Imagine, if you will, a new
retirement savings program.
Under this program, every working American will be
forced (that's right, forced) to contribute 6.2% of pay
every paycheck.
Additionally, employers will be required to match those
contributionsand not by a mere 50 cents on the dollar,
either. No, this new program will require a
dollar-for-dollar match from the employer. You heard me,
this new program will be funded based on 12.4% of the
worker's pay each and every paycheck.
There's just one catchthe money may not be there when
they retire. Some have probably figured out that I am
describing Social Security, at least how it works with
regard to payroll withholding. It's not really a retirement
savings program, of course, though many workers think of it
that way. As a group, we worry about the government
spending "our" Social Security, particularly when budget
deficits loom but, the reality is, we don't have "accounts"
in Social Security. We put our money in and, when we
retire, we get a check from the governmentwhich may, or
may not, have any relationship to what we put in. (Only
about 70% of the current benefits are paid to retired
workers and their dependents. The rest is divided among
disabled workers, their dependents, and survivors of
deceased workers.) The comparison is crude, but it's
probably better to think of Social Security as buying an
insurance policy than putting money in a savings
account.
Unfortunately, we all know that there are more people
"going" into retirement than there will be paying into the
"pay as you go" system. Indeed, 50 years ago, there were 16
workers to support every person on Social Security but,
today, that ratio is just 3.3:1 and the ratio is expected
to continue to shrink.
You don't have to be a mathematical genius to figure out
that, sooner or later, something is going to have to
change. We must raise the withholding rates (the money
coming in), change the eligibility requirements (the money
going out), or some combination of the two or we will, at
some point in the future, run out of money.
Not that running out of money would surprise most of us.
I've never met anyone younger than the age of 50 who
"expects" Social Security to be there when we retire, nor
is that a recent phenomenon. Even when I was in college
(and I'm a mid-range Boomer), we used to sneer at the
prospect of being able to collect Social Security. GenXers
who tend to look askance at Boomers as the villains here
(and who, by a widely cited survey, are themselves more
likely to believe in UFOs than in their ability to collect
a Social Security check) should understandmost Boomers
always have seen FDR's grand vision as a generational
"giveaway" to our elders.
I always have been amazed at how sanguine we are as a
nation about the probability that more than 15% of our
take-home pay taken over a lifetime of working will simply
vanish into the ether.
President Bush says he wants to leave benefits unchanged
for those now "in or near retirement." He also says he
doesn't want to raise the Social Security withholding
taxes. For the most part, his plan seems to rely on
establishing individual savings accounts with part of our
Social Security withholding, giving individuals the ability
to direct the investment of those accounts, to actually
"own" those accounts and, at some level, reduce the
benefits we might otherwise have expected from Social
Security. Personally, I like the sound of thatbut
professionally, given how much trouble participants have
evidenced making their 401(k) investment savings and
investment decisions, I can't help but wonder if the
American public is up to the challenge.
Then, there is John Kerry who, in accepting the
nomination of his party for president, said: "As president,
I will not privatize Social Security. I will not cut
benefits." By my reckoning, that leaves only one solution
and, as a policy, I don't think that "solution" alone is
going to "cut it."
What disappoints me most about Kerry's "proposal," however,
is that it appears to be a commitment to the past with no
thought to the needs of the future.
Social Security has long been touted as the third leg on
that retirement security stool.
It's time we do something about it.
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