In the spring of 2001, a newly elected George W. Bush proposed letting younger workers take a small slice of their Social Security taxes and put it into a personal account with their own name on it.
Not all of the money, of course, just a sliver. The proposals ranged from about two to four percentage points of the payroll tax. The rest would keep flowing into Social Security the usual way. Still, that sliver would be yours. Invested, owned, and inheritable. Money the government couldn't redirect, because it wouldn't be sitting in a government fund anymore.
It'd be sitting in an account with your name on it.
Of course it was rejected.
It was called risky—a giveaway to Wall Street. The proposal limped along for a few years, got revived after the 2004 election, and was effectively dead by the end of 2005. The idea of Americans owning a piece of their own retirement was buried, and we continued with the system we already had.
The one you pay into for forty years in exchange for a promise.
As much as I believe in the privatization of everything and the government pretty much always being bad, I realize that nobody can actually say exactly what those accounts would've returned.
There are just too many variables, not least of which are when a person retired and what they invested in. A worker who cashed out in 2008 would have a very different story than one who would have cashed out last year.
So while we can’t really say that you’d have twice as much, because those specifics aren’t really knowable, there are things that we know for sure.
This past June, the folks in charge of Social Security released their annual report on the program's health. The trust fund that pays retirement benefits is projected to run dry in late 2032—about six years from now. When it does (unless Congress acts), benefits automatically get cut to whatever payroll taxes can cover.
That's roughly 78 cents on every promised dollar. A 22 percent cut across the board.
The government's own trustees are telling us that the promise they asked Americans to trust instead of owning their own accounts will not be fully kept.
That's the real lesson here.
A promise from the government is only ever as good as the next Congress's willingness (and ability!) to keep it. It can be trimmed, delayed, taxed, redefined, or incrementally reduced by a formula nobody outside some committee understands. And when the money finally runs out—as the trustees say it will—the people holding nothing but a promise have no recourse.
They didn't own anything. They had an IOU, and IOUs, it turns out, aren’t worth much.
(Just ask the Bonus Army!)
Money in an account with your name on it is different. It can go up and it can go down, but it's yours. No future Congress can vote to reduce or redirect it because you own it, and you control it. You can even pass it on to your kids if you want to.
That's the actual difference between the two paths the government chose between in 2001. Ownership versus a promise. One you control. The other controls you.
Our kids are going to spend their whole working lives being offered this same choice, in a hundred different forms. Trust the program. Trust the plan. Trust the promise. Don't worry about owning anything yourself—the system's got you. And most of them will never once be taught the single most important question to ask in response: what happens to me if the promise can't be kept? What am I giving up in exchange for this promise?
A kid who understands the difference between owning an asset and holding a promise is a kid who grows up building things that are actually his. Who saves and invests early because he understands that the only retirement truly under his control is the one with his name on the account. Who hears "don't worry, the government will provide" and thinks, Well, no, I’d still like to own it myself, thanks.
It's the most basic financial literacy there is, and almost no school teaches it. Why would they?
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In 2001, America was offered a small chance to own a piece of its own retirement. Six years from now, the "safe" thing the government chose instead is scheduled to start paying out 78 cents on the dollar.
Turns out the risky bet and the safe bet weren't what everybody thought.
I’ve dedicated my life to helping you raise kids who can tell the difference.
— Connor
