Social Insurance Continued

In a previous post where I talked about social insurance I contended that there should be an opt-out age at 25 and because of this there would likely be an increase in federal funding for welfare programs.  I say this because if most opt-out of social security payments, it might lead to an increase in taxes else-where since the government is no longer receiving the funds to support welfare programs.  Yes, through social security taxes, government supports other programs.  Now, the reason for this is because the social security trust fund isn't actually there.  It is an IOU from the government to the government through bonds.  This IOU is expected to be depleted in the next twenty years.  And after the IOU is depleted then social security goes back to a pay as you go system.  Did I just call a trust fund an IOU?  I can't be making any sense.  Well, nothing is really new here, as the government seems to mostly function on IOUs social security is no different.  Except that instead of issuing an IOU to another country like China, it's actually an IOU to itself.  We have truly come a long way. 

The way I see it, government has crowded out the market for retirement insurance from those who could afford a small premium for retirement.  Now I would assume, again, that those who go off of their social security plan will probably take that extra money and use it for themselves in day-to-day expenses as opposed to instantly investing in a retirement account.  OR, they might now have an incentive to open a brand new retirement account since they will no longer have social security.  I don't know for sure but my belief is the latter.  If one opts our for social security they may be doing so in order to open their own retirement account because social security is so marginal in almost every way.  7.5% of your paycheck goes into the social security fund.  If you make $50000 a year that is $3250.  Now here's the catch; social security is not means-tested which means even if you have a 401k with your employer or you make over a million dollars a year, or both, you will still qualify for social security benefits, this is also what puts it in a separate category from welfare.  Just think.  If you were able to take that extra $3250 what would you do with it?  If you only made $15000 a year that's $1125!  I point this out because there is a market for these accounts!  Why not allow the private sector to provide retirement insurance?  If this were to happen, there would be an influx of jobs.  Social security crowds out this market for low premium retirement insurance companies.  This amount of money going towards social security could easily be transferred to low premium, private sector, retirement insurance for individuals.  Now I'm well aware of the transition problem that always exists which is why I mentioned an opt-out age of 25 to help alleviate this issue.  Those still relying on social security will still receive their benefits.  And I'm aware that many individuals would likely keep the extra money for day-to-day expenses, but I also believe the extra jobs created by this seemingly massive market may help to alleviate the poverty as well.  Retirement insurance is a large market, and in today's economy, we would do well by saving.