I share this article on the blog now as evidence that Social Security survival and reform is the issue that never goes away. It's just as hot a topic now as it was then, and before then. Oh, private retirement accounts have gone somewhat out of vogue since an effort to install them flopped in the Bush 2 administration, and liberals are more enamored with raising the earnings limit, or doing away with it entirely, where the Social Security tax can be assessed.
But the issues in this piece, as well as the comments and actions by experts, remain relevant. So, from 1999 ... Disclosure: I worked as an editor/reporter for Dalbar Inc. in 1996 and 1997, and President Clinton, despite my optimism, did not sign a bill to assign preferred mutual fund managers to designate where our taxes are invested. Also, Congress never created a plan to take a percentage of Social Security tax funds and put them in private hands.
We're still investing Social Security in Treasury securities and it's still a pay-as-you-go system, threatened by too many retirees and too-few workers.
A
Whole New Social Security (1999)
A few years ago, a pollster
named Frank Lunz asked Generation Xers what was more likely -- that there were
aliens in Outer Space that would eventually be our guests, or that Social
Security checks would arrive in the mail 40 years hence. By a strong majority,
the 20-somethings believed a stronger chance existed of meeting E.T. than
collecting an inflation-adjusted check that averages about $900 each month in
their old age.
More pessimism: By its own
account, Social Security should run out of funds in about 30 years, unless of
course, there are some tax increases. We’re just populating the planet too
long.
Congress is trying to fix the
mess, as well as Congress can fix any mess, which may invite more despair.
Believe it or not, both parties have agreed on a partial solution. Take about
25 percent of your Social Security taxes, and instead of investing that cash in
low-yielding government T-bills, let it enter the world of stocks, bonds and
mutual funds, with the promise of double-digit returns, or double-digit
losses...
Ralph Nader and other liberals
hate the idea, claiming the market is too unstable to risk our old age on. There’s no need to risk our savings. One
liberal solution cited: A modest quarter-of-a-percent FICA tax hike each year
for 20 years will boost Social Security’s solvency.
However, Ibbotson Associates, a
Chicago research firm, says the market has a long-term track record that invites
confidence. Ibbotson says that a dollar invested in the private market since
the mid-1920s is worth well more than $2,000 today, a much higher yield than
cash invested in T-bills.
Ah, but what about the baby
boomers? They’re retiring in record numbers, and won’t that deplete the market
as these boomers take out their savings for retirement? That’s a joker in the
deck that needs to be considered. However, Lou Harvey, president of Dalbar,
Inc., a Boston financial research firm, says that’s an unfounded fear. Harvey
says that boomers are inheriting billions of dollars from their parents ---
monies that will go into the market for their offspring and balance the cash
they take out for themselves.
Of course, there’s a lot of
boomers out there who may chuckle at the idea of inheriting money from anyone.
Congress still has some bugs to
work out before they transfer a significant portion of Social Security to the
private sector. The big debate is who exactly will manage this cash? The
Republicans want the individual -- in other words, you and I -- to decide how to invest the FICA cash.
Democrats have balked at that idea, saying it’s best to set up a commission of
mutual fund managers to invest the cash in mutual funds with safe performance
records. In any event, President Clinton has indicated he’s likely to sign
whatever bill Congress finally hashes out.
The Social Security debate is in
full swing right now. It’s your cash. Better call your legislators and let them
know how you feel.
