In an excellent column for Forbes, Ken Kam explains what's really wrong with Social Security. Forget the politics and the debate about its future solvency -- Kam explains it this way: When his daughter was born, he realized that if he could invest $2 thousand for her each year of her life and grow it at 11% a year (An aggressive target, but we'll go with it), that money would have grown to $1 million by her 40th birthday -- and $30 million by her seventieth!
What does that have to do with Social Security? Most people put in more than $2 thousand per year -- a lot more. And yet Social Security will never provide them with anything like that kind of a nest egg.
Albert Einstein is widely quoted as having said that compound interest is the most important mathematical discovery of all-time -- or words to that effect. And yet our federally mandated retirement system fails to take advantage of it, instead opting for what amounts to an elaborate Ponzi scheme, sustainable only by the rule of law and population growth.
Mr. Kam talks about his idea for a "Bicycle Trust" as a way to "assist our children in their efforts to become self-sufficient, valuable members of society. Just as a bicycle enables you to travel farther and faster than being on foot, our trust should amplify our children's own efforts to develop their abilities so they can go farther and faster than they otherwise would have."
There's a link to more information in the column, and it's certainly worth checking out.
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Reader Comments (Page 1 of 1)
12-15-2007 @ 7:48PM
Lita Epstein said...
This column does fail to mention a few things. First, most people don't start working until there 18 or older and then retire about 45 years later - and that's if they work steadily. Many women don't work a full 45 years because they take time off to raise a family.
Social Security is a safety net. The money paid into the system includes more than a benefit at retirement. There is coverage if a person becomes disabled and there are benefits for family survivors. So the money paid into Social Security includes a retirement benefit, a disability benefit and a life insurance benefit. If one was to pay for the disabilty coverage and the life insurance coverage for family members, $2000 per year would not turn into the kind of retirement fund suggested here.
If a family can afford to put away $2,000 per year for each of their children, of course they should. Savings must increase by all Americans for this country to be in good financial health.
Social Security was started as a safety net for those less fortunate who either could not earn enough during their working lives to fund their retirement (remember many are earning at minimum wage or not much above) or for those who become disabled earlier in life. It was started after the depression when many senors had nothing and were living in the streets and this country never wanted to see that again.
Lita
12-16-2007 @ 7:00PM
SirWillae said...
Social Security is a safety net.
Huh... and here I thought Warren Buffett was doing pretty well for himself. Why is it that he collects a monthly check from the federal "safety net". If Social Security is a safety net then it's a really poorly-designed one. In fact, statistics suggest that the demographic that benefits most from Social Security is white women while. Other demographics like black men derive little benefit. Explain to me how that's an effective "safety net".
12-16-2007 @ 6:09PM
walt said...
If Congress would stop using Social Security to "balance" the budget and allow the money to grow, we would have fixed this problem years ago.
12-17-2007 @ 11:59AM
SirWillae said...
Yeah, that's pretty much nonsense. The national debt has ALWAYS exceeded the "value" of the Social Security Trust Fund. Always. Since its inception. Let me be clear: NEVER in the history of Social Security has the "value" of the trust fund exceeded the national debt. This is nothing new. It's the way it's always been.
12-16-2007 @ 9:48PM
Galls said...
Singapore(I think) does exactly what you are talking about and does it very effectively.
The residents pay 1/3 of their income to taxes. Another 1/3 goes to what essentially is a mandatory personal security account, invested and not immediately surrendered to another generation. All that capital invested obviously helps the economy. Further more this leaves the population with 1/3 of their money to spend.
I am sure they have some provision for the poor, this is just recovered from a conversation I just had with my old economics prof.
12-16-2007 @ 10:24PM
herbchina said...
How many of you geniuses are aware that your social security taxes collected from your paychecks go into a "trust" fund which the federal government then uses without paying a penny in interest for using it.
That is the main reason that the fund can't support itself unless more and more money is collected.