Social Security provides old age, survivors, and disability insurance — it is not an investment vehicle
In March, the Social Security Administration (SSA) released their latest projections for Social Security. They reported that the Old Age, Survivors, and Disability Insurance (OASDI) funds will be able to meet all obligations for another 37 years — even if we change nothing about the system.
That is good news. It means we have 37 years in which to adjust Social Security to make up for our longer lifespans and varying birth rates. Rarely do we get so much advance warning regarding a potential problem.
Yet news accounts make the shortfall sound imminent. As recently as this morning (May 16), a story in the New York Times stated that "demographic changes will soon threaten the solvency of Social Security."
I suppose it depends on what your definition of "soon" is.
In 1982, the Social Security trustees report predicted a shortfall by July of 1983 if nothing was done — a warning time of only 15 months. To me, that qualifies as "soon."
The fact that Congress was able to act in those 15 months to make the necessary adjustments to avoid a Social Security shortfall makes me confident that we can find a solution for this projected shortfall in the next 37 years.
Nonetheless, many Americans — especially younger Americans — have little confidence that Social Security will be available to pay their retirement benefits. A CBS News/New York Times poll showed that 45 percent of Americans feel this way. That number is considerably smaller than the 61 percent who felt that way in 1981, but it is disturbing nonetheless. This lack of confidence opens the door for politicians to propose schemes to "save" Social Security through privatization.
Presidential hopeful George W. Bush jumped on that bandwagon in May, with a plan that would allow workers to place a portion of their Social Security taxes in private accounts, which they could invest in stocks and bonds.
Like most of his proposals, this plan is long on promises and short on details, but he explained enough to make it evident that his plan will not work. Not only will it raise the costs of administering Social Security, but it will reduce benefits for most workers. Worst of all, it will eliminate the most fundamental aspect of social insurance: guaranteed benefits.
Yes, Bush promised that those at or near retirement would still get the full benefits guaranteed by the current system. But he made no such promise for workers in their 20s, 30s, 40s, or 50s.
He cannot make that promise for two reasons. First, diverting some Social Security money to private accounts does not change the fact that there isn't enough in the fund to meet all future obligations. Private accounts may earn at a higher rate than the Treasury bills Social Security buys, but those higher earnings remain with the individual accounts. The general fund remains short — unless Bush lowers the guaranteed benefits for future retirees.
Second, those who choose to put part of their Social Security money in private investment accounts cannot be guaranteed anything. No one knows what the stock market will do. If it is up when they're ready to retire — great. If it is down, then so are their retirement benefits. Bush points out that over any 20-year span the market has always gone up, but retirement decisions are made on much shorter notice. What does a person do if the market collapses just before he or she retires? Work another 20 years?
In fact, a study conducted by the General Accounting Office (GAO), Congress's research arm, found that private investment accounts are a good deal only for those in the top ten percent of wage earners. They looked at three Texas counties that tried private accounts for nearly two decades and came to this conclusion: "In general, low-wage workers and, to a lesser extent, median-wage earners, would fare better under [the current system]. High-wage earners can expect to do better under [privatized plans]."
The report also noted that women, no matter their age or economic status, would be losers under a system of private accounts, because current Social Security protections for women are wiped out under privatization.
Finally, this GAO report showed that the expense of maintaining the private accounts system is far greater than the two percent administration costs that Social Security currently runs. Bush's plan would be even more expensive than the Texas plans, because he wants the federal government to regulate the way these private accounts are invested. That means creating an entire system of auditors and investigators to look over the shoulders of those who open private investment accounts.
The projected shortfall is real. Let's fix it. But not by creating private investment accounts. Social Security is social insurance — not a wealth-building plan.
We must ensure that all Social Security recipients get every penny that is guaranteed to them by law. Not just the wealthy ones. Not just the lucky ones.
Let's keep the "security" in Social Security.