Adam Fischbaum Blog | Third Rail...Anyone? | Talkmarkets
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With over 20 years of professional investment experience under his belt, Adam Fischbaum’s work has appeared on Yahoo Finance,,, Seeking Alpha, and his soon to be more frequent blog When not  working as a financial advisor, ... more

Third Rail...Anyone?

Date: Thursday, February 18, 2016 4:59 PM EDT

I don’t get political in print that often. I’m an investment guy. It’s what I do. But, the presidential “Silly Season” is upon us and the vitriol from both sides is spewing from the BS hydrant at full blast.


From the GOP its immigration (always the easy scapegoat), Obama, who I thought isn’t running this time, ISIS, the Second Amendment and the vacant Supreme Court seat. I’ve even heard eminent domain as, what I’d like to call, a WTF issue. Because, you know, eminent domain threatens our national existence on a daily basis. Not.


While the Democrats seem to address more substantive issues, at times, like student debt, healthcare affordability, and the environment, their POV typical comes from the entitlement handing out side. Predictably, they’re promising a lot of stuff that will be paid for through higher taxes on those dastardly rich people and big businesses, primarily Wall Street.


However, also typically, no one, I repeat…NO ONE, will go near: Social Security, the third rail of American politics. And I don’t expect anybody to. With 75.4 million baby boomers, of which 10,000 turn 65 every day, why would you chase off potential votes by standing up and telling the truth? Any politician worth his salt knows better.


But the simple fact is, Social Security is going to be in trouble and SOMETHING has to be done about it. The biggest challenge the system faces? Rock bottom interest rates that are not going up any time soon and too many people living too long while they draw their checks. According to the Social Security and Medicare Boards of Trustees summary of the 2015 annual report: “Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The Trustees project that this annual cash-flow deficit will average about $76 billion between 2015 and 2018 before rising steeply as income growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.”


Look, Social Security is basically a classic Ponzi scheme. New investors are required to pay in so the original investors can get paid and at the rate that worker incomes are NOT rising versus the rate people are retiring and collecting benefits and living longer thanks to medical science, it’s pretty freaking unsustainable.


I’ve come up with a rough solution. It’s a partial privatization. Okay, I’m a bit of a crank when it comes to these things. I actually typed this plan out on a piece of paper, put it into an envelope and slipped it to my Congressman when I visited his office with my son’s Boy Scout troop. He smiled, nodded, and looked at me with that 1,000 yard, light’s on but nobody home stare they all have. Anyway, for what it’s worth, here goes.


  • Working adults earning $35,000 and up annually who are age 50 and under have the ability to “opt out” of the traditional Social Security System.


  • If you opt out, you would receive your paid in employee portion minus interest and a 30% opt out tax. You would NOT receive the employer portion. Roughly, you’d get 70 cents on the dollar of your original principal. Believe me, you could do a lot worse.


  • You would then be required to “roll over” the proceeds into a mandated “MyRA”  style account. You would invest in a multi asset, target date fund, based on your age and risk tolerance. The investments would grow tax deferred. The employee portion you had been paying into the traditional system would be directed to this new account and would be mandatory just like the old system. There would be no employer portion going forward.


  • No withdrawal, whatsoever, would be allowed until mandatory retirement age. Defined contribution plan participation would still be allowed and encouraged.



Account administration and investment management would be handled by government sponsored private vendors similar to the privately sold 529 education savings plans. I’ve watched this program since inception and it seems to have evolved efficiently.


Would this really work? I don’t know. As a germ of an idea, maybe. Of course, the heavy math guys need to be involved. Perhaps it’ll start a discussion. I hope so.


I fall in that 50 and under (just barely) group. I’m fairly confident that my generation and those behind could latch on to an idea like this especially if it meant saving our own necks.


I’d sign the paperwork tomorrow.





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