IMHO:Vanishing Points?

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 contributions—and 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 catch—the 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 government—which 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 understand—most 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 that—but 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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Nevin Adams
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