Transition 12
An alternative partial pensions transition
(This is a late addition to the general transition discussions)
This is a different kind of transition which developed in parallel with the main complete makeover to the charter. It is ONLY geared towards eliminating Social Security. Medicare ought to be eliminated too, but I don't know enough about it to say much, and it is insurance with variable payouts, not steady pensions.
There are several obstacles.
Social Security is a Ponzi scheme. The existing 15.3% FICA tax goes directly to paying benefits, not to accumulating in individual accounts owned by workers and retirees. You can't just stop deducting the FICA tax and cut off 80 million retirees' pensions. You can't tell workers who have been paying FICA for 10-20-30 years that they will not get a pension when they retire in 40-30-20 years.
The idea is no more realistic than Greens who put their fingers in their ears and shout "I CAN'T HEAR YOU" whenever the subject of nuclear power comes up; if they truly believed global warming and fossil fuels were an existential threat, they'd be cutting regulations and building nuclear power stations instead of replacing forests and covering deserts with fragile and intermittent windmills and solar power arrays. The public simply would not stand for cutting off 80 million retirees.
So the FICA tax has to continue paying pensions until everyone who paid FICA is dead or transitioned to some other source for their pensions, and while everyone else transitions to their own nest egg management for retirement.
There are far too many sob sisters and do-gooders to go quietly into that good night and accept the end of Social Security. Every pensioner who blows his nest egg in Las Vegas or falls for a scam artist or mismanages it into oblivion will be just one more excuse for screaming to bring back FICA and Social Security pensions. As much as I am willing to take responsibility and end up in some bunkhouse charity with a footlocker for all my worldly possessions if I screw up my nest egg, the political public won't, and that means every worker must have a government-mandated nest egg which they can't screw up, which replaces Social Security.
This does not cover all mandated spending, which was around $5T in 2024. Medicaid is welfare, Obamacare is a poor simulation of insurance, there are railroad pensions, and other smaller budgets. Medicare seems to be both insurance (it charges premiums of about 10% of pensions) and a Ponzi scheme with its own 10% share of the FICA tax. I assume this plan covers both Social Security pensions and Medicare health care, but since the health care seems to be only 10% of both FICA and pensions, whatever I have wrong here is probably similarly insignificant.
State employee pensions are paid from underfunded investment funds, but government workers have been shafting their taxpayers for so long with crony union "negotiations", fake disabilities, accumulated vacations and sick time, and overtime spiking, that my attitude is they won't suffer enough. Their total underfunded "debt" is less than $2 trillion anyway.
Those are my base constraints. Here is the *general* outline. Anyone quibbling about exact figures is an idiot or a lawyer or a bureaucrat, but I repeat myself.
FICA payroll taxes are 15.3%. They pay all Social Security and Medicare benefits. There currently (2025) is some excess tax collected which buys Treasurys which the government pretends are deposited into a trust fund which in reality is just more money for the government to plunder. Once that surplus runs out around 2033, the payroll tax can only pay something like 70% or 80% of the promised benefits. Politicians will do something about it, but that's unpredictable.
Market index funds which track the Dow Jones and S&P 500 averages had annual growth of 10% and 13% averaged over the last 10 years. If workers had invested their payroll taxes in these index funds, they would have grown enough in a full working life of 50 years to provide 3 (DJIA) and 5 (S&P 500) times the Social Security retirement payout with 5% annual withdrawals, which leaves 5% (DJIA) and 8% (S&P 500) growth, beating the pre-Biden "normal" 2% inflation rate. In other words, people could match their Social Security pension by investing 1/4 as much as the payroll taxes; 4% vs 15.3%. Who wouldn't like an 11% raise, and an inheritable spendable nest egg to boot?
But employees can't do that because payroll taxes do not go into personal accounts which are drawn down once retired. Most, perhaps all, government pensions around the world are Ponzi schemes, where workers' payroll taxes pay retirees' benefits directly, right now. That payroll tax cannot be diverted to build up a personal retirement nest egg because that would leave current retirees high and dry, and the public simply would not stand for that.
Add a mandatory new personal "nest egg payroll tax" of 4% which goes into those indexed mutual funds. Workers own it, but don't control it until they retire or die. They can increase it but can't decrease it below 4%. They can have their own private investments which they can mess up all on their own. But the new "nest egg" cannot be touched until they retire or die. Yes, everyone gets a 4% pay cut. But our government has been spending too much of our money for too long, and correcting that abuse is going to hurt no matter what. See elsewhere for a rough estimate that as pensioners die off and the 15.3% FICA tax dwindles, so too does the pay cut, and in 7 years it begins increasing towards its ultimate 11.3% pay raise.
Stop accruing all new Social Security "rights" for all existing workers, on the grounds that their personal 4% nest egg will make up the difference. They still pay the 15.3% payroll tax, which still pays current retirees.
As time goes by and retirees die off, the 15.3% payroll tax will begin showing a surplus, or increase its current surplus. It could be reduced, turning the 4% pay cut into a gradually increasing pay raise, or the surplus could be invested in a surplus fund of DJIA and S&P 500 index funds used to buy out retirees and workers with lump sums. A $2000/month $24,000/year pension needs a $240,000 nest egg, and being spendable and inheritable makes it more valuable and allows smaller lump sums. Yes, the government can't plunder it any more, but they need to cut spending anyway, and there won't be any surplus to plunder after 2033 either.
Retirees, and workers who have been paying FICA but not yet retired, post buyout bids if they want to manage their own mutual fund nest eggs. Pay the smallest lump sums first from the surplus fund. Someone with terminal cancer may bid $50,000 so his kids inherit something, paid before the $240K practical bid, which would be paid before a $500K dreamer bid.
At some point, the surplus fund will be large enough and the current beneficiaries few enough that the FICA tax can begin dropping, and eventually disappear altogether and be replaced by drawing down the surplus fund. There will be a lot of juggling, the payroll tax will need constant adjustments, but the trend will be clearly down.
At some point, the remaining 4% nest egg payroll tax can be eliminated so workers are entirely on their own, or it can be kept but giving workers more control over its investment policy, or it could be retained for the foreseeable future. The biggest argument for keeping it is that bleeding-heart sob sisters and do-gooders will moan and wring their hands and beseech government to bring back Social Security and the FICA tax every time some pensioner blows his nest egg in Las Vegas instead of leaving him to charities to sleep in a bunkhouse with a lockable foot locker for his sole possessions.
There will almost certainly be some surplus funds left when pensions are fully privatized, with bureaucrats and politicians salivating over it. Dumping it in the general fund would only encourage government to build it up as high as possible. It has to go back to the public. A national one-time lottery or distributing it to voters are simple, but must be tax-free so governments don't get their hands on any of it. Augmenting all 4% nest eggs is more appropriate but just begging for squabbles about prorating. But it cannot go back to government coffers.
I don't know enough about the financials to make even an educated guess about how fast this would pay off all that mandatory spending and completely privatize Social Security and Medicare. But my absolutely unscientific uneducated guess is that, except for a few diehards who simply won't shift to buying out their nest egg, the FICA tax could be gone in 20-30 years.
Getting rid of the mandatory 4% nest egg payroll tax is a nice ideal but terrible practically, because some people will not save on their own and every such sob story will increase calls for a return to Social Security and its 15.3% FICA tax. At any rate, that's 20-50 years down the road and not worth bothering with now.
Google says mutual fund capitalization was $20 trillion in 2020 and $56.2 trillion in 2022. Adding 1/4 of the FICA tax for the nest egg tax is $500 billion every year, a 1% increase, too small to disrupt stock markets. What the effect would be after it stabilizes 40-50 years later, when the first nest egg workers begin retiring, I do not know. But it would not be a sudden shock if their market capitalization could come close to tripling in two years.
As a final note, here is a discussion of an Australian pension system which is being touted as the inspiration for a makeover of Social Security.
Australia’s Superannuation Guarantee (SG) is a compulsory savings system that requires employers to pay 12 percent of employee wages into individual retirement accounts. Workers can choose from various investment funds that invest in assets including stocks, bonds, and private companies. The government generally restricts withdrawals from these accounts until the age of 60. Alongside this compulsory savings program, the Australian retirement system includes the Age Pension, an antipoverty benefit means-tested against both income (including superannuation income) and assets.
Compulsory SG’s economic costs are borne mostly by employees — indirectly through reduced employment opportunities and directly through lower take-home pay. As Australian economist Stephen Kirchner has noted, some voters fail to recognize these costs, providing a convenient tool for politicians: When the government-provided Age Pension faces fiscal pressures, it’s easier to raise SG’s mandatory contributions to reduce or eliminate future public benefit costs by increasing private retirement incomes that trigger means-testing than to reform the underlying benefit. Australia has already increased mandatory contributions significantly, from 9 percent to 12 percent between 2013 and 2025.
There are several versions based on the Australian SG and AP systems. The author’s main objection is the compulsory nature. I agree that is bad, but realistically, no legacy government could resist the siren sob-songs from all the Karen and Ken do-gooders demanding Ponzi pensions for the idiots who blow their savings in Las Vegas.
All these systems are compulsory. I don’t see any realistic hope of avoiding this in the face of sob-stories from the sob-sisters.
The talk of “means testing” and “sovereign wealth funds” implies the accounts are owned by the government, not the pensioners, and cannot be inherited or spent. But the description also implies this may only be for the Age Pension backstop and not the Superannuation Guarantee. They may be better than Ponzi pensions in principle, but anyone who thinks government wouldn’t tap into those funds is a fool.
The SG payroll tax is 12%; I don’t know AP’s source of funding. US Social Security is 15.3%, and my system would be 4%.
(Updated 2025-12-08 with discussions of the Australian system and proposed US derivatives)