Wednesday, April 06, 2005

Increase Private Savings but Leave SS Alone

A new study on President Bush’s proposed Social Security plan has concluded that the plan would eventually have the effect of ending traditional payments to higher-wage earners.

The traditional checks would disappear as the result of two factors: the cut in benefits the president has proposed for all people who open private accounts, and a change that would diminish checks by linking their growth to prices instead of wages, an option the president has said he would consider.

Both trends would have the effect of eliminating the Social Security check for a hypothetical group: someone born next year who goes on to a career as what Social Security considers a "scaled high earner," which this year is a person with annual average earnings of $56,091.

So they’d have to live off the monies in their private accounts and on any other investments they were wise enough to make. An informal survey among associates of The Yellow Line found that, among everyone who was under 35 and making over $56,091 a year, no one was counting on traditional Social Security checks to fund their retirement. And yet a new survey found that most Americans are far behind on their retirement savings. It would seem that many of those who are not currently counting on Social Security might well be glad it’s there once they retire and discover their personal savings are insufficient.

For years our government has tried to make it easier for us to save for retirement. IRAs and 401ks offer simple, tax-diverted ways to save. But a report issued by the Employee Benefit Research Institute found that half of US adults have less than $25,000 in savings. Requiring all Americans to invest through a partial-privatization of Social Security would obviously increase these numbers.

But exactly how is forcing people to invest any different than forcing them to pay into the current Social Security system? In fact, it seems worse given that private accounts would have no guaranteed return on investment, while traditional Social Security guarantees recipients enough funds to live modestly, even if they have no other savings.

We do need to help Americans increase their savings, but we should be looking at less drastic means such as public education and making it easier for all employees to take part in savings plans at work—even if the employee can only put in a very small contribution. Social Security has been a huge success since its inception and, when you think about it, is the ultimate piece to any diversified retirement plan. Do even those in the $56,091+ bracket want ALL their retirement savings in the market? Or would they prefer that at least a modest portion of their retirement is guaranteed, regardless of market ups and downs.


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