Social Security

Posted: Feb 14, 2005 12:00 AM
For 70 years, the Social Security System has been a safety net for American seniors, vastly reducing the rate of poverty amongst the elderly and changing the quality of life for most Americans.

That was then.

Many economists now predict that the system will collapse within a generation. The problem is straightforward: The baby-boomer?s impending retirement will cause a shift in the workforce so pervasive that the social security system will become top heavy, like an inverted pyramid. In other words, too few workers will be supporting too many retirees. As a result, the cash outflow in social security benefits will exceed the cash inflow in taxes

Perhaps this is a good time to mention, there exists no social security surplus. The social security trust fund is filled with old, yellowed scraps of paper that read, ?IOU.?

So what we?re looking at is the impending bankruptcy of the entire social security system. Experts predict that on or about the year 2032, the social security system will collapse.

This situation takes on catastrophic proportions when you consider that 66% of elderly Americans use social security payments as their primary source of income. This point was not lost on President Bush. During his State of The Union address, earlier this month, the President proposed a drastic overhaul in the system. He?s been on a cross-country sales pitch ever since, preaching the merits of allowing some Social Security funds to be invested in private accounts.

Predictably, the Democrats united in opposition. They talk about how privatizing social security funds gambles the future of our seniors on the stock market. But they offer no counter proposal. At best, they try to forestall the problem by raising taxes, passing legislation to extend the retirement age and paring away our promised benefits. However, you can only raise taxes or increase the retirement age by so much. The problem of too few workers supporting too many retirees will continue to lurk as long as infant mortality rates continue to decrease and life expectancy continues to increase.

The only way to actually solve the problem is to transfer our social security taxes into privately managed universal savings accounts. Under such a system, each individual would be responsible for managing his retirement savings. Rather than have his money bogged down in a low-yield treasury bill (as currently is the case), an individual could benefit from much higher rates of return in the stock market.

For those who quiver at the notion of risking retirement savings in the stock market, it is worth noting that in the entire history of this country, stocks have never lost money over a twenty-year period. In fact, a recent study by the Cato Institute found that for all 30 year periods since 1802, stocks out gained bonds 99.5% of the time.

Under a privatized system, a worker can simply enter into a computer his desired benefits and retirement age. The computer then specifies how much he must withdraw from his salary each month in order to meet those goals. In such a manner, the worker can sculpt his retirement savings to meet his individual needs.

Giving people more of a choice in their retirement planning will better connect them to the economy. Each American will understand that his retirement savings rests in the well-being of the economy. Consequently the populace will be less likely to make a run on their banks at the first signs of financial tremors. The free market economy will strengthen as citizens exert control over their financial well-being, rather than relying upon the government to administer aid like some subtle narcotic.

The alternative is to continue ignoring the problem. Most of our politicians are comfortable with that. Social Security is one of those issues that can only get a politician in trouble?mostly because the public relies on it, but they generally don?t know how it works. That?s the real reason that a social security overhaul currently lacks enough votes to pass through the Senate?politicians are scared to touch it.

The President is barnstorming the country trying to change that. Let?s hope people listen now. Because if they don?t, the system is either going to collapse, or its maintenance is going to result in crushing tax rates for our children.