Friday, November 14, 1997
With Social Security revenues depleting fast, Americans push to
save money on their ownBy Alex Hamm
Daily Bruin Contributor
More young Americans believe in UFOs than believe that they will
receive their Social Security benefits.
On Aug. 14, Social Security turned 62 years old. And there is
increasing evidence that the time has come to retire this
government program, which may not remain solvent for long.
By the time today’s college-age students hit retirement, they
won’t be able to count on Social Security to support them. Current
projections predict that Social Security will begin paying out more
than it receives by 2012, or even 2006. That’s when the massive
bulk of the Baby Boom begins to hit retirement. And anyone whose
employer has not offered them a retirement plan may be left out in
the cold.
Some solutions have been proposed for this coming crisis.
Instead of putting Americans’ money into Social Security,
proponents of "privatization" wish to limit the power of the
government and place more power into the hands of Americans to deal
with their own money.
Many others wish to keep the institution that has brought
benefits to millions of Americans over the past six decades.
"Call me an optimist, but no political party can afford to let
Social Security go down," said Werner Hirsch, UCLA economics
professor.
Students entering the job market today, though, have to decide
whether they should start investing now or if they should rely on
Social Security to help them retire comfortably.
Currently, the Social Security system works to the advantage of
four major groups of Americans: the retired, disabled, a spouse or
a dependent of someone who gets Social Security, or a widow,
widower, or child of someone who has died. Depending on a person’s
circumstances, one may be eligible for Social Security at any
time.
Many proponents of privatization, though, say that by the time
the Baby Boom generation collects its Social Security, there will
be little left for the working people of today.
To meet the upcoming revenue shortfall, the government will have
to make choices: raise taxes, lower benefits or privatize the
system.
"Payroll taxes are already so high that even if today’s young
workers receive the promised benefits from the taxes they pay in,
their Social Security checks will amount to well below-market
return on those taxes," Tanner said.
"A young worker today would be better off stuffing his social
security taxes in a mattress than counting on benefits from the
program," he added.
Another argument in favor of privatization is the change in the
longevity of Americans. Since life expectancy is increasing, less
money will be available in the future. Today there are 3.3 workers
for every Social Security beneficiary. By 2025, there will be fewer
than two.
"With more and more people living to older ages, people will
need to start saving more money on their own," said David Fallon, a
second-year computer science student. "As soon as the Baby Boomers
kick in, there will be no money for us."
"Extending the period of employment is a painless step to keep
Social Security going," Werner said.
Although problems have grown over the years concerning Social
Security, many have offered solutions to the problem.
David Altig and Jagadeesh Gokhale, economists for the Federal
Reserve Bank of Cleveland, have offered one proposal: workers under
the age of 32 can divert up to 46 percent of their payroll taxes to
individually owned, privately invested accounts, similar to 401(k)
pension plans. This way, the money will be safely invested until
the individual is ready to retire and enjoy the money he saved.
Another privatization proposal would put the investment directly
in the hands of the government. Offered by the Advisory Council on
Social Security, this proposal advises the government to direct
between $500 billion and $2.1 trillion worth of Social Security
investments into private companies over the next 15 years.
Opponents argue this would cause the government to take control
over the country’s largest businesses.
Chile is a country in which privatization of Social Security has
actually been tried, with some success. In 1924, Chile was the
first country to adopt a Social Security program. In 1981, Chile
found itself in the very situation that now threatens the United
States, and the country privatized its system.
Today, Chile’s gross domestic product has been growing 7 percent
annually for the last 10 years. Its rate of savings is 28 percent,
as compared to 3 percent in the United States. Ninety-five percent
of all Chilean workers have chosen the private system that exists
alongside the state system.
Proponents of Social Security, though, say that the program will
benefit Americans well into the next century, and probably beyond
that. Last year, Social Security had a surplus of more than $70
billion after paying all the benefits owed to Americans.
According to a representative from the National Committee to
Preserve Social Security and Medicare, Social Security will
continue to run surpluses through the year 2011 and fully cover all
benefits for the next 32 years.
Each year, Social Security’s Board of Trustees reports on the
financial status of the Social Security program. These reports aid
in evaluating and ensuring the economic health of the Social
Security system. The latest report states that the system, as
currently structured, will be able to pay benefits well into the
next century.
According to the Social Security Education Product (SSEP), the
prefunding of the Social Security program is expected to create a
large federal reserve fund of close to $12 trillion in 2030. The
reserve is currently held in U.S. Government Bonds, which the SSEP
claims is the safest investment.
Also, proponents of keeping Social Security argue that the
potential benefits of privatization do not outweigh the risks. Poor
private investments may result in the loss of revenue, and the
administrative costs of a privatized system would more than offset
the potential gains, according to the SSEP.
Although retirement seems far off, planning for one’s future is
essential.
"I am not sure what is going to happen with social security, but
I do know that I am going to invest my money now," said Matt Lopez,
a second-year business/economics student.
"I want to retire on more than what the government gives out
now, and the only way to do so is to invest my money the way I want
to."