Many of us are concerned. Deeply concerned. Will there be enough money in the Social Security system to provide us with the income that our parents have taken for granted? Or will the system run out of money, forcing seniors out of their homes and into poverty, similar to what many faced before the introduction of Social Security during the Depression?

    Or will we place the increasing burden of providing for our seniors on a smaller number of people who will be working in the next century, our children and grandchildren? Will our children face ever increasing Social Security taxes in order to finance the retirement of their parents? Will our children and grandchildren willingly pay these higher taxes, or will we lapse into generational warfare as they find that they cannot handle the burden of these higher taxes?

    Scary, isn't it?

    It doesn't have to be. With proper planning, and the implementation of a workable plan, these things do not have to happen. But, time is short. Under the worst case scenarios, the Social Security Trust Fund (S.S.T.F.) will completely run out of money by 2021. 1.

See Appendix 1 for the data from Social Security, and Table 1 for comparisons and projections.

The Advisory Council on Social Security cannot agree on a proposal. The members of this blue-ribbon panel formed by Secretary of HHS Donna Shalala have put forward three different plans. 2. These plans basically involve investing in stock funds, the differences being primarily in who would make the decisions regarding what investments to make.

   Two of the plans put forward by members of the Council, one by Professor Edward Gramlich of the University of Michigan, and the other put forward by Carolyn Weaver of the American Enterprise Institute and Sylvester J. Schieber of Watson Wyatt Worldwide, basically take money from the Social Security Trust Fund, and place it into a type of Individual Retirement Account. The third plan, proposed by former Social Security Commissioner Robert M. Ball, keeps the extra revenue within the Social Security Trust Fund, and uses it to finance the system, keeping it much the same as it is now, but with the Social Security Trust Fund investing in stocks and U.S. government securities, rather just the government securities as it currently does. 3.

   I tend to lean more toward the third plan, believing that Social Security should be more of a safety net used to provide a basic benefit to the people who have paid into the system over their working lives than as a crapshoot where people's whole retirement savings could be wiped out by picking one or two bad stocks. If they want to do that with their own IRAs or 401K plans, I don't have a problem with that, and feel that the tax laws should be changed to encourage more investments in these types of individual retirement programs. But, people who have lost most of their life's savings by making a bad investment of their Social Security money could end up having to apply for other government assistance in order to survive. So, the money could end up coming from the taxpayers anyway.

   The Weaver / Schieber Plan would immediately divert two-fifths of current Social Security tax revenues into individual accounts to be invested by workers." 4. Payments would be reduced to two-thirds of the poverty level (currently $410 per month), with workers under 55 and employers each paying an additional .75 % tax over the next 70 years. 5. Transition costs would be covered by the new 1.5% tax and by borrowing $1.2 trillion. 6.

   The Gramlich Plan would have an additional 1.6 per cent deducted from the worker's pay and invested in an individual account. Benefits from Social Security will be reduced as the funds in it are drawn down. It is hoped that by the time the benefits are reduced, that there will be enough money available in the individual accounts to make up the difference. 7.

   The primary problems I have with these two plans is that the transition to them could be quite expensive, and will increase the costs to people still working and paying into the system. Besides that, the Gramlich and Weaver / Schieber plans each phase in higher retirement ages in order to reduce expenditures. Already, Mr. Gramlich estimates that current retirees will only receive back 80% of what they had paid into Social Security when adjusted for inflation and interest earned. 8. If the retirement age is raised, that pay out will be even less. This is hardly a way to increase support for Social Security among those currently working and paying into the system.

   The Weaver / Schieber Plan also envisions borrowing an additional $1.2 trillion over and above the $5 trillion U.S. federal debt to pay for the transisition period. I believe that is simply too expensive.

   Currently the federal government uses the annual surpluses in the S.S.T.F. to finance part of the huge federal debt. Under Weaver / Schieber, I don't see how interest rates can't help but be adversely affected by the increase in the total debt at the same time they are reducing the S.S.T.F. surpluses that would finance part of that debt, holding interest rates at a fairly steady level. I feel that this could be a recipe for economic disaster, with higher interest rates due to increased government borrowing drawing money from private investments that would otherwise be used for capital improvements. Lower levels of investments would slow the economy, resulting in more people being unemployed or underemployed, putting even more pressure on people still working to keep the Fund solvent.

   The Gramlich Plan has similar shortcomings, although not as serious because his plan does not envisioning the type of borrowing proposed by Weaver / Schieber. Mr. Gramlich would still reduce the amount in the S.S.T.F., which would cause interest rates to rise, although not as much as under Weaver / Schieber. Mr. Gramlich's proposal would also increase the taxes needed to fund his plan, which would reduce the amount of payback future retirees will receive, when adjusted for inflation and interest earned. Taxpayers will not see that as wise investment, which will make this plan difficult to gain the public support that will be needed to implement it.

   The Ball Plan is the most similar to the proposal that I will shortly present, but I see several differences between it and my plan. Mr. Ball proposes investing more of the S.S.T.F. into stocks than my plan does. His plan uses 40% of the total S.S.T.F. when calculating the amount that will need to be invested in stocks to keep the Fund solvent. My proposal uses 30%, but only of the annual surplus from the preceding year up until certain limits are reached, which will be discussed shortly. The Ball Plan will result in even lower amounts invested in government securities than my plan does due to the diversion of those assets into stocks, probably resulting in the S.S.T.F. being completely disinvested from government securities a year or two sooner than my plan envisions. It also seems to favor larger stocks, assuming that the government would be more likely to invest in the more highly capitalized companies, according to Lawrence White, an economics professor from New York University. The larger companies would then tend to increase in value at the expense of smaller stocks that would be outside of the scope of Mr. Ball's plan. 9. This would adversely affect the formation and growth of new small companies, which has been the source of much of our economic growth. See Table 2  for more information about historic trends in the stock markets and Appendix 2 for the data I used when preparing this proposal.

   The Ball Plan also foresees the possibility that taxes will still have to be increased to help cover the costs of the system by 2045. My plan shows nearly $9.5 trillion in assets in the Social Security trust fund in 2045.

Since I am a firm believer in preparing for the worst and hoping for the best, I used the worst case scenarios put forward by the Social Security Administration when I prepared my proposal.

   Here is how I propose to keep the Social Security Trust Fund solvent, through at least 2075. Using the worst case scenario numbers from the Social Security Administration. Without cutting benefits or adjusting the retirement age beyond what has already been done. Without raising taxes, although if Congress were to lift the cap on income after which people do not have to pay Social Security taxes, I would not complain.. And with some other benefits that will occur by about 2030 to 2035.

    Now if Congress should decided to increase or eliminate the cap on income after which Social Security taxes are no longer withheld, then the percentages needed to bring the Social Security Trust Fund into balance could be reduced. But the basic idea should still hold. That could be an issue for future research.

   I decided to deal with the worst case scenario, feeling that if we can handle that, we can use the same idea, but adjust the amounts invested accordingly should our worst fears not develop.

   I propose that by investing in a combination of U.S. government securities and dividend paying stocks, Social Security can earn enough through these investments to have enough assets to pay our retirees without increasing the Social Security taxes that our descendants will have to pay or further reduce benefit levels. The reason I have stressed that the Fund purchase dividend paying stocks is that I would prefer that the fund halt purchasing stocks through the annual surpluses once the Fund ownership passes 7.5% of the total market value of these stocks in order to reduce any adverse affects government investments may have on the markets. See Table 3 for the details of the Moore Plan and how the Plan works.

   This plan is not meant to be a Super Mutual Fund, where fund managers are buying and selling stocks for a short term gain, and potentially more risk. Once the stocks are purchased, they are meant to be held until it becomes necessary to meet the future expenses of the S.S.T.F. or to bring the Fund down to the percentage limits to be discussed shortly. By concentrating on stocks that pay the highest percentage of their market values in dividends, it will then be possible to achieve the reduced risk of a mutual fund with the stability and growth of assets associated with regular dividend payments.

   But, this program will have to be implemented soon, or it will be too late to accomplish these goals without even more radical actions.

   Before I begin discussing this plan in more detail, I must put forward some safeguards that will have to be incorporated into this plan so that the markets will not be skewed as a result of the large amounts of money that would be entering the financial markets for the first time.

   First, all stocks owned or controlled by the S.S.T.F. would be Non-Voting Shares. Limits on the percentage of stocks owned by the Fund would have to be enforced to prevent too much financial control over companies from residing with the government. And, once the period with the largest expenditures by the Social Security Trust Fund has passed, it will then be possible to begin reducing the percentage of the market value of stocks owned by the S.S.T.F. in order to reduce the effects of government involvement in the financial markets. Some restrictions on the types of companies that the Fund could invest in could be instituted, but these should be limited to restricting investing in companies that have been convicted of egregious criminal conduct. 
 

   I propose the S.S.T.F. invest a percentage of these annual surpluses into dividend paying stocks, beginning with those that have paid the highest percentage of their market value to stock holders as dividends over the previous three to five years. That should result in the fastest and most reliable return on investment for the Fund. In order to avoid artificially affecting the stock prices of these companies by too great a margin, and to spread out the investments into a number of different stocks, a gradually increasing limit on the percentage of a particular stock that could be owned by the S.S.T.F. would have to be imposed. This could start at no more than 5% of a particular company's stock being owned by the Fund, gradually increasing by a percent or two per year until the maximum percentage is met. The maximum percent of a stock that could be held would be a maximum of one or two percent above the maximum total market value of all stocks owned by the Fund.

   With the high cost alternative, it will be necessary to invest 30% of the annual surpluses in dividend paying stocks in order to keep the Fund solvent through 2075. I had tried lower percentages, and although these were adequate for the low and intermediate cost alternatives, they were not sufficient for the high cost alternative.

   One effect of this plan is that the Social Security Trust Fund will no longer be one of the primary financers of the U.S. federal debt. The Moore Plan foresees a gradual reduction in the amount of the U.S. federal debt that will be financed through the SSTF. By 2015, the SSTF will not own any U.S. government interest bearing securitites. (See Table 4)

   Hopefully, this development will prod Congress and the President to work together to begin reducing the national debt before this happens. After all, they will only have fifteen years to work on it. Otherwise, the interest rates that the U.S. government will have to pay to attract investors to finance the debt will rise, possibly dramatically. But, because this program would be phased in, and the amounts invested in government securities will be reduced gradually, I am hopeful that the effect on interest rates will not be too dramatic. After 2035, the rate of interest the government pays on its debt will be academic anyway, as I will shortly discuss.

    The period 2016 through 2021 will be the crisis years, due to the fact that the increasing numbers of Baby Boomers retiring will put more and more pressure on the Fund. My figures show that the Fund can actually run surpluses in each of these years, with enough assets available to provide for future uses. (see Table 3). See Chart 2 for Assets Under the Moore Plan and See Chart 4 for Annual Surpluses/Deficits.

   By keeping the maximum level at 10% through 2028, it will then be possible to build up enough of an asset base to where it will be possible to gradually reduce the percentage level without jeopardizing the system or adversely affecting the financial markets.

   By 2020, the 10% limit on stock ownership by the SSTF will have been reached. That was the minimum level with which I was able to achieve full solvency through 2075. But, that level will be gradually reduced by .5% to 1% per year until the Fund reaches a period where there is an annual deficit. At that point, the Fund will hold at that percentage rate until the Fund is once again in a position of annual surplus. The following year, the percentage limit could again be reduced by .5% to 1%. It would then be reduced at a rate of .5% per year until the fund was once again running an annual deficit, at which point it would hold at that level until it was once again in surplus. Then the following year, it would be reduced again by .5%. This would continue until by 2069, the Social Security Trust Fund would only own .5% of the total market value of the publicly traded stocks. Keeping it at the .5% level will provide sufficient funding to keep Social Security solvent, along with additional financing for other programs that the people may wish to have. My calcualations have shown that the ownership percentage of the SSTF would be reduced in this way to .5% of the total market value of the publically traded stocks in the United States (see Table 3). I found that by keeping this level at 10% through 2028, and then gradually reducing it, it is then possible to keep the Fund solvent through 2075, retaining an asset base of nearly $9.7 trillion at that time See Chart 2 or (see Table 3).

   What then should be done with the stocks that push the SSTF over the limit? I propose that the stocks would be sold in the reverse order from which they were purchased, in other words, of the stocks owned by the Fund, those that had paid the lowest percentage of their total market value as dividends would be sold first, except for the higher dividend paying companies which have reached their percentage limits. Then only enough of those shares would be sold as would be necessary to bring the stock within the established limits.

   The proceeds of these stock sales would then be used to pay down the principle on the federal debt. Even assuming a federal debt of $20 billion by 2025, there should be enough revenue generated by the sale of these stocks to completely pay off the federal debt by 2035 (see Table 1).
 

2. Andrea Knox, "Can stocks fix Social Security?", Philadelphia Inquirer, July 28, 1996, pp. D-1, D-12Return to where you left off.

3. ibid., p. D-12Return to where you left off.

4. ibid. Return to where you left off.

5. ibid. Return to where you left off.

6. Bob Davis, "A Consensus Emerges: Social Security Faces Substantive Makeover", The Wall Street Journal, July 9, 1996, pp. A-1, A-13Return to where you left off.

7. op. cit. , Knox, p. D-12Return to where you left off.

8. op. cit, Davis, p. A-13Return to where you left off.

9. Cynthia Mayer, "The United States of Wall Street", Philadelphia Inquirer, July 28, 1996, pp. D-1, D-5Return to where you left off.

10. op. cit., Social Security AdministrationReturn to where you left off.

11. ibid. Return to where you left off.

12. ibid. Return to where you left off.
 

   There are a number of places you can go to obtain more information about the solvency of the Social Security Trust Fund. Besides the Social Security Administration, some other places to check out are the Concord Coalition, which is very concerned about the U.S. federal debt and the role that entitlement programs such as Social Security play in our inability to control the debt, and the American Association of Retired Persons.

   If you feel that my proposal for saving Social Security from insolvency makes sense (no pun intended), please contact your elected officials and urge them to check out my plan.

   You can e-mail President Clinton, Vice President Gore, or Hillary Clinton.

   You can also follow one of the links below to e-mail or otherwise contact your Senators and Congressional Representatives and urge them to examine my proposal.

   Remember, the people we elect to public office can just as easily be unelected the next time they run if they don't do what we want them to do for our own best interests.

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