“Social Security is now almost completely self funding …” (Boland, March 2). The Social Security Act of 1935 created an “intergenerational transfer of wealth.” Contributions today aren’t invested in account(s) set aside to pay our future benefits, though 32 percent of Americans think this (Pew Study 2015). Payroll taxes collected now cover benefits paid today. Future benefits are not pre-funded, repeating this cycle.
In 1983, payroll taxes were increased to build a cushion anticipating the swelling numbers of retirees (aging baby boomers). The resulting “surplus” is used to cover shortfalls between taxes collected and benefits paid. Projections on SS future insolvency combine estimates of future payroll taxes collected, benefits paid, and fund depletion.
In contrast to the current underfunded system, defined-contribution plans can support themselves. Salary-based corporate contributions to workers’ personally directed accounts, invested now, can be drawn at retirement. Performance on “your” account dictates money available at retirement age. A mutually-accepted actuarial method could calculate present value of future defined benefits for conversion. Applied as a lump sum to individual accounts, this money seeds the new approach. But as future obligation remains unfunded, there is no money to buy out obligations. We are stuck in a Ponzi scheme.
Mike and Kristin Stilton, Boise