I have read a number of different proposals for fixing the Social Security program. As a member of Generation X, experts say I'll receive benefits reduced by 25 percent in 2033. Instead of debating how to save Social Security, I think it's best to scrap it and start over. According to a recent article by CNNMoney that interviewed Peter Diamond, a Nobel Prize winner in economics, Social Security can be fixed. Diamond claims Social Security won't go to zero by 2033 even if nothing is done to fix the system. I think Social Security as it now exists is too complicated. The answer is simple: Thrift savings plans. Diamond says he looks at the TSP as a model for improving the retirement system.
Offering TSP to everyone
At this time Thrift Savings Plan or TSP is offered to federal employees and members of the uniformed services. TSP are similar to 401(k) plans offered by companies. Instead of taking money out of paychecks for Social Security, money needs to be taken out and automatically invested in TSP for individuals. Since the Social Security system depends on people who are working now to support the retired recipients, the switch would have to be gradual.
Investing in lifecycle funds
To prevent people from losing all their retirement money by gambling with the stock market, the TSP would require people to use lifecycle or target-date retirement funds that automatically shift from aggressive to conservative as participants grow older. People should still be able to invest in Roth IRA and other retirement plans outside of the government-sponsored TSP.
Locking down the money
I think the purpose of Social Security was to make sure elderly people would have enough money to cover the basics of food and shelter in case they didn't save money for their own retirement. It's unrealistic to expect everyone to save money for retirement on their own. Having a mandatory TSP would help people who aren't good at saving on their own. The accounts could remain inaccessible to individuals until they reached age 55. At that time, people could receive monthly annuity payments based on their account balance. People could choose to wait until any age to begin receiving their annuity payments that would replace the old Social Security check.
Leaving an inheritance
Another benefit to the TSP is that it would allow parents to leave their children or others with an inheritance. Adult children aren't able to inherit their parents Social Security payments. People can't leave their Social Security checks to charities or churches. However, people could have the freedom and flexibility to leave their TSP remaining balances to their heirs or charities.
I think the government should mandate that workers save 10 percent into a TSP if they don't save in any other saving retirement vehicle. The mandatory saving rate could be lowered to 5 percent for people who save an addition 5 percent of their salary or more using a Roth IRA or other retirement vehicles. I always hear people complain that the government shouldn't be able to touch Social Security because it's "our money." Truth is, Social Security was a tax. It's time to replace Social Security with what people though they had all of these years: a personal retirement fund.
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