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Social Security – A Possible Fix

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Ever since President Bush started discussing the reformation of Social Security I have read numerous articles criticizing his plans, both by Republicans and Democrats. But I have yet to see anyone else put forth a plan of their own. So I thought since I share the same last name with Chairman Greenspan I would come up with a plan of my own and let you all criticize my plan.

But first a little background. I watched a news conference with President Bush and some investment guru whose name I did not catch. This guru was saying that he could guarantee a return of at least 3.75% to 4.0% on the private accounts the President wanted to create. The President then turned to the cameras and said that is a lot better than the 1.75% to 2.0% you (the American People) are currently getting. So that is when I started thinking about the following idea.

1. Place the Social Security Private account money into federally chartered Savings & Loans or Banks.
2. Loan this money out to Americans to purchase homes. It cannot be used for any other purpose!
3. The interest rate will be set at 5.0% for 30 years.

4. Pay the S & L’s and Banks 1.0% return for their administration of the program.
5. Pay the private account holders 4.0% on their money.

This guarantees money for Americans to purchase homes at 5.0% interest and it stimulates the economy by boosting home sales at a fair rate plus grows the private Social Security accounts by 4.0% per year. And remember if a retiree has a private account in his name he can pass it on to his heirs. Under the current system you could work and pay into Social Security for 50 years, retire and drop dead or get run over by a truck and killed. If you are a widow or widower with grown children, they get NOTHING! With the private accounts your adult children or your alma mater or favorite charity could get the money in your account.

Sure, I know, everyone says the stock market is a better deal and should in the long run provide more than a 4% return. But the argument against that is that the market has peaks and valleys. If you are lucky and retire at a peak and pull all your money out good for you. But what if your private Social Security account has (for example) $400,000 in it when you are 2 years away from retirement. But when your retirement time arrives the market is in a valley and your $400,000 has dwindled to $200,000! Think back to the last few years in the stock market. That is exactly what happened to millions of people.

Why would a Savings and Loan or Bank want to participate? How much is 1% of a Billion? Ten Billion? It would be found money for them. If they don’t want to do it then let the Social Security Agency administer the program using the 1% to pay the salaries and overhead of the Agency. Anything left over can be put back into the Social Security fund.

The hard part is figuring out how to apportion the money that is currently coming in through payroll taxes between the payments needed to sustain current retirees and the new private accounts? I don’t have the answer to that. If you do, let me hear from you!

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About A Decent Person

  • Nancy

    What would you do about defaults?

  • Bob Greenspan

    Defaults, in my estimation would be insignificant. A tiny fraction of the number of loans outstanding. Besides any defaults would be backed by the real estate upon which the loan is made. Not so in the stock market. For instance Fidelity used to sell millions of GM bonds a week. I just looked at the Fidelity Web site and they state that GM bonds have been classified as highly risky and they are not handling any new GM issues. Thanks for the comment.