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| SOCIAL INSECURITY |
| Tuesday, November 14, 2006 |
Easy fix not so easy
Ralph Bristol
The Ralph Bristol Show
November 14, 2006
Are you unable to dunk a basketball? That's easy to fix. Raise the basket.
Huh?
Need to lose weight? No problem. Eat more and exercise less.
Say what?
That's the USA Today approach to fixing Social Security, as outlined in an editorial today. The headline boldly proclaims "Social Security: Easy to fix, but where's the political courage?"
The lead paragraph includes: "Have you ever actually read one of those statements that come each year from the Social Security Administration? In addition to disclosing that your retirement benefit won't support you in the style to which you're accustomed..."
Then, the editorial outlines the "easy fix," which includes a combination or raising taxes and lowering benefits. Let's review. A major problem with Social Security is that the retirement benefit is too paltry (particularly considering the cost). The fix is to increase the cost and lower the value. Sure, that makes sense.
Actually, the solution proposed by the USA does fix one problem with Social Security (solvency), but it exacerbates an equally serious problem – the one the editorial identified with the words "won't support you in the style to which you're accustomed."
Social Security was never intended to support you in the style to which you were accustomed, but when that decision was made, back in the 30s, it was also a very cheap program. You shouldn’t expect to live the life of Riley in your retirement years when you only contribute 2% of your wages toward your retirement. However when you contribute six times that amount - 12% -- you should expect a whole lot more, but you don't get more. You get the same paltry amount as the 2% got you in the early years.
You can in fact make the current Social Security program solvent by eliminating the lid on payroll taxes and making people wait until they are 70 to collect full benefits. That is, you can make the program solvent by raising taxes and lowering benefits – making people pay even more for even smaller benefits. If your only goal is to make the program solvent and you don't care about sustaining or increasing the value of your mandatory retirement contribution, that's what you should do.
It is barely short of criminal that the people in charge of Social Security have allowed the mandatory worker contribution to shrink to one-sixth of its original value and simultaneously ignore the solvency of the program, but that has happened, and sooner or later, one or both of those problems is going to have to be fixed.
Raising taxes and reducing benefits fixes one of the problems, but exacerbates the other. I prefer to fix both, and the only way to do that is to let today's workers direct some of their payroll taxes into a personal account that will grow for their own retirement. That will reverse the erosion of the value of their mandatory contribution. At the same time, we will have to find a way to pay for the benefits of current and soon-to-be retirees. The options are to increase taxes, borrow, or cut spending elsewhere. Naturally, I would prefer the latter.
In his final two years in office, President Bush should hire a Social Security emissary to Congress, whose job it to meet with all of the various caucuses and discuss both of the problems that past Congresses and Presidents have created. Find out if there is a will to solve both problems or just one. Frankly, if I were him, and he finds out they are willing to solve only the solvency problem, I'd drop the issue and leave it to the next President, but if he finds they are willing to try to solve both problems, he should make a concerted effort to do so before he leaves office.
Added Note for News Snipet-
In this debate there is something many do not realize. First, two questions:
1. Personal retirement accounts were first mentioned by which prominent politician?
2. When the issue was perceived as critical who was the Democrat that suggested personal retirement accounts?
The answer is FDR for the first, and Senator Daniel Patrick Moynihan for the second. Following the suggestion of Senator Moynihan's bipartisan committee, President Bush began to promote PRA's. It was only then that Democrats led a fight against them.
You workers under 30, you could be retiring by 65 with a couple million under your belt (do the simple math), instead, you will be retiring at 90 with your static $800/mo--if there is even that. |
posted by Jack Mercer @ 11/14/2006 10:57:00 AM   |
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| 3 Comments: |
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Great article, it just seems to make sense. I don't understand the staunch opposition to the idea, Ive never really heard the reason either, other than fear tactics that today's workers will have nothing when they retire if it becomes privatized, whereas the fact is, today's workers will have nothing if it stays the way it is.
I received a mailing from social security last year that summarized the system, informs me of how many "worker points" I have accumulated, how many you need to be eligible, etc. It is not playing partisan politics, it is not a distribution from either party, and it clearly explains, do not rely on social security as your sole retirement plan- for the very reason that there won't be a lot to go around when I retire in about 40 years; and I am guessing also for the reason that it may not be privatized.
I wonder how the Democrat party that seems to be taking hold will approach this matter. I wonder how many really believe it is a bad move, or just fear the opposition from labor unions, AARP, and other factions.
Seeing as Hilary will be president in 2008 (as some of us predict), I would love to hear what she has to say about it as well.
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As far as I'm concerned the only problem with personal accounts is the risk exposure. Say a 30 year old starts their personal investment account today. They would probably choose a mixture of high return/high risk and lower return/lower risk stocks, and as they aged the portion would swing more towards low risk. That's they way it's typically done.
The problem is there's never any guarantee of NO risk. Look at what happened to the stock market just a few years ago. Retirees had portfolios worth millions that were suddenly worth NOTHING. What do we do then?
I acknowledge that social security is a stupid investment vehicle, but we need to carefully research our options. Perhaps have thresholds where after a person's portfolio has grown by X percentage a large portion of it goes to a money market or CD, not to be touched until retirement...
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Thats a great thought. Of course it isnt as simple as, ok private accounts, do what you want. There are certain things that should be worked out. In individual stocks, they have different vehicles in place, one being stop-loss/stop-order, which is somewhat along the lines of what you have suggested. Essentially, it orders that, when you get to a certain threshold, a broker liquidates their holding.
They could do something like that, but except reallocate. It makes sense- generally as folks get older, they move their investments to more conservative holdings like bond funds, or money markets anyway. There is a lot of room to work with I think, and its too bad they just want to shut out any discussion because there is potential for some great ideas here for the future.
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Great article, it just seems to make sense. I don't understand the staunch opposition to the idea, Ive never really heard the reason either, other than fear tactics that today's workers will have nothing when they retire if it becomes privatized, whereas the fact is, today's workers will have nothing if it stays the way it is.
I received a mailing from social security last year that summarized the system, informs me of how many "worker points" I have accumulated, how many you need to be eligible, etc. It is not playing partisan politics, it is not a distribution from either party, and it clearly explains, do not rely on social security as your sole retirement plan- for the very reason that there won't be a lot to go around when I retire in about 40 years; and I am guessing also for the reason that it may not be privatized.
I wonder how the Democrat party that seems to be taking hold will approach this matter. I wonder how many really believe it is a bad move, or just fear the opposition from labor unions, AARP, and other factions.
Seeing as Hilary will be president in 2008 (as some of us predict), I would love to hear what she has to say about it as well.