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Heres the problem with your arithmetic and assumptions - You assume that everyone will earn your average rate of return even while you are arguing that they are free to invest it where they want and consume it instead if they like.
Well, this may or may not be news to you but there are fair number of idiots out there. There are even a fair number of supposedly savvy capitalists who have gone bust (just think of the dot com bubble bursting and now the housing market - many more example exist if you want to think about it.
The problem is that a lot of people will NOT have enough to live on at the end of the day if a system like you seem to want is put in place. What are we going to do about them? Do you really think that we will let a large number of grandpas and grandmas starve in the street? I dont want to live in a country that would do such a thing.
Social Security was constructed on the basis of what was politically possible in 1932. If we had it to do again we might design a different system. But now that we have it, and now that about a third of old people rely on it for virtually all of their income and another third rely on it for at least half their income it is very hard to pay for any kind of transition (especially now that we have dug such a deep financial hole in the last 7 years). And as a 51 year old who has been paying extra all my working life to build up the trust fund to prefund my own retirement, I sure as hell want to get my Social Sec. payments in a few years when it is my turn.
Otherwise, how am I going to pay for a slip for my boat?
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