Washington In this age of heightened insecurity, the last thing the American people deserve is a threat to the most successful domestic program in U.S. history.
Yet today, Social Security stands in the line of fire. With boomers approaching retirement, Social Security needs to be strengthened for the future. But there is a right way and a wrong way to do this.
Some argue that there are only two viable options: see Social Security go broke, or divert some of the money workers pay into Social Security into private accounts. Neither of these options are necessary or desirable.
Diverting money into private accounts would weaken Social Security, put benefits for future retirees at risk, and do nothing to ensure long-term solvency. And transition costs to a private account system could cost trillions of dollars. That's like throwing a heavy anchor to a nation that is already drowning in debt, leaving our children and grandchildren to shoulder the burden.
While it is true we must shore up Social Security for the long run, no radical overhaul is necessary. If we take modest steps now, the program be able to pay full benefits to the boomer generation and those to follow.
Here are just three examples of reasonable steps to deal with this challenge:
- First, we can increase the wage base for Social Security contributions. Currently, about 85 percent of total wages nationwide are subject to Social Security payroll taxes. The maximum wage subject to Social Security payments in 2005 is $90,000. Raising that cap to $140,000 -- phased-in over 10 years -- would lower Social Security's projected shortfall by 43 percent.
- Second, we can diversify Social Security's Trust Fund investments to increase the likelihood of higher returns. Today, the Trust Fund can be invested only in special Treasury bonds, similar to the Treasury certificates of deposit that you or I can buy. These are safe investments, but they have a modest rate of return -- currently about 4.4 percent. Investing some of these funds in a broad stock index fund, as most state and other pension systems do, could yield higher returns. This could lower the expected shortfall by 15 percent.
- Third, we can include newly hired state and local government employees in the Social Security program, so we have one program for all. Currently about 30 percent of these workers are not covered by Social Security. They do not receive all of Social Security's benefits and they are disadvantaged if they move between covered and uncovered employment during their careers. By including them, as we did for all new federal employees in 1983, we can lower the projected shortfall by 9 percent.
These three reasonable steps would lower Social Security's shortfall by 67 percent -- and that is just for starters. There are other steps, short of gambling with risky private accounts, that could strengthen the program even more.
It should be understood, AARP is not against private accounts. Private accounts are an excellent savings tool, but in addition to Social Security, not in place of it. Today's younger workers, and our children and grandchildren, need to begin now setting money aside to invest and save for their futures.
Knowing they can count on Social Security's guaranteed benefits, they can decide how much risk they can bear and make investment choices with greater peace of mind. But, under no circumstances should we weaken Social Security by diverting money from it to create private accounts.
In 1938, Franklin Roosevelt, said, "In our efforts to provide security for all American people, let us not allow ourselves to be misled by those who advocate short cuts to Utopia or fantastic financial schemes." That's just as true today.
We can fix Social Security, without dismantling it.
-- William D. Novelli is the CEO of AARP (www.aarp.org), the nation's largest senior citizens organization with more than 35 million members.