Retirement

What follows on this and the linked sub-pages is an excerpt from chapter 8 “From Here To There: Retirement” of the book:

When we discussed why safety nets flourish under capitalism, we painted a picture of what the future holds in terms of you being in control of planning and saving for your retirement. We explained that from the day you enter the job market, you have an array of products and services to choose from to build your own customized retirement savings safety net. This is true even today in our mixed economy, although the taxes you pay for Social Security and other programs severely constrain your ability to plan for your own retirement.

We explained that in a capitalist social system, you don’t pay social security and other safety net taxes, so you have more money left to save out of each paycheck. You aren’t limited to your employer’s 401(k) or similar plan for additional savings because, with no rights-violating income taxes, tax-deferred savings plans are a thing of the past as there is nothing to defer. And financial institutions are free to innovate without the burden of regulations. This continuously drives down investment costs, again leaving more money for you. And on top of that, without taxes on interest, dividends, or capital gains, and with the power of compounding returns, your savings grow a lot faster.

And we pointed out that if you’re worried about the potential future solvency of your financial institution, insurance companies offer inexpensive policies to address such concerns. And to protect their own interests, the insurance companies rate the financial institutions and charge insurance based on the risk level. Consequently, financial institutions have an incentive to not unduly risk your money, because that would mean higher insurance costs and many customers taking their business elsewhere.

So how do we get there? The big elephant in the room obviously is Social Security. We need a transition plan. It has taken some 80 years to get us to the current state of affairs, so phasing out Social Security will take time as well. It would not be conscientious to pull the rug out from under those who depend on Social Security for their retirement.

The following three proposals constitute just one possible approach that, over time, will put you and me in control of planning and saving for our retirements:

1. Increase the Social Security retirement age

Increase the Social Security retirement age 1 year every 3 years until reaching the average life expectancy (currently around 78–79 years), bringing it back to the original intent when the program first was implemented in the 1930s. Today’s 67 would become 68 in three years, 69 in six years, etc. The entire range of Social Security collection options from early (age 62) to late (age 70) would be adjusted accordingly. (A similar approach²³ was part of the solution back in 1983 when Social Security last time was on the brink of insolvency.)

2. Reduce benefits

Reduce benefits from a certain cutoff date, allowing everyone who is, say, age 50 and above to collect in full once reaching the retirement age as calculated above. For everyone younger than 50, reduce benefits by, for example, 2.5% per year of age under 50. If you’re 49 at the cutoff date, you’ll collect 97.5% when reaching full retirement age; if age 48, 95%; if 40, 75%, and so on. That will allow for plenty of time to save up for retirement for those younger than 50.

3. Reduce Social Security taxes

Reduce Social Security taxes gradually to zero after all current liabilities have been funded (assuming the above gradual dismantling). Taken together, these initiatives will soon put us on track toward transitioning retirement planning and saving from today’s rights-violating welfare statist model to a capitalist social system where your rights are respected and you’re fully in control of planning and saving for retirement.