – the ultimate solution to increasing the birth rate, solving our demographic problems and increasing the supply of labor domestically. For a list of other benefits read the Mission Statement on the www.riseupamerica.us website. There are numerous tables there proving the compounding effect of nest egg accumulations.
Some will say that we can’t afford the cost to transition to personal accounts. We say that we can do it off-budget for 6% of what it has cost us to lower interest rates to revive the economy. Actually America is so wealthy it is embarrassing. We have a country worth $400 trillion and a debt to all foreigners of only $2.3 trillion. We can transition to personal accounts out of petty cash and have the government guarantee existing and all future retirees that their monthly checks will never be less than what is promised to them today by existing entitlement programs including Social Security, Disability and Medicare. The potential $83 trillion of unfunded liabilities we hear so much about we owe to ourselves so they are a wash on America’s balance sheet as are 77% of our national debt of $9 trillion which we owe to ourselves. Remember this is a government of, by and for the people.
We manufacture as well as consume almost 30% of the world’s goods and services with only 4.5% of the world’s population. We have built 4 million miles of interstate highway and 350,000 bridges and overpasses on $3 a barrel Saudi crude that would cost $150 trillion to replace today at $100 a barrel. America is so far ahead of the game it may take centuries for the third world’s large populations to catch us –if ever.
Yet we are running on one cylinder as the comparison of what our individual net worth is now to what it can become. Taxing the poor and middle-class with punitive payroll taxes is a major mistake made by America’s political leaders. It is best to get off the tax the poor and middle-class train right now and transition to personal accounts. See www.ownershipsocietyinstitute.com. It should be the people’s rallying cry in electing Congress and a President in 2008.
Dick McDonald
www.riseupamerica.us
12/3/07
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