It’s a topic most let go untouched. Fred Thompson has not only touched it, he seems to have grabbed it will both hands and is holding it up for everyone to see. It’s his plan for Social Security, and it goes a little something like this:
The plan has two parts. One is to index initial benefits to wages as adjusted by inflation, instead of by wage growth. Thompson’s proposal mirrors the work of University of Illinois Professor Jeffrey Brown whose 2005 article on the subject demonstrates how this simple change to the program can actually fix the problem of social security running out of money in the future. Essentially what it means is this. Under the current system, in calculating your initial retirement benefit, your past wages are adjusted based on the average growth in wages. So if wages increase at more than the rate of inflation (typical) then the money you earned twenty years ago is actually valued at more than its inflation adjusted amount. My recollection of this back in the 70s was that it was done because during the Carter years, inflation actually was higher than wage growth, although my memories are certainly sketchy on that.
The other part of the plan allows workers to voluntarily start private retirement accounts, much like 401Ks. Under this part of the proposal, workers who opt into the voluntary retirment accounts would see their retirement age for maximum benefits rise.
Not bad, Fred. I am a BIG fan of the individual accounts. Let me handle my own retirement, thank you very much. I don’t need Uncle Sam to hold my hand. Plus, I am going to make better money investing the money in mutual funds than I ever will letting the government handle it. Finally, it put less reliance on the government and more responsibility on the individual, and that is something this country was founded on, but the people have forgotten. Personal responsibility is a liberating thing. I wish more people would try it.