The Top 10 Reasons Why Social Security Needs to be Saved - and How It Ought to be Saved
March 5, 2005
We Owe It to Future Generations to Do a Better Job with Social Security Today
10) Demographic pressure: In 1937, there were 42 workers paying into Social Security for every person receiving benefits. Today, just over three workers pay a 12.4% tax to support each beneficiary.
As the baby boom generation retires, this ratio will shrink even further to two workers per retiree. The only surefire way to insulate Social Security from such demographic shocks is to move from a pay-as-you-go system to a system where workers can put a good part of their payroll taxes into an account they own to help support their own retirement.
9) Approaching shortfall: The year 2018 is the tipping point. In that year, according to the Social Security trustees, the program will pay out more money in benefits than it takes in through payroll taxes. At that point, in order to pay promised benefits, the government will have to find that money somewhere else.
8) Ugly alternatives: Doing nothing leads to large tax hikes, deep benefit cuts or endless borrowing for the foreseeable future, as the government scrambles to find the money it needs to meet Social Security's obligations.
7) Mounting debt: Social Security's unfunded liability - what the program promises today's workers but lacks the funds to pay - currently stands at $10.4 trillion. Every year we delay fixing the system, we take on an extra $600 billion in Social Security debt.
6) Abysmal rate of return: The rate of return on workers' investment in Social Security is well below average. Today's workers will see about a 1.25% return on the money they pay into Social Security, while my young children will get a negative 1% rate of return.
In contrast, the Thrift Savings Plan, a 401(k)-type investment program for congressmen and federal employees, delivered an average 7.67% rate of return over the past 10 years.
5) Government raids: For 35 years, the federal government has dipped into Social Security payroll tax revenue to pay for unrelated spending, for a total of $1.7 trillion.
As long as Social Security funds are lumped together with general revenue, it will be extremely difficult to prevent such government raids on Social Security dollars. Separating the program from the rest of the budget and allowing younger workers to actually own their own accounts is the only sure way to prevent future raids.
4) "Trust fund" fiction: Some claim there's no urgency because Social Security's "trust fund" won't run out until 2042. They are ignoring the fact that the "trust fund" isn't money sitting in a bank account, available to pay benefits. It is quite literally a set of filing cabinets in Parkersburg, W. Va., full of IOU's that the government has given itself whenever it has drawn from Social Security's surplus to finance other government spending.
These are paper promises - not cash or investments. The Social Security "trust fund" does not extend the government's ability to pay benefits one extra day.
3) Ownership beats politicians' promises: Under the current system, none of us has a contractual right to the money we pay into Social Security, as the Supreme Court ruled in a 1960 case. Instead, our future benefits depend on the decisions of politicians.
With reform that includes voluntary personal accounts, workers could build savings in an account they own and can bequeath, when they die, to their loved ones.
2) Politics of fear hurts all generations: None of the reform proposals being considered by the White House and Congress would alter the Social Security benefits of those people age 55 or older.
Reform advocates are discussing how to put the program on solid financial footing so that it can cope with the retirement of the baby boomers and assist future generations of retirees. Scare tactics - or simply denying a problem exists - confuse the issue and make it harder to correct Social Security's undeniable weaknesses.
1) Our children and grandchildren: What we do today decides what kind of world our children and grandchildren will inherit from us.
Instead of handing them a legacy of higher taxes, mounting debt and a less secure retirement, we must ensure they have the opportunity to earn a decent rate on the money they contribute to Social Security, while preserving Social Security's safety net and helping the program create a more secure retirement for all generations.