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Social Security gets a 401(k)
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January 28, 1998: 7:17 p.m. ET
As Baby Boomers become geezers, entitlement program can't keep pace
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NEW YORK (CNNfn) - "With those taxes in there, no damn politician can ever scrap my Social Security program."
Sixty-two years and one Cold War later, Franklin Roosevelt's in-your-face endorsement of America's most successful government program remains a notion as popular among the entitled masses as it was prescient in its time.
Yet as President Clinton's State of the Union clarion call on Social Security attests, demographics now threaten to undo what "no damn politician" has managed - or dared -- until now.
The 76 million Americans born after World War II who will begin retiring en masse in 2010 represent a bumper crop of Baby Boomers that the system, as currently designed, is ill-equipped to provide for.
By 2019, the apocalyptic logic goes, insolvency will loom large as Social Security begins tapping into its reserves -- pegged at around $650 billion this year -- to meet benefit payments on millions of individual obligations.
Boom times ahead for octogenarians
Left unfixed, the system, will go bankrupt by 2029, as those seeking entitlements far outstrip the ability of payroll contributions by taxpayers to keep pace. The number of Americans 85 or older is expected to triple today's level by then to around 12 million, according to the U.S. Census Bureau.
"There are always those that say this is a 2020 problem, there is no urgency," said Rep. Charles Stenholm, a Texas Democrat who co-chairs the Public Pension Reform Caucus with Jim Kolbe, an Arizona Republican. "But anyone who has studied the problem at all knows that every year you wait makes the problem that much more difficult."
Clinton's proposal calls for using the windfall from a $200 billion projected budgetary surplus over the next five years to prop up Social Security while legislators probe for a longer term fix to the system's inadequacies. Doing so, the White House contends, will help to keep Social Security solvent for up to 15 years.
But Clinton left little ambiguity about his ultimate goal in Tuesday's State of the Union.
"Let us say to all Americans watching tonight, whether you are 70 or 50 or just beginning to pay into the system, Social Security will be there when you need it," he proclaimed. "Let us, tonight, make this commitment: Social Security first."
While differences of opinion abound on the merits of universal entitlements, few would argue that reforming Social Security has become imperative. It is one of those rare issues of almost ironclad bipartisan consensus.
"This is not tax reform," said Mike Tanner, the director of health and welfare studies at the Cato Institute, a Washington, D.C.-based think tank. "You can argue about how soon the problem is, or how big the problem is, but you can't argue that it won't be a problem."
Raise the retirement age?
But delve into the nitty-gritty of number crunching, and a chasm opens.
The options under consideration for jump-starting Social Security in the next millennium range from cosmetic changes -- like raising payroll taxes or the retirement age (or both), and curtailing benefits -- to revamping the system altogether, welfare-reform style.
One option, favored especially by conservatives who champion greater individual freedoms over government management, would be to promote private retirement accounts, similar to existing 401(k) plans. But these plans, known also as pay-as-you go programs, are not without major drawbacks, skeptics say.
"Shifting to private investment wouldn't be easy," said John Rother, of the American Association of Retired Persons, the powerful lobbying group that represents millions of retirees. "A whole generation would have to pay twice -- saving for themselves while paying benefits to those retired under the old system."
The status quo, however, can be equally unsavory. Under the current system, according to Tanner, a 30-year-old person making $30,000 a year pays about $3,400 in Social Security taxes annually. Figuring a 45-year working lifetime, that person would receive around $17,000 a year in retirement -- a less than 1-percent rate of return on his payroll investment.
A super-committee takes shape
Stenholm advocates an adjustment in the consumer price index to bring Social Security payments more into line with inflationary realities on Main Street. A recent study by the Boston Commission, a government-sponsored group, concluded that the CPI overstates inflation by 0.8 to 1.6 percent.
The debate promises to gather steam in the coming weeks and months. A congressional bill introduced in the House Wednesday calls for the creation of a super-committee evenly divided between the House and Senate, and Democrats and Republicans, to formulate ideas that go beyond piecemeal measures.
In the meantime, Stenholm said, the president's plan, if approved, would "give us a good running jump start."
--By staff writer Douglas Herbert
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