A proposal: FICA-Freedom Day

I was trying to get some hard numbers for this little essay, but Social Security appears to be like the elephant being examined by blind men: everybody has a different perspective. So I’m going to approach this thesis from a purely philosophical basis (bear with me).

For someone who loathes Social Security as a Ponzi-type pyramid scheme, I’m put in an untenable position. As much as I hate paying into FICA right now (when I could be investing for my kids’ college education) the structure of Social Security is such that when I turn 67, I’m going to greedily lust after all the money I’d “saved” in the program. In other words, Social Security is geared to turn me into a hypocrite.

But consider this: if I were to renounce my Social Security benefits upon retirement, surely the government would be willing to stop sending me several thousand dollars a year. Since seniors are living ever longer, this could add up to several hundred thousand dollars in savings over the course of my post-work years. But then why should I bear additional financial burden in my golden years by giving up SS cash, no matter how I might feel about it?

So here’s my proposal: on the date of my retirement, my future benefits have some fixed value based on my income and my expected lifetime. If I agreed to give up these future benefits, in exchange there should be some date during my working years when I can stop paying into Social Security. I’m not sure when this date may be, but assume that I’m expected to collect $1000 a month for 20 years, or just about a quarter-million dollars before my death. Calculating backwards from retirement, there must be a break-even point where that sum is balanced by the money withheld in FICA (adjusting for interest). What I’m suggesting is that at that date, I’m allowed to opt out of FICA withholding in exchange for renouncing any future Social Security benefits.

What’s the downside to this proposal? The government gets to keep all the FICA withholding up to the “break even” date; essentially they take additional tax revenue with no benefit payout. I can take the money that I would be paying into Social Security and invest it on my own (undoubtedly with a better return). Supporters of the status quo would surely argue that Social Security exists to prevent old-age poverty, which is true, but as the demographics shift dramatically with the retirement of the Baby Boomers, I don’t expect the program to stay solvent anyway. I’d rather take my chances controlling my own money and keep my beliefs intact.