What does the Heritage Foundation have to say about saving Social Security:Study released May 10, 2011 (Part 7)

“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by  Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beach is one of the finest papers I have ever read. Over the next few days I will post portions of this paper, but I will start off with the section on Social Security. I am also going to give attention to the thoughts of Milton Friedman on the subject too. Here is the seventh portion:

An Improved Savings Plan to Supplement Social Security. As Social Security is transformed into a real insurance system that focuses scarce resources on those who need them most, the plan also creates better ways for workers to build savings for retirement.

Beginning in 2014, a new savings plan will be introduced over two years. Under this plan, 6 percent of each worker’s income is placed in a retirement savings plan that the worker owns and controls unless he or she explicitly declines to have such an account. (This approach is known as automatic enrollment.)

This new, additional retirement security system gives Americans another tool with which to secure their retirement standard of living. Savings are invested through an improved version of the IRA/401(k) employment-based retirement savings system already familiar to Americans. The money put into these savings accounts will not be double-taxed, unlike today’s Social Security payments and many other savings mechanisms.

In addition to this new savings plan, workers have two other important ways to save for retirement.

First, under the reformed tax system detailed below, all savings (without limit) will no longer be double-taxed. Savings remain completely free of taxation until they are actually spent.

Second, as benefit reforms drive the costs of Social Security below the level of taxes collected, those savings will go into the workers’ accounts.

The Bottom Line

The Heritage plan reforms Social Security to create a retirement security system that will be available for future generations. It will be one that provides a reasonable, predictable, and affordable benefit that ensures that no retiree who has worked for 35 years or more faces poverty or economic insecurity. At the same time, this new system protects our children and grandchildren from the massive tax increase that would be necessary to pay all of the Social Security benefits that Washington has irresponsibly promised.

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