This letter was written to President George Bush in 2002, pointing to a solution about "How To Save Social Security". As you know now the letter was ignored and the Social Security problem still exist. The date is now 10/27/08, and we will see how long it takes the Federal Government to realize that this is a viable way to solve the problem.
This is the only viable way to solve the problem and if the people of the United States don't act they may see their Social Security promises disappear. Please read the following letter and then send it to your Congressman and Senator and get them to act.
Mr. George W. Bush
President of The United States
1600 Pennsylvania Ave.
Washington, D.C.
March 18,2002
Dear President Bush,
I pray that you will not let this letter go unnoticed. This information will give you insight into solving the social security crisis that exists in America today.
Many times solutions to perceived problems may not be as difficult as they seem. Even though many will shun simplicity in favor of keeping things complicated. This letter will present to you a very simple easy solution to the Social Security problem.
Before discussing the solution it is important to understand the problem. The perceived problem of Social Security is that the fund will run out of money sometime in the future. (There are many professionals who have come up with different times when the crisis will occur.) It is not important for our discussion when the problem will happen but the simple fact that there is and will be a problem. Along with identifying the fact that Social Security is in trouble, is the issue that privatization in the stock market is not the answer.
I have read many articles written by economist, mathematicians and financial professionals who have put together complicated formulas and hypothesis on how to save the social security fund. Neither addresses the true problem, which is to eliminate or protect the risk. Defining the true risk is very important since it has been missed so far.
What is the true risk when looking at the social security problem? The true risk is not the fact that the fund will run out of money. It is not the investment of money in the social security fund. The risk is nothing other than the recipients of the fund. The risk is the people who draw the money out of the fund. The beneficiaries who depend on the Social Security System!
How can the beneficiaries be the risk? Its simple, when defining risk the recipient of the money is the liability. The persons who contribute to the social security fund are the indecisive factor. When looking at risk one understands that the "results of any action are not certain, but may take more than one value. Risk is usually used to describe the form of uncertainty where, while the actual outcome of an action is not known, it is expected that it will be determined as the result of a random drawing from a set of possible outcomes whose distribution is known." The unknown is how many dollars the beneficiaries will contribute and how long they will live. "Over the next thirty years, the percentage of people who are 65 and over will grow rapidly while the percentage of people in their working years will decline. This shift in the age distribution of the population will put enormous pressure on the social security systems in the United States".
The fact exist that the population will diminish, in the future, and the individual contributions will therefore have to be increased. As the population becomes smaller, over time, extra pressure will be placed on the smaller group to contribute more to make up the difference in the dollars required. Plus, contributions will become even greater because as inflation erodes away spending power, the recipients of the social security fund will demand increases which again places additional burden on the smaller group. "Such a pronounced demographic change poses many challenges for a country's well-being. One key concern is how a government can support its retirement-age population when the number of workers whose payroll taxes fund each retiree steadily declines. In the United States, the population aged 15 to 64 is currently more than five times larger than the 65 and over population. This ratio, however, will fall to only three by 2030." Therefore the real risk is not the money loss directly but the people loss.
Anytime there is risk, it is optimum to insure the risks if possible. Just as people insure homes against the loss of value, automobiles against the loss of value, and people insure themselves against the loss of income, so families don't lose their homes, cars and even incomes. Why shouldn't the risk of losing the contributions of the beneficiaries in the social security system be insured?
Solution
When viewing the beneficiaries of the social security fund as the true risk it is apparent that insuring the beneficiaries, to replace the loss, will eliminate the risk of not having a solvent social security fund. Viewing the social security problem in any other way will cause the fund to become insolvent in the future, with no real long-range solution. When the risk (recipient) is insured to replace the dollars that will be withdrawn by the beneficiaries the fund is than made whole when the beneficiary has completed the cycle and dies. If the risk (recipient) is insured than the dollars withdrawn by the people enjoying the social security benefit will be replaced at death. The main focus must be to replace the dollars that are used by each and every recipient.
The only real solution is to insure the lives of the recipients of the social security fund using a Whole Life Insurance policy, with the social security fund as the beneficiary, then the fund is assured of not suffering a loss or being dependent on future contributions. The life insurance replaces the money that the recipients have taken out while living thus future contributions can be reduced or the future benefit can become greater.
This is a very simplified version of how the process works (the details can be worked out by actuaries and mathematicians to make this concept work). The point is that this concept be understood and made to work. As in any solution to a problem the concept is arrived at first then details are worked out later.
The mechanics are simple! When a young person becomes eligible to pay into Social Security than a Whole Life Insurance Policy is taken out in their behalf by the social security system for the amount they would receive as a payout over their projected life- time when they retire. Because the person is young the cost of the whole Life Insurance Policy is not that expensive. As the premiums are paid the cash value builds thus refunding the premiums back to the social security system. Within a whole life insurance policy the cash value builds and becomes far greater than the dollars paid into the whole life policy. The social security system is the beneficiary and owner of the insurance policy therefore when the recipient retires there is money in the social security fund and the insurance policy that can be used during retirement. With the social security fund owning and being the beneficiary of the whole life policy when the recipient dies than the insurance policy replaces the money that the recipient has withdrawn over their lifetime. If the recipient dies and the monies withdrawn do not equal the death benefit, from the insurance policy, than any difference should be given to the recipient's heirs.
In the case of an older contributor to the social security system a graded death benefit can be determined to at least provide some replacement of dollars back to the system at their death. After an analysis is done in working out the mechanics of who will get what death benefit at what age the important point to always remember is there has to be a replenishment of as many dollars as possible without dependence on new contributions. Any death benefit at the later ages graded from older years to full death benefit at younger ages, will take pressure off of the younger contributors. With the Whole Life Insurance death benefit being graded from a smaller death benefit at older ages to a larger death benefit at younger ages, the fund will progressively gain momentum and quite possibly could replace all of the money drawn out therefore creating a huge retirement fund for our children and their children's children.
This is privatization in the perfect sense. A private insurance company will bid on the business (or the contracts could be auctioned) from time to time with the cash values managed by the insurance company. There should be strict guidelines to be met by the insurance companies in order to obtain the government contracts. The cash values must grow at a decent guaranteed rate and the death benefit must be increased with the growth of the cash values. There has to be guarantees that must be met. Whole Life Insurance is the only way to insure the risk because it provides guarantees that other types of insurances don't have. Plus it will perform exceptionally at older ages.
By insuring the risk (recipients of the social security fund) and replacing the dollars drawn out by the recipients, along with the payroll contributions into the social security fund by contributors, it does not take long to create a fund that is self-sufficient. Contributions by our children and our children's children will become minor and can be reduced or they can be kept at a high rate, which will provide a much higher payout for future generations. Later generations will have choices that current generations don't have. When the calculations and actuarial projections are done they will provide more specific data, and will show that by insuring the true risk, the people, the social security problem can be solved without putting the fund at risk. Any other privatization done with the focus on money and rates of return is not on the true risk, the recipients, and will always lead to failure. Its placing risk upon risk!
By privatizing with insurance companies the government is using a very stable industry that is used to managing risk and providing long-term results. No brokerage house or mutual fund company around is equipped to understand yet manage long-term risk. It must be kept in mind also that letting people manage their own money is not a good idea since it is not their area of expertise. Lest we never forget, the whole reason for social security is because the public can't save for themselves; therefore to privatize a portion of the social security fund in a volatile market is creating more risk with risk. The whole point in creating a secure social security fund is to eliminate risk not create more.
Side Note
It is time to focus on creating a segregated fund that cannot be tampered with by politicians. This problem can only be solved when the United States Government gets serious, and the politicians decide to tell the truth about the social security fund. The fund has to be secure and become a stand-alone system that is left alone and managed only to provide benefits to the recipients. The above solution is put forth exclusive of the politics that are centered on this debate. Although, it is clear that whoever decides to adopt this solution will be viewed as a hero in the eyes of the public. There are no losers with this solution and I am stumped that no one has put forth this concept before.
In summation this solution of replacing the money withdrawn by recipients is the only way to eliminate the financial pressure felt by the contributors, recipients, Federal Government, and any others who are stumped by a way to solve the Social Security Crisis. The solution is clear only when the true risk is viewed as the people who contribute to and the recipients of the Social Security Fund, not the money that is in the fund. The relevance of the money is only as it relates to the recipients and the contributors. This solution is the only one that guarantees the replacement of benefits and a solvent plan.
I welcome your response.
Sincerely,
Dr. Raymond Jewell, Economic Advisor
www.FinancialFreedomRadio.info
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Dr. Raymond Jewell
610-637-4884
Skype: rbjewell
