America: Focus on the Number 2016

Every night on the show I bring you a segment called Back of the Envelope, where I show you a lot of numbers, figures, data points -- but not tonight. Because, I really want you to focus on one number -- an important one.

That number is 2016.

That's the year that surpluses in the Social Security fund disappear once and for all and payments exceed payroll tax revenue. The government will be in the position that no private sector business operator would want to be in -- facing a huge and rising fixed cost each year at a time revenues are flat or down.

This isn't good. We've got a lot of viewers who care deeply about Social Security. I've read your e-mails. Many of you know the basic facts about the program -- for example, when the program was enacted back in 1935 that there were 42 working Americans for each retiree and that now there are fewer than three working Americans supporting each retiree.

You know the fundamentals with the Baby Boomers retiring -- well, it just doesn't work.

Which brings me to Texas Governor Rick Perry who says that Social Security is a Ponzi scheme. He's been taking a lot of heat for that. But I have to tell you, he is dead right.

As a financial reporter for years, I know that a Ponzi scheme is simply is a fradulent operation that pays returns to its investors from their own money or the money of investors who join the scheme later. The only difference between Bernie Madoff and the Social Security Administration is that Madoff set out to defraud investors while the SSA is simply trying to make ends meet. All this as Congress skims money from the top for all kinds of pet programs.

The answer isn't to end Social Security or to cut benefits. The answer is to reform Social Security. And, I have to tell you it's not that hard to do -- it's already being done by at least three counties in Texas. Those counties have figured out the problem with the plan -- it doesn't make enough money to cover its costs. Returns for the current program are punk -- between 1 and 2 percent, according to Congressman Paul Ryan. Would you put up with results like those from your financial advisor? Heck, no!

What some counties in Texas have done is to pool retirement contributions from public workers and invest them -- like a real money manager would. The workers get a match -- just like private sector workers and they contribute 6.2 percent of their pay just as they would have given to Social Security.

Let me show you some results:

• A lower middle income worker making $26,000 at retirement would get $1,007 from Social Security a month, but $1,826 under the alternate Texas plan.
• A middle income worker does evem better. Somebody earning $51,200 a year would get $1,540 monthly from social security, but $3,600 from the Texas model. (Source: Institute for Policy Innovation)

Which leads to the question, what would you prefer arriving in your mailbox each month in retirement -- $1,500 bucks or twice that amount. It's a no brainer right?

Even President Roosevelt knew that eventually the plan would have financial problems one day. And, we've changed Social Security in the past for the better. Exemptions in the original program meant that women and minorities wouldn't get Social Security benefits. We changed that.

Two-thousand sixteen -- when Social Security goes cash flow negative -- is just five years away. It's time for real reform.