I know I usually post about marriage and parenting, but I thought given the economic crisis the world is facing I'd talk economics. Please forgive me, but I've had a thought, and I'd really like your opinions!
Here's the issue: right now, through payroll deductions in both Canada and the U.S., working families are paying for seniors through Social Security (U.S.) and CPP (Canada). As we found out in the debt ceiling debate, Social Security money isn't deposited into millions of little bank accounts; it comes out of general revenues. So your money isn't being saved for you; it's paying today for seniors. And many of those seniors have way more money than you do.
Eventually, with the budget crisis the Western World is facing, people are going to start to notice, and see that young people paying for wealthy older people, as young people receive fewer and fewer government services and older people more and more, cannot fly. So they'll HAVE to means test Social Security and CPP, meaning that the wealthy won't get as much. I don't think they'll have a choice.
I don't like that idea, because as soon as you means test, you give a disincentive for being responsible. If people know, "If I save for my retirement, like I'm supposed to, then I'll lose the government 'free money' ", then they'll stop saving.
We can't reward irresponsibility and punish responsibility.
But is there another way? I think there is.
Here's what it would look like. Instead of taking a portion of all paycheques and putting them into a vast account called "Social Security" and "CPP", the government could deduct 5% or 10% or whatever from your paycheque and then deposit it into your personal retirement account that you now control. It isn't going into general revenues; it's your money. You can't lose it. You're not funding other poeple; you're only funding yourself. But the government is forcing you to do it. If the government doesn't deduct the money, most people won't save. This way, the same amount of money is flowing out of your paycheque, but it's going to you, not to anyone else.
If your investments tank, or if you never made very much money, then government help would still be available to the elderly poor. No one would starve or freeze. But in general, people would be responsible for themselves now.
Of course, the transition would be hard, because I don't know how they'd wind down Social Security and then implement this. Probably for a few decades it would have to a mix of both.
But why isn't this being talked about? Doesn't this seem like a logical solution? Or am I missing something? I'm just genuinely curious what other people think, so I decided to throw it out there.
But one thing's for certain: expecting struggling young families to pay more and more of their paycheque to the wealthy, who currently have more resources, can't keep going on for very long. Something's gotta change. This seems like a good place to start. What do you think?
Labels: economy, saving, social issues