A better way for young families to build a future
Social Security taxes vs. down payments

Thanks to Social Security, what will be done with 12.4 percent of your salary has been decided for you by government nannies. (The 12.4 percent is 6.2 percent directly taken from your compensation plus 6.2 percent indirectly taken from your compensation as an employer payment on your behalf.) This money is going to be sent to a government retirement program, which admits to having liabilities much greater than its assets, rather than use it for something you might prefer — such as making a down payment on a house. Would it be better to save for your retirement by building equity in a house, or by having your money put into a government program which entails no property rights at all?

A constant theme of American politics is the individual and social advantages of home ownership. But a constant complaint is how difficult it is for young people to accumulate sufficient funds for a meaningful down payment, which would allow them to become property owners on a financially sound basis. One big reason that saving is hard for them is that Social Security taxes take so much of their youthful incomes, sight unseen, and, as everyone knows, these receipts are forthwith spent by the government, not saved. Having made saving harder, the government then sets up other programs to push risky, low-down-payment loans.

Suppose you are 24 years old, finished with schooling, employed, and launched into grown-up life. By 30, you would like to be married with children, or at least planning on them soon, and, by 32, you would like to buy a house for your family. Suppose you are making a moderate $40,000 a year, and will have modest annual raises of 3 percent (2 percent inflation plus 1 percent real).

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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