A new Social Security formula

Assume for a minute that the average 66-year-old retiree receives a monthly check of \$1,250. That's \$15,000 a year. Second, assume this same retiree doesn't exceed the annual earnings limit and lives to be 76. Minus any cost of living increases, this equals \$150,000 in benefits paid by Social Security over a ten-year period. My formula spends more up-front, but saves the system billions of dollars on the back end. How? By offering the retiree a one-time, lump-sum payment of five times his or her annual benefit (based on a calculation that factors in the discounted value of future payments against one's projected life span).

For the purposes of this discussion, that's a \$75,000 check paid to the above-mentioned beneficiary on Day 1 of his or her retirement. That's it. From my perspective, Social Security has met its obligation to the retiree ... he or she receives a comfortable amount of money all at once ... and, assuming the retiree lives longer than five years beyond his or her start date, Social Security saves billions in monthly payments. It's a classic win-win, no?

Before any CPAs or policy wonks throw their calculators at me, there's one more thing: I suggest making my pay-out program voluntary. This way, people have a choice. Retirees can roll the dice on their life expectancy (i.e., be aggressive) and take a risk on an amount all at once, or they can play it more conservatively and agree to receive their monthly Social Security checks well into their 80s or 90s.

Not counting survivors, dependents or the disabled, the number of seniors on Social Security is more than 37 million now -- and growing daily. This number is expected to double in the next twenty years. My formula is based on simple mathematics, not political ideology. If my numbers don't add up, then tell me. My plan tries to balance the needs of current and future Social Security retirees against the backdrop of an aging, ailing system. If my priorities are out of whack, then let me know that, too.

Virtually everyone agrees that something needs to be done to "fix" Social Security. Trouble is, most ideas floated in Washington are shot down by partisan opponents before they ever get off the ground.

My hope is this formula stirs the imagination of Democrats, Republicans and Independents alike.  Take a breath and ask yourself this one, simple question: Which would you prefer? A one-time, lump-sum payment on the first day or your retirement or monthly checks deposited into your bank account? Better yet, which option do you think American retirees will want?

Freidenrich served as a congressional staff assistant on Capitol Hill in 1972. The founder of First Strategies consulting, he writes from Laguna Beach, California.

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