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Counterpoint: Help Soften the Blow of Social Security's Fall, Mr. President

President Barack Obama fiscal cliffDear President Obama:

Congratulations, Mr. President, on your successful reelection. As the post-election sell-off in the market reminded us, though, the substantial financial problems facing our country are far from over. High among those that need to be addressed early in your second term is the future of Social Security.

Within about the next 20 years -- maybe even sooner -- Social Security's Trust Fund is expected to run dry, which will compel the government to slash benefits by about a quarter.

Thanks to your temporary payroll tax cut, scheduled to expire at the end of this year, you have a one-time-in-history opportunity to shore up the program. With a simple move around that expiration, you can:
  • Dramatically soften the blow from when the Trust Fund runs dry
  • Strengthen the program for generations
  • Encourage investments in America
  • Showcase your ability to work across the political aisle for the good of the country.
While my colleague Dan Caplinger may have a slightly different perspective on how you should proceed -- he thinks you should extend the payroll tax holiday (you can read his advice here) -- I propose an entirely different approach that I believe will win strong across-the-aisle support without busting the budget any further.

Higher Taxes Even Republicans Could Support

Mr. President, to achieve this incredible legacy, all you would need to do is make two simple adjustments when the temporary payroll tax cut expires.

First, as part of the payroll tax cut, money has been transferred from the General Fund to the Social Security fund to make up the lost revenue. Keep that transfer going -- it will keep the fund from emptying any faster than it is already on track to do.

Second, use the money from the restored payroll taxes to set up something similar to the Federal Thrift Savings Plan for everyone who pays into Social Security. That government program has a track record of successfully enabling U.S. government employees to retire comfortably -- some even as millionaires -- and it can work similar wonders for the rest of the country, as well.

You can jump-start this plan with the money from the restored 2% payroll tax -- and make it clear that it is the path that will help people prepare for the pending collapse of the Social Security Trust Fund.

By structuring things this way, you get:
  • A program that's no worse to the deficit or Social Security's future than the 2012 situation
  • Taxes that are no higher than they're already scheduled to be in 2013
  • An opportunity to let every American invest in America
  • A strong buffer for retirees versus what they'd have without this fix when the Trust Fund empties.
What This Would Mean to Typical Hardworking Americans

With the average household income around $50,000 per year, this plan would put $1,000 annually toward a typical family's account each year. Assuming the country's median age of about 37 and a Social Security retirement age of 67 , that typical person has around 30 years of compounding before reaching full retirement age.

Since its inception in 1988, the Thrift Savings Plan's C Fund -- a fund that tracks the S&P 500 index (^GSPC) of American stocks -- has returned 9.23% annually. The Thrift Savings Plan's F Fund -- a fund that tracks a broad index of American traded bonds -- has returned 7.12% annually since its 1988 inception.

In a nutshell, $1,000 a year invested in those funds for 30 years at those historically realized rates would grow to somewhere between $96,525 in the F Fund and $142,294 in the C Fund. That's real money to the average American household. In fact, it's enough to cover somewhere between $3,861 and $5,692 of the retirement income shortfall they'd otherwise see after the Trust Fund evaporates, based on the 4% rule for retirement withdrawals.

Of course, there are no guarantees in investing, but even lousy investing beats not investing at all. And it certainly beats the 25% haircut in Social Security benefits with nothing to buffer it that will be our fate if we simply let the program run its course, unchanged.

Mr. President, you have a one-time-in-history opportunity to shore up what has been called the most successful American government program of all time. By working with Congress to pass these simple changes to the program, you can secure your place in history as the man who saved future generations of American retirees from an otherwise ugly fate.

Motley Fool contributor Chuck Saletta welcomes your comments. For The Motley Fool's latest research on Social Security, Medicare and your retirement, click here for a free video report.

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rpotter161

Withhold all congressional retirement until SS is made solvent and is restored correctly.

November 15 2012 at 11:34 AM Report abuse +1 rate up rate down Reply
1 reply to rpotter161's comment
freethedems2012

The trouble is, they hold the purse strings.

November 15 2012 at 12:51 PM Report abuse +1 rate up rate down Reply
gmydogbud

Both Parties - Democrat & Republican - Have STOLEN - Our Social Security Fund Money!!! All The CROOKS now in government and all PAST CROOKS, MUST BE FORCED TO RETURN OUR MONEY TO OUR SOCIAL SECURITY FUND & THEY MUST BE FORCED TO DO IT NOW!!! President L.B.J., told the American People that there was SO MUCH MONEY IN THE SOCIAL SECURITY FUND, That It Could NEVER BE DEPLETED. DID L.B.J., LIE TO THE AMERICAN PEOPLE? Alan Simpson, has told us that Social Security is a PONZI - SCHEME! Why didn't he tell the American People that when HE Was In Office & Why Didn't He Do Anything To Stop It?
If That Is TRUE - Why Have The American People Been Forced By Law, To Pay Into The Ponzi Scheme? The members of Congress Have NOT Protect The American People's Retirement Money, While Being Quite Sure To Protect Their Own. It Is Now Time For Those Boys & Girls To PAYUP!!! On A Congressmans Salary, Harry Reid Finds Himself Worth OVER - ONE - HUNDRED - MILLION - DOLLARS - NANCY - PELOSI - IS - A MULTI - MILLIONAIRE - & - THATS ONLY - TO - NAME - TWO - !!! If the 99% want to get their money back, they should start with the members of the CONGRESS!!

November 15 2012 at 8:22 AM Report abuse +2 rate up rate down Reply
1 reply to gmydogbud's comment
s.kohanski

Yes, but let's give credit where credit is due. LBJ did approve the theft for all in line behind him. Typical bureaucratic BS all the time, SNAFU.

November 15 2012 at 9:01 AM Report abuse +2 rate up rate down Reply
dossthane

Raise the cap on SS (It's been suggested that raising it to $250,000 extends the life of SS by at least 75 years) and subject capital gains and carried interest to SS payments up to the cap as well.

November 15 2012 at 8:08 AM Report abuse +3 rate up rate down Reply
1 reply to dossthane's comment
s.kohanski

And just what will that solve unless we make goofs on capitol hill keep their cotton picking hands off the money ?

November 15 2012 at 8:50 AM Report abuse +2 rate up rate down Reply
philiclese

"Since its inception in 1988, the Thrift Savings Plan's C Fund -- a fund that tracks the S&P 500 index (^GSPC) of American stocks -- has returned 9.23% annually. The Thrift Savings Plan's F Fund -- a fund that tracks a broad "of American traded bonds -- has returned 7.12% annually since its 1988 inception"

9 percent returns on this plan for Fed employees, linked to the evil stockmarket...liberals refuse to allow ordinary Americans to earn these returns cause it wouldnt be fair. Too funny.

November 15 2012 at 8:01 AM Report abuse rate up rate down Reply
frankdlu

Great idea....make congress and all politicans use the same health care and social security as we do....and stop paying for their gas...

November 15 2012 at 8:00 AM Report abuse +4 rate up rate down Reply
frankdlu

IT'S CONGRESS'S FAULT AND THE PRESIDENTS....PUT THE MONEY BACK IN SS...

November 15 2012 at 7:59 AM Report abuse +3 rate up rate down Reply
CuCuCaChu

Don't allow the incompetent lawmakers ever again tap into our retirement funds period.

November 15 2012 at 7:48 AM Report abuse +4 rate up rate down Reply
1 reply to CuCuCaChu's comment
Jetncat

can't stop them

November 16 2012 at 10:37 AM Report abuse rate up rate down Reply
sjk1335

When a working spouse retires they collect the whole monthly payment from Social Security and their non-working spouse collects half. If you only put a $1.00 in the bank, you cannot expect to collect $1.50. That just doesn't make sense. So if a the working spouse wants the non-working spouse to collect retirement benefits have them set up a separate account in the non-working spouses account and pay into it monthly while working just as they do for themselves. This would not affect widow or widowers benefits. No politician ever addresses this aspect of Social Security. By the way Social Security is not an entitlement, working participants actually paid into the fund, unlike the welfare fund, if as people say they didn't pay enough that is the govenments fault for not raising payments into the fund while they were working. Yes, I am collecting Social Security, but so did my first husband who paid from the time he was 18 until he died at 51, my second husband also deceased, who paid into the fund during his working life and I too worked and paid into the fund for over 30 years. Something must be done to save Social Security for the young, as you cannot depend on Wall Street, they can wipe out your savings overnight.

November 15 2012 at 7:21 AM Report abuse +3 rate up rate down Reply
Joyce

what happened to the money i hear the Goverment borrowed from s.s. which should of never been.?
We all paid s.s. in, we should all get it!!

November 15 2012 at 7:12 AM Report abuse +4 rate up rate down Reply
dlnrjm

Take the cap off earnings, end of problem. NO one wants to have their retirement funds in the stock market without choice.

November 15 2012 at 6:43 AM Report abuse +6 rate up rate down Reply