In previous articles, we have discussed flaws with Social Security, personal retirement savings, and personal healthcare savings. We now present an alternative to address the shortcomings in existing systems. At the same time, we more effectively counter the scourge of intergenerational poverty. This alternative centers around the Personal Welfare Account.
In this article, we will propose a replacement for the existing Social Security system. We will also outline a path for transition. Many Americans are already on Social Security or too close to retirement, and they cannot adjust their planning. We must continue to accommodate those who are on or near retirement. At the same time, we phase others into the new system.
General Principles
As guiding principles, we focus on
- wealth accumulation, replacing transfer payments
- enabling intergenerational transfer of wealth to reduce intergenerational poverty
- allowing for a broad range of personal welfare benefits
- system simplification and consolidation
- broadening participation in the benefits of the market economy
Its trustees report that the Social Security trust fund will be empty around 2033. Any new plan needs to bend the benefits curve down as part of a transition. Some people will not be eligible for benefits under the old system at all. Others will see fewer benefits, especially if they have more time to make adjustments. This protects the benefits of the people currently in retirement or very close to it without the ability to adjust.
- People born after 2005 will not be eligible for retirement benefits under the old system
- People born between 1980 and 2005 will have reduced benefits under the old system
- High income earners born between 1965 and 1979 will have reduced benefits under the old system
We will have many people in a transitional state from the time this program would go into effect. No one born after 2005 will be eligible to receive retirement benefits from the current Social Security system. Americans born between 1980 and 2005 would have reduced benefits from the current system. Higher income earners born between 1965 and 1979 will see reduced benefits from the current system. This phased transition allows people to adjust to the new system.
Our proposal centers around two new accounts, which we will discuss in detail below. The first is the Personal Welfare Account. The second is a Personal Welfare Perpetual Fund.
The Personal Welfare Account
The Personal Welfare Account is an individual private account for accumulating personal welfare assets. United States Citizens and Permanent Residents are eligible to open an account. An individual may only have one Personal Welfare Account. The Social Security Trust Fund is a pot of money from which the Social Security Administration pays benefits. Personal Welfare Accounts are the personal property of the account owner.
A Personal Welfare Account has three subaccounts – Retirement, Healthcare, and General Welfare. Each subaccount has its own contribution and withdrawal rules.
General Rules
Unlike existing accounts, there are no income or age limits for opening or contributing to a Personal Welfare Account. All contributions are after tax contributions.
While an individual owns each Personal Welfare Account, anyone may contribute to the account. This allows employers to contribute as part of a benefits package. It also allows families to contribute to each other’s accounts.
All exchange traded securities held in any of the subaccounts are exempt from Unearned Business Income Tax. In current IRAs, for example, pass-through securities, like Master Limited Partnerships and Limited Partnerships, risk the tax advantaged status of the accounts. This is important. These assets tend to be high income producers and therefore potentially good things to have in retirement accounts. Currently, Unearned Business Income Tax may jeopardize the tax advantages of accounts like IRAs when these assets are extensively used.
Account Custodians
Any financial institution currently authorized as a custodian for IRA accounts may act as a custodian for Personal Welfare Accounts. They must also adhere to the following rules.
Required Investment Options
Custodians must provide the following investment types. Custodians may offer any investments that the law currently allows for IRA accounts. We encourage offering a broad range of investment options, but we require the items below. Traditional mutual funds or Exchange Traded Funds (ETFs) may satisfy these fund offering requirements.
- Domestic Stock Index Fund with an expense ratio of less than 10 basis points
- Domestic Bond Index Fund with an expense ratio of less than 10 basis points
- International Stock Index Fund with an expense ratio under 15 basis points
- U. S. Treasury Securities Fund with an expense ratio under 15 basis points.
- Money Market Fund with an expense ratio less than 20 basis points.
Expense ratios reflect amounts charged by the managers of mutual funds and exchange traded funds for managing the funds. Fund managers typically charge a percentage of fund assets to cover management costs and pay employees of the management firm. Basis points reflect 1/100th of a percentage point. A 10 basis point cap means that the manager can take no more than 0.10% of the portfolio balance in a year as pay for managing the fund.
Exchange traded funds are similar to mutual funds in that they represent a portfolio of different assets. Like mutual funds, people buy shares of an exchange traded fund. Unlike mutual funds, ETFs are traded on a stock exchange. Market forces determine ETF prices throughout the day, instead of pricing just once a day, like mutual funds. For more information on ETFs, see this Investopedia article.
Default Investment Options
Custodians may provide default investment options for account owners who want to use a default strategy. These default options must be diversified funds (mutual funds or ETFs) with expense ratios under 10 basis points. They may also include target date funds with expense ratios no higher than 25 basis points.
Custodians must prominently identify funds with expense ratios over 20 basis points (or target date funds over 25 basis points) as high cost funds. The account owner must acknowledge his choice to invest in a high cost fund before opening a position in the fund.
Account Fees
Many account custodians today charge no annual fees for investment accounts, including IRAs and Health Savings Accounts (HSAs). We believe that many custodians will be able to offer Personal Welfare Accounts without an annual fee. Personal Welfare Accounts are more complex than other accounts to administer, however. We allow an annual fee of no more than $50. We hope that most custodians will charge $0 in order to maximize the assets they are holding.
Many brokers today also charge no commissions or other transaction fees for a broad range of transactions. Some of these transactions, though, still incur fees charged by stock exchanges. We believe that will continue to be the case with Personal Welfare accounts. We require no custodial transaction fees for the required investment options.
Multiple Custodians of an Account
Today, there are some providers who specialize in retirement accounts, some who specialize in healthcare accounts, and so on. We believe that brokerage and similar financial services firms will be the primary custodians of the Personal Welfare Accounts. They may, however, want to take advantage of special knowledge other firms have.
For this reason, we allow a brokerage firm to partner with an existing HSA firm, for instance. The firm that currently specializes in HSAs could manage the Healthcare subaccounts held by the brokerage. Similar leveraging of existing expertise with current accounts similar to the subaccounts should be permissible. The fee limitations noted above still apply. The main account custodian must pay all costs for the subcontractor custodian.
Retirement Subaccount
The purpose of the Retirement Subaccount is to allow accumulation of funds to provide a retirement income. This subaccount most closely resembles a Roth IRA today, but has some significant differences.
Retirement Subaccounts replace all other retirement savings plans, except employer pension plans, which may continue unabated. This consolidation of all retirement savings plans simplifies the process and will be further explained in our transition plan.
There are no annual or income limits on contributions. Anyone may contribute to anyone’s retirement account, provided they follow the rules below. This allows families, friends, employers, or even private organizations or communities to contribute to someone’s retirement.
Contributions may be made at any time that the subaccount balance is under $2.5-million. If a contribution would put the subaccount balance over $2.5-million, the account custodian must place any excess in the General Welfare Subaccount.
If a contribution pushes the subaccount balance above $2.5-million, the custodian must deposit any excess in the General Welfare Subaccount. Market movements may cause the balance to later drop below $2.5-million. Account holders may resume contributions until the balance reaches the $2.5-million limit again. The $2.5-million limit shall be adjusted for inflation annually, based on the Consumer Price Index.
Withdrawals in retirement taken at age 55 or later are income tax free. Like IRAs, we prohibit the account from borrowing funds or engaging in short trades. There are no tax-free exceptions to the requirement that withdrawals be made at or after age 55.
Healthcare Subaccount
The purpose of the Healthcare Subaccount is to pay for healthcare expenses. This subaccount most closely resembles today’s Health Savings Account (HSA) today. This subaccount replaces all existing Health Savings Accounts, Medicare Medical Savings Accounts, Healthcare Flexible Spending Accounts, etc.
Like the Retirement Subaccount, there is a contribution limit. For the Healthcare Subaccount, the limit is $1-million. The account custodian must deposit any excess contribution that would put the balance above $1 million into the General Welfare Subaccount. The $1-million cap is adjusted for inflation annually.
Expenses paid from the account must be for medically necessary services, as currently defined in the Internal Revenue Code for taking the Medical Expenses deduction on a tax return. In addition, the account owner may use funds to pay for health insurance premiums and dental insurance premiums. Funds are withdrawn tax free.
Unlike current healthcare savings accounts, funds may be used to pay for anyone’s medical expenses. This allows someone to use her accumulated funds to pay for a family member who is not a dependent. He could even help a friend or neighbor who has incurred significant medical expenses. We seek to enable generosity by removing limits on whose medical expenses the account owner may pay.
General Welfare Subaccount
This subaccount provides for other foreseeable needs for financial security.
The contribution limit for the General Welfare Subaccount is $250,000. If a contribution would push the balance above $250,000, the custodian must return the excess amount. Alternatively, the account owner may provide instructions to place excess in one of the other subaccounts. Of course, the other subaccounts must be under their caps. The $250,000 cap shall be adjusted annually for inflation.
The account owner may transfer funds in this subaccount to the other subaccounts. The account holder may withdraw funds, tax free, for the following purposes. Some of the restrictions below relate to family members of the account owner. Family members include spouse, children, grandchildren, parents, grandparents, siblings, aunts, uncles, nieces, and nephews.
Allowable Withdrawals
- Life Insurance Premiums
- Policy must cover the life of the account owner
- Survivorship policies are allowed, provided the account owner is one of the insureds
- Riders for Child Term coverage, Accelerated Benefits, or Waivers of Premium are allowed
- Policy face value maximum $500,000, adjusted annually for inflation
- Funds may not be used for Modified Endowment Contracts
- Primary beneficiaries must be family members
- Policy cannot be for business purposes such as key person protection or business continuity planning
- Personal Disability Insurance Premiums covering the account owner
- Long Term Disability Insurance Premiums covering the account owner
- Long Term Care Insurance Premiums covering the account owner
- Living Expenses during periods of Unemployment
- Down payment for first-time home purchase by the account owner
- College or trade school tuition, books, and housing for account owner or family members
- Legal and other non-medical fees related to adoption of a child
- Annual Custodial Fees from the Personal Welfare Account custodian
Funds withdrawn from the subaccount for other purposes are subject to taxation as regular income, plus a 10% penalty. The custodian shall withhold 20% for income taxes.
Personal Welfare Account At Birth
Parents open Personal Welfare Accounts at the birth of a child. At birth, the Personal Welfare Perpetual Fund makes an initial contribution to the child’s Retirement Subaccount. The amount of this initial contribution is $7,000. That amount is adjusted annually for inflation for babies born in the new year. We are going to call this amount the Personal Welfare Account Seed Amount.
Reasonable Expectations for Returns
We have analyzed stock market data, based on the S & P 500 index from 1928-2024. We looked at movement in the index from the first day of the first year in any period we looked at to the last day of the year at the end of the period. For instance, when looking at the ten-year period from 1928-1937, we compared the value of the index at the end of 1937 to the value of the index at the beginning of 1928.
Ignoring dividend payments, 50-year periods in the entire data set had rates of return between 2.75% and 9.37%. For 60-year periods, the range is 4.11% to 8.44%. If we only look at post-World War II periods, the 50-year range is 5.74%-9.37%, and the 60-year range is 6.56% to 7.90%.
In the post-World War II data set, 50-year periods have a 62% chance of beating 7%. They had a 90% chance of beating 6.33%. For post-World War II periods, there has been a 68% chance of beating 7%. They had a 90% chance of beating 6.67% for 60-year periods.
Based on all of this data and the fact that we have excluded dividends, we believe it is reasonable to expect a 7% rate of return over a 50-60 year period.
Accumulation over 50 – 60 year period
At a 7% rate of growth over 50 years, that $7,000 will be worth just over $206,000. Over a 60 year period of growth it will be worth over $405,600. Assuming the investments can return income equal to 4% of the account value, the person could be seeing $8,240 – $16,224 of annual income, or $686-$1,352 monthly. This is for retirement between ages 50 and 60.
Social Security benefits today typically range between $1,100 and $3,600 per month, depending on how much the worker has earned. The single $7,000 deposit grows to age 60 (earlier than would be eligible for full benefits now) into the range of benefits offered with a lifetime of tax payments under the current system.
Let’s extend our example a bit more. Assume the account earns a 7% return for 65 years, not just 60 years. Now, the account is worth just over $568,900. Annual income at 4% becomes $22,756, equivalent to monthly income of $1,896. We are now rapidly approaching the current average monthly Social Security benefit of just under $2,000 for January 2025.
This analysis demonstrates the power of investment over an extended period of time to reap major rewards. We can see impressive results here. We should note that inflation will diminish the value of these funds 65 years from now. Successful retirement requires additional contributions. Other subaccounts also require ongoinf constributions.
Personal Welfare Account At Death of Owner
When an account owner dies, the custodian uses the assets in the account to repay the Perpetual Fund. Then, the custodian must transfer wealth to the descendants of the deceased account owner. There are strict rules for that transfer.
Repay Perpetual Fund
When the account owner dies, we must return the seed money to the Personal Welfare Perpetual Fund. When learning of the death of an account holder, the custodian must deduct the then-current Personal Welfare Account Seed Amount and return it to the Perpetual Fund. For example, a child is born in 2025 when the seed amount is $7,000. The person lives to the age of 70. Assuming an average inflation rate of 2%, the seed amount when the person dies is now $28,000. The custodian pays $28,000 from the account investments back to the Personal Welfare Perpetual Fund. This allows the fund to pay out that $28,000 to a new child’s account.
Transfer to Spouse
After repayment of the Perpetual Fund, the custodian transfers the account value to a spouse’s account, if the person has a living spouse. Amounts in each subaccount are transferred into the corresponding spouse’s subaccount. There is no limit to the amount that can be transferred to a spouse’s account. The regular contribution limits on each subaccount do not apply to transfers to a spouse’s account.
Transfer to Children
If there is no living spouse, the custodian transfers the account to any living children, including adoptive children, of the person who has died. When distributing to the children of the deceased, the custodian considers the total of the assets in the account as one source, regardless of subaccount. Each child claims an equal share; however, normal contribution limits limit contributions to the child’s account. The custodian distributes any amount over the contribution limits for a child evenly among the remaining children.
If a child has died, the custodian transfers one half of what would have been that child’s share to the child’s widow. If the child has died, leaving no widow, but does have living children, the custodian distributes the child’s share evenly among the grandchildren, subject to contribution limits on their account.
Residual
If there is any residual amount after the distributions set forth above, the custodian distributes it as follows
- 10% is returned to the Perpetual Fund
- 10% is deposited in the Social Security Trust Fund
- 80% is distributed per elective instructions of the deceased account owner, with the recipient receiving the income as regular income for income tax purposes.
This scheme of disposing of the account upon an account owner’s death helps to combat intergenerational poverty and for the accounts with residual funds helps to assure that both systems (original Social Security, and the new one) remain solvent. Overall, however, we expect substantial residual amounts to be relatively rare.
Social Security 2.0: Personal Welfare Perpetual Fund
The Personal Welfare Perpetual Fund is the fund that keeps the system going. In essence, it provides a loan for every new child to start their Personal Welfare Fund. When the person dies, the money (adjusted for inflation) is returned to the Perpetual Fund. If births and deaths were close in number, this funding scheme ultimately will work in perpetuity will very little additional contributions needed. We do, however, provide for initial investments into the Perpetual Fund to get the account up and initially funded, and to provide some cushion.
Like the existing Social Security Trust Fund, the Personal Welfare Perpetual Fund may invest unused cash in United States Treasury Bonds to earn interest. This will provide an income stream to the fund , especially as we intend to frontload the fund to provide an immediate, substantial surplus.
The Social Security Administration administers the Personal Welfare Perpetual Fund.
What will this cost?
The United States has seen a rapid decline in births since they peaked in 2008 at 4.32 million. There were 3.62 million live births in the United States in 2024. That means we are looking at needing about $25.4 billion annually to begin with. Since births might easily grow to the 4 million range, our annual need might be safer to initially estimate at $28 billion.
The United States had 2.8 million deaths in 2024. If births run about 800,000 – 1.2 million above deaths, we have an estimated need for ongoing revenue of $5.6 billion to $8.4 billion. That need is somewhat larger initially as some people who die will not have Personal Welfare Accounts with the funds available to make the anticipated payment to the Perpetual Fund.
Funding
In principle, funding should primarily come from the “repayment” of the funds when the holders of Personal Welfare Accounts die. The demographics noted above do not allow that repayment to entirely fund the program. Because of that, we need some additional funding for the program.
At the beginning of the first year of the program, the Treasury deposits $30 billion in the fund. This seed money should be all that we need as far as a direct Treasury deposit. We will create a new tax to help fund the program over time. That said, after a sharp economic downturn or a period of high inflation, additional appropriations may be necessary.
According to the Federal Reserve, in 2023, total wages and salaries in the United States were just over $11 trillion. To further fund the Perpetual Fund, we impose a tax on all wages and salaries. This tax will decline over time according to the following tax rate schedule.
- Years 1-3, 0.60%, yielding approximately $66 billion
- Year 4, 0.20%, yielding approximately $22 billion
- Year 5 and on, 0.10%, yielding approximately $11 billion
This taxing scheme frontloads the fund with cash. This allows the fund to start earning an interest income stream.
Offsetting Income Tax Credit
Our goal here is to improve financial personal welfare of all Americans through wealth accumulation for all. Adding a new tax seems to fly in the face of that. We do not want to net impose new taxes on the lowest income individuals. To avoid doing that, we create a new tax credit.
The top of the 10% tax bracket is $11,925 for a single person, or $23,850 for a married couple. We think that those in the current 10% tax bracket are the main ones who would need relief. Someone earning at the top of the current 10% tax bracket would have $11,925 of taxable income. He would also have $15,000 which would not be taxable because of the personal exemption. That full amount would be taxable for the new tax above. He thus has total income of about $26,925.
The taxpayer would face the following additional taxes (double for couples)
- Years 1 – 3, $161.55
- Year 4, $53.85
We propose a tax credit for the first four years. This credit is equal to 100% of the new tax paid up to the following limits for single taxpayers (double for couples)
- Years 1 – 3, $175
- Year 4, $60
This full tax credit would only be available to people with taxable incomes below $40,000 (or $80,000 for couples). We phase it out with income hitting $50,000 in income ($100,000 for couples).
Transition
Tax Honesty
As we wrote in our original article, social taxes are fundamentally dishonest. Unfortunately, we need to keep those taxes for now to pay for benefits for those drawing benefits from the current system.
We propose the following taxing changes for honesty and transparency and to maintain revenue neutrality in these changes.
What Taxes Are Currently Paid
The current taxes supporting Social Security and Medicare are levied as part employee paid and part employer paid. Employees actually pay qll of these taxes, even though the law pretends part is paid by the employer. If we look at how the taxes are collected, they are as follows.
Taxes Shown on Pay Stub As Employee Deduction
- 5.3% Old Age and Survivors Insurance (OASI) Tax on earnings up to $176,100
- 0.9% Disability Insurance (DI) Tax on earnings up to $176,100
- 1.45% Health Insurance / Medicare (HI) Tax on all earnings up to $200,000
- 2.35% HI Tax on earnings in excess of $200,000
Taxes Shown on Pay Stub as Paid by Employer
- 5.3% OASI Tax on all earnings
- 0.9% DI Tax on all earnings
- 1.45% HI Tax on all earnings
Pay Raise for Everyone – Sort of
The first step is to return the taxes “paid by the employer” to the employee, where they should be. To do this, we mandate a pay raise of 7.65% for all employees. This change adds the taxes that were nominally paid by the employer to the employee’s income. In return, we repeal the “employer portion” of the Social Security taxes.
Changing the Social Security Tax Rate Structure
Now, we need to adjust the employee’s tax rates to generate the same revenue as before. To illustrate the math with relatively simple numbers, assume someone is making $1,000 per week. Currently, that person would have OASI Taxes of $53.00 withheld from his paycheck. The employer pays an additional $53.00, for a total of $124 in taxes. The DI Taxes for that employee are $9 deducted from the paycheck. The employer pays another $9, for a total of $18. He also has HI Taxes of $14.50 deducted from his paycheck and $14.50 paid by the employer. For a total of $29.00.
Now, we have increased this worker’s gross pay to $1,076.50. Without changes to tax rates, this would result in a large tax increase. Our plan must adjust tax rates to raise the same revenue. We don’t want to impose a large tax increase. Revenue neutral tax rates appear below. We also show what the $1,000 per week employee would pay for each check.
- OASI Tax on amounts up to $176,100: 11.52% (yields $124.01)
- DI Tax on amounts up to $176,100: 1.7% (yields $18.30)
- HI Tax on amounts up to $200,000: 2.7% (yields $29.06)
Going through a similar exercise, we get the following tax rates for higher incomes.
- OASI Tax on amounts over $176,100: 5.76%
- DI Tax on amounts over $176,100: 0.85%
- HI Tax on amounts over $200,000: 3.50%
Adjustment to Income Tax Rates
Because we have just given everyone a 7.65% pay raise, we could be pushing people into higher tax brackets. We want to compensate for this and avoid this move being a tax increase. To avoid an income tax increase, we need to adjust the standard deduction by 7.65% – from $15,000 to $16,147.50 for single filers and from $30,000 to $32,295 for couples filing jointly.
We also need to adjust tax brackets by increasing all of the boundaries of the tax brackets by 7.65%
Conversion of Existing Accounts
Since Personal Welfare Accounts replace existing retirement and healthcare accounts, there must be a conversion period and process. In general, the conversion process is to transfer assets from existing accounts into new Personal Welfare Accounts. Existing retirement account assets must go to the Retirement Subaccount. Healthcare accounts, such as HSAs and MSAs must go to the Healthcare Subaccount.
As we specified above, withdrawals for retirement are tax free. In this way, the account is like a Roth IRA. Currently, an IRA owner may convert assets in traditional IRAs or 401(k)s to Roth assets. This conversion requires the owner of the account to pay income taxes on the amount converted. As part of the transition to this new system, we need to have a similar conversion process.
The tax structure for this conversion is as follows. This is much more favorable than current conversion taxation.
- First $500,000 of “traditional” assets are converted tax free – this is total traditional assets, not $500,000 per transferred account
- Traditional amounts above $500,000 are taxed for conversion as follows
- a flat 8% goes to OASI Trust Fund
- a flat 2% goes to Personal Welfare Perpetual Fund
Timeline
Assume the tax changes would go into effect on January 1, 2027. That date is the anchor for our implementation timeline.
- January 1, 2026: Custodians begin offering Personal Welfare Accounts
- January 1, 2026: Owners of IRAs, HSAs, etc. may begin transferring assets into Personal Welfare Accounts
- Assets may be transferred in-kind, provided sufficient assets are liquidated to pay any conversion taxes that are due
- In-kind transfers are valued at market close on the transfer date to determine taxes due or amounts in excess of subaccount maximums
- Transfers shall be made in kind when current and new custodians have the ability to do so.
- Subaccount maximums suspended for transfers by December 31, 2026.
- If total retirement assets moved into the account exceed $2.5 million, any amount over $2.5 million is taxed at a flat 5% tax to the OASI Trust Fund
- If total healthcare assets, such as HSAs, moved into the account exceed $1 million, any amount over $1 million is taxed at a flat 5% tax to the Medicare Trust Fund
- Assets may be transferred in-kind, provided sufficient assets are liquidated to pay any conversion taxes that are due
- December 31, 2026: Last day of contributions to current accounts
- December 31, 2026: Last day to complete asset transfers without subaccount caps
- January 1, 2027: Contributions may begin to Personal Welfare Accounts
- January 1, 2027: Payments from Personal Welfare Perpetual Fund begin for new births
- December 31, 2028: Deadline to convert existing personal accounts to Personal Welfare Account, except Certificates of Deposit held at some institutions
- Accounts not transferred will be liquidated and delivered to their owners. These proceeds are taxed as regular income plus an additional 5% tax for the OASI Trust Fund.
- December 31, 2033: Deadline to convert certificates of deposit held as IRAs at banks, credit unions, savings and loans, etc.
- Extended deadline to allow CDs to mature and spread out the withdrawal of funds from these institutions
- Accounts not transferred will be liquidated and delivered to their owners. These proceedsare taxed as regular income plus an additional 5% tax for the OASI Trust Fund.
Adjustment of Social Security Benefits
Our transition plan provides some nominal additional revenues for the Social Security Trust Fund. As we transition to the new program, we need to gradually reduce the benefits under the old system. We must do this carefully, so as to allow people to adjust their savings plan.
As we outlined in our original article on Social Security, the Social Security administration calculates an Average Indexed Monthly Earnings (AIME) for every person who claims benefits. They then apply the following formula to calculate the Primary Insurance Amount (PIA), where B1 and B2 are two “bend points” adjusted annually for inflation.
PIA = .90(AIME, up to B1) + .32(AIME between B1 and B1) + .15(AIME above B2)
For 2025, the maximum AIME is $11,017. The maximum PIA for 2025 calculates to be $3,620.10.
We make gradual adjustments to this formula, slowly reducing what the highest income earners could receive in benefits. This group is in the best position to make adjustments to compensate for reduced benefits. We begin by gradually reducing the third coefficient (the .15) in the formula. Reducing the value from .15 to .14 reduces the maximum PIA to $3,583.84 – a drop of $36.26.
Schedule of Formula Adjustments
We reduce this coefficient by .01 for people born in 1965, .02 for people born in 1966, etc. until that value hits 0 for those born in 1979. Applying the 2025 end points to the 1979 formula, the maximum benefit for people born in 1979 would be $3,076.20.
We then begin stepping down the second coefficient (currently .32). For people born in 1980, we reduce the second coefficient to .31. We continue reducing it by .01 each year until reaching .11 for those born in 2000. For those born in 2001, we increase the reduction to .02 each year, until it reaches .03 for those born in 2004. This value goes to 0 for those born in 2005. This corresponds to a monthly benefit of $1,103.40 using 2025 bend point values. Those born after 2005 receive no benefits under the old system.
Tax Benefits for Low Income Contributors
It would be ideal if we could immediately eliminate the current payroll taxe. Even with the gradual reduction in benefits, it will be some time before we can phase out the current taxes.
People who will receive little or no benefit from the current system still pay taxes to support it. That makes it challenging for them to be able to save enough on their own. We want to address this. Our plan includes tax credits to help offset the dual costs of payroll taxes and saving under the new system.
The tax credit available to the taxpayer is the least of the following values.
- The amount of OASI taxes paid
- One half of the amount of contributions by the taxpayer to their own Personal Welfare Account
- $1,750 ($3,500 for a married couple)
The full tax credit is available for taxpayers with gross income up to $50,000 ($100,000 for couples). Then, it is phased out, until it hits $0 for taxpayers with gross income of $70,000 ($140,000 for couples).
Wrapping Up
The current Social Security system is severely flawed. We have provided an outline of a new plan to fully replace today’s social security. Our plan provides a framework we can build on to address several other social welfare benefits. These include things such as unemployment and disability benefits.
Most importantly, perhaps, we shift from a system of transfer payments to one of wealth accumulation. A system of wealth accumulation provides a long term framework to help tackle the problem of intergenerational poverty. By enabling wealth accumulation among all economic strata of American society, we provide a way to reduce the wealth disparities among Americans. We aren’t making new billionaires with this system, but we are helping to lift up the lowest income American workers.
Free markets are the most powerful wealth creation tool in human history. It is time we free Americans of socialized retirement and allow the full benefits of the market to left all in retirement.