The SMART Way to Save Social Security

Personal accounts have a long and well-traveled history. In some countries they are called “individual” or “private” accounts. An individual account is defined by the International Social Security Association as “an arrangement in which capital belonging to an individual person accumulated from mandatory or voluntary contributions is recorded so that it may be withdrawn in case of certain specified future contingencies[.]” The principle of property rights is central to this. It is noted that money contributed to these accounts belongs to the contributing individuals. It does not belong to the government or to private business. However, the terms of withdrawal of funds are usually established and enforced by government.

The United States does not offer any personal account option, and the U.S. Supreme Court decided in 1960 that no citizen has a property right to Social Security, regardless of the mandatory contributions you have made specifically for the purpose of Social Security benefits.

For over 25 years, an increasing number of countries have established some form of personally held accounts in response to growing social security and pension crises. Personal accounts address many of the problems facing retirement programs: ownership, benefits, debt and solvency. In response to these problems, over 30 countries have made personal account plans available to their citizens. Chile, Sweden, the United Kingdom, Switzerland, Denmark, the Netherlands, Argentina, Colombia, Peru, Bolivia, Mexico, Uruguay, Australia, Poland, Hong Kong and El Salvador are on this list.

Personal account programs have been developed over many years in varying formats, depending on country-specific concerns. In some cases, personal accounts are purely voluntary and parallel existing national savings programs. In other cases, they are mandatory. Most countries guarantee a basic pension income floor, in order to ensure some basic level of income in retirement. Importantly, every program ensures individuals’ property rights to their retirement accounts.

It is clear that the U.S. is facing a crisis. Millions of current contributors will not have any retirement savings when they reach retirement. Arguably, we have been facing a retirement crisis since the 1960 Supreme Court ruling. Without any right to your own contributions to Social Security, what happens? The thousands of dollars in contributions provided most likely will never return to your pocket, particularly when they are most needed. Personal account options are well researched globally and are flexible enough to meet the needs of a diverse population. They have received multi-partisan support around the world. It is imperative for the well-being and security of future generations that personal accounts become part of Social Security reform.

Please take a moment to talk to your legislator about opportunities to support property rights and a secure retirement. Learn more about the issue at www.thesmartact.org, and contact your Congressional representatives about HR 4181. We have an opportunity now to bring personal accounts to the U.S., thereby ensuring retirement security for future generations.


Bina Patel is Director of the Oregon Asset Policy Initiative at Cascade Policy Institute, Oregon’s free market think tank. She has a master’s degree in Social Protection Financing from the University of Maastricht in the Netherlands and over ten years of experience working on public policy and direct service in the areas of poverty alleviation and asset building, both nationally and overseas.

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  • Rupert in Springfield

    Ahh, the ever elusive goal of “personal accounts”. Looks good on paper, and I sure would like it, but how exactly are the existing SS recipients to be paid?

    In addition, how would the insurmountable challenge of calling off the yap dogs of class warfare ever be accomplished? Personal accounts means savings, and the best way to accomplish that is through tax incentives. But no, we cant have that, any lowering of capitol gains is inherently evil, because then people would be providing for themselves.

    The fact is, personal accounts, even if based upon the SS contributions of a person who earned minimum wage for an entire lifetime and invested in the most conservative vehicle possible, would allow virtually all to retire as millionaires. This would also give individuals control over their money as an asset. Both of these factors would eat into the battleground of class warfare however, and for those generals who have based their career on pitting one group against another, this can not stand.

  • Jerry

    Why not just shut it down, then. Give everyone whatever is in their account – and tell them to save for a rainy day like Oregon is doing. It is broken and can not be fixed by little tweaks.
    Dump it.
    End the madness of the nanny state.

    • Rupert in Springfield

      Good idea, except for two things, SS is pay as you go, so current workers pay for current recipients. Therefore just paying everyone back what they put in wouldn’t work. Now, one thing we could try is simply flushing almost everything current workers have paid, and use it to pay off current SS recipients. Workers now would get close to nothing for what they would have paid in, but have no continued liability. Current recipients could be paid from a pool of these funds exactly what they put in, perhaps with one or two percent interest, the same as current workers are currently projected to receive. Remaining funds, if any, could be used to pay current workers what they put in with the same one or two percent interest, what they would have received, best case scenario, anyway. Cane wavers yelling about broken promises could go stand in the same line as Measure 37 claimants where I am sure there will be a kind government ear to listen.

      Oh, wait, except for one thing, there are no funds. SS by law can only invest in T Bills, so the funds effectively go into the general till. There aren’t any funds.

      • CRAWDUDE

        Its actually not a pay as you go system. The surplus that should be in the account is now stolwn every year and used in the General Budget. This was a law LBJ and the democrats passed in ’68.

        The first thing we need to do is stop the practice of the government stealing the surplus. Unfortunately the government has so mismanaged this program that drastic cuts in benefits are now necessary to ensure its survival.

        I also suggest doubling the current cut-off income from $95,000 to $190,000.

        Removing illegal aliens from our soil, enforcing immigration laws so businesses have to hire legal citizens who pay taxes, not just absorb benefits.

        All this put together might extend the SS program a bit.

        In 2017 the SS program will no longer take in more money than its putting out. In 2040 the non-existent surplus stolen by the government runs out (benefits will have to come out of the General Fund after 2017), after which the money be put into SS will be less than is being paid out.

        • Rupert in Springfield

          >Its actually not a pay as you go system.

          SS was conceived, has been and always will be pay as you go. Current workers have always paid benefits or current recipients, hence the Ponzi scheme nature of the program from the get go. SS might run surpluses but that doesn’t change the fact, as all of it goes into the general till, none is set aside and invested on behalf of the individual who paid, which would be the case if it were not pay as you go.

          At any rate, any efforts to extend this quite cruel program that impoverishes all, for no real gain, should be avoided.

          • CRAWDUDE

            I disagree with your first paragraph but potato, potato, tomato, tomato… it really doesn’t matter. Regardless, the system is hosed up, I’m not sure its fixable.

            I agree your last sentence.

          • dean

            SSI was not designed as an investment program. It was designed to keep old people out of poverty, and it has worked. But over time we have gotten more and more old people to support, and I will soon be joining them (us).

            I think there would be broad political and popular support for a new parrallel government mandated retirement savings program that did not use existing SSI funds. Particularly if this were “graduated,” i.e. those at the low end put in a small amount that is matched, with a phase down for higher incomes (who may want to opt out anyway since they can do their own savings). But building savings means less spending now to gain something later. That is the nature of savings, and we can’t squeeze more blood from increasing numbers of turnips at the low end of the economy. So we either need to get wages boosted at the low-middle so these folks can realistically save, or tax the rich more to pay for new retirement accounts.

            The political problem is that conservatives have insisted on raiding the current SSI payments to pay for the new, untested program, which is bound to bankrupt the present system sooner rather than later. Democrats respond with full scale alert to rally the cane wavers to win votes. We need cooler, non ideological, wise and calculator savvy heads to get in a room and come up with something that works more broadly and is not based on Grover Norquist fantasies about starving out the nanny state.

          • Rupert in Springfield

            SS was a revenue generating program when first conceived, it had zero to do with providing for anyone, rich or poor, this is why two things were crucial to it, one setting the age to qualify past the average lifespan and two making sure no one was ever actually entitled to it in the sense of ownership of the funds ( as Supreme Court decisions affirm ).

            The only good news about SS is one thing is certain, the program will end in the next 30 some odd years, given the Comptroller Generals recent projections on his current country wide tour. The question is, how far in hock do we want to be before we realize this? Both Democrats and Republicans cant wait to throw more money into new and exciting entitlements ( Bush with the prescription drug benefit, Democrats with expansion of SCHIP to people making $75k ), so the idea that there is any incentive to tighten belts seems far fetched for the moment.

            I wonder if gold will keep going up or should I just start thinking about buying that old missile silo and wait it out? The mind does wander…..