Surviving Social Security

For 20-year-olds in 2004, the subject of Social Security reform was about as interesting as staring at a blank wall.

“So if you’re in your mid-20s, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now,” said President George W. Bush on Jan. 11, 2005, during a discussion on Social Security reform.

Bush has given people in their 20s plenty to contemplate when it comes to Social Security: retirement, trust funds, investment firms and personal investment accounts.

Bush has made Social Security reform the priority on his policy-changing agenda, as he avidly predicts a bankrupt Social Security for today’s younger workers.

Social Security is on the verge of being as hotly debated as the presidential election. While Bush claims there is a crisis, his critics are arguing otherwise. The subject is so touchy that some people refuse to comment on it.

“You’d have to call the White House if you want to know more about Social Security issues,” said a spokeswoman for the Social Security Administration.

Even professors who have educated opinions wish not to be quoted on the topic. Whether people are comfortable discussing the subject or not, the bottom line is that they are concerned, young and old alike.

“It’s clearly an intergenerational issue. Every generation has a reason to be concerned,” said USF Political Science professor Susan MacManus, who went on to explain that the Social Security debate has political implications as well. “Presidents in their second term can be bold because they don’t have to get re-elected. But Congress members do and they are thinking about re-election.”

Implementing a large change in Social Security policies weighs a heavy burden on members of Congress trying to get re-elected. The idea of Social Security reform is not something the public is easily adhesive to.

“It’s not a simple thing. The uncertainty of how it will affect the economy is one difference that makes it unlikely that Congress will act right away,” MacManus said.

A look into Social Security

As the largest government program, Social Security is the foundation for economic support for millions of Americans, both retired and disabled. The system is a pay-as-you-go program. It is designed so that workers pay a 6.2 percent payroll tax until they retire. The money collected from payroll tax goes into the Social Security program and flows back out as a monthly benefit check for the retired or disabled. So the taxes a 23-year-old is paying today will go toward retiree benefits tomorrow.

According to statistics gathered by the Social Security Administration in 2005, almost 48 million Americans will receive about $509 billion in Social Security benefits. Out of the 159 million workers in America, 96 percent are covered under Social Security. It represents 39 percent of income of the elderly and is the only source of income for approximately 22 percent of the elderly. Nine out of 10 individuals age 65 and older receive Social Security.

Social Security also provides for disabled workers and their dependents, which accounts for 17 percent of total beneficiaries. The survivors of deceased workers account for 14 percent of total beneficiaries paid.

Privatization and Social Security

Although Social Security is hailed as one of America’s greatest accomplishments, Bush claims to foresee its doom and in his State of the Union speech explained why he believes Social Security is in trouble.

“For younger workers, the Social Security system has serious problems that will grow worse with time. Social Security was created decades ago, for a very different era. In those days, people didn’t live as long, benefits were much lower than they are today, and a half century ago, about 16 workers paid into the system for each person drawing benefits,” Bush said. “In today’s world, people are living longer, and, therefore, drawing more benefits. And those benefits are scheduled to rise dramatically over the next few decades.”

Bush also explained that he predicts by 2018 the Social Security system would pay out more than it takes in, and by 2042 the system will be exhausted. Bush’s solution to this problem is privatization of Social Security.

Bush also proposed during his State of the Union address that younger workers should take a portion of their money earned and invest it in a small personal account, and over time let it “build a nest egg” for the future.

“Here is why personal accounts are a better deal: your money will grow, over time, at a greater rate than anything the current system can deliver, and your account will provide money for retirement over and above the check you will receive from Social Security,” Bush said.

Phillip Porter, a USF economics professor, said he believes it’s a good idea for students to invest money in personal accounts.

“If you’re presently 25 years old, the system will be bankrupt before you collect,” he said. “You will have paid all your life, but can’t expect to get 15-80 percent of what we are paying now. If we diverted what we take from you today and invest in stock, we create a fund that might have positive returns. The earnings might offset the projection of 2042,” Porter said.

He said personal investment accounts allow citizens ownership of major corporations and will increase everyone’s interest in the stock market. Porter also said an increase in savings will make interest rates cheaper.

“If we can get to the point where everyone is saving and past the pay-as-you-go system and get into an investment system, then we have no problems,” he said.

While Porter supports personal investment accounts for retirement, he recognizes the potential problems as well.

“Where are we going to get the money to invest over time, pay back loans and put restorations to extend Social Security?” said Porter, explaining that borrowing money becomes scary because of the risk of a stock market crash.

This risk is not the only reason privatizing accounts may not be such a good idea.Critics of Bush’s proposal, such as AARP, argue that privatizing Social Security will weaken the existing system.

“AARP is pleased that the president has put Social Security high on the nation’s agenda. Social Security needs to be strengthened for our children and our grandchildren. But the solution shouldn’t be worse than the problem. Private accounts that drain money out of Social Security will cut its guaranteed benefits, increase the debt and pass the bill on to future generations. AARP is working to strengthen Social Security, not dismantle it,” said William D. Novelli, the AARP CEO, in response to President Bush’s State of the Union address.

Some critics refuse to acknowledge the Social Security system as being in a crisis.During an interview with National Public Radio, Sen. Max Baucus of Montana, who is a ranking Democrat on the Senate Finance Committee, argued against Bush’s claim to the Social Security crisis.

“The Social Security trust fund will be there up until 2052. It won’t be exhausted. That’s what the congressional budget estimates; we have to follow that by law,” he said. “That’s a long ways. It’s a problem, but I wouldn’t call it a crisis.”

Although privatization was proposed by the Bush administration as a solution to the Social Security issue, there are other solutions that may help the system. Among them are raising payroll and other taxes, lowering benefits and raising the retirement age. Whether Congress and the public will be adhesive to these ideas is hard to say.

Young Americans and Social Security

Irony finds its way into this situation as well. It seems as though people making the most noise about the Social Security system are of the older generation who do not have to worry about their retirement. Despite this, younger citizens are concerned.

Students at USF whose generation will be affected by a Social Security reform espouse a variety of concerns and opinions.

“I’m worried because we’re giving all money to government for nothing. We’re paying for others retirement,” said Nestor Marante, 21, a political science major.

Marante said he thinks privatizing retirement accounts may not be a bad idea.

“I think we should have a choice in how we want to spend our money,” he said.

Courtney Copeland, a 20-year-old majoring in political science, is worried too, but for different reasons. She worries about what will happen if retirement accounts are privatized.

“I really am worried about retirement, not so much for myself. Who I really worry about are those who don’t have a high school diploma and don’t know anything about the stock market,” Copeland said. “People who are worried about keeping a roof over their head are poor and can’t invest. The last thing they will think about is investing money when they’re hungry and need a place to stay.

“Switching retirement money into stock market is risky. If there was a stock market crash, you would have millions of people who would not have any money to retire. It’s creating a class war between people who have been investing money all along, but still have to pay money for Social Security benefits, and those who depend on Social Security for their livelihood.”

Patrick Blackwelder, 28, majoring in environment geography, isn’t worried.

“If you invest wisely, Social Security will be an afterthought. On the same token, they’ll work extra hard to fix Social Security, they have to. I don’t think they have a choice,” said Blackwelder, who has been investing in index funds and qualified funds since he was 23 years old.

“I want to be comfortable when I retire and not have to depend on Social Security,” Blackwelder said.

Like Blackwelder, who has been investing for five years, Benouchka Charite, 22, majoring in African studies, never intended to retire on Social Security.

“I never did think I would depend on the government for my retirement. I knew Social Security existed. If I cashed in on Social Security, I consider myself fortunate,” said Charite, who has planned for her retirement. “I think that listening to my statement reflects a lack of trust in my government and that’s not a good attitude to have, but at the same time, it’s not in vain.”

Student body President Bijal Chhadva said students should be concerned about the Social Security system and should make an attempt to understand its problems.

“This is about their future, and they should make a decision as to what they would like to see happen,” he said. “Once they make that decision, they should contact their congressmen and Congresswomen to let them know how students feel. Students are the future leaders of this country and we should familiarize ourselves with what decisions are being made at the federal level.”

Chhadva is not concerned about his retirement because he puts money in a Roth IRA account and has invested in stock and mutual funds.

“I am confident that I will save at least 10 percent of my earnings each year and put that money in my savings.”

Chhadva has not taken a stance on Social Security reform, but supports Bush’s efforts in trying to fix the problem.

“I commend the president for at least trying something new,” he said. “Like everything else, this issue has become a political issue, and it seems to be a battle between people of different parties. Bush’s plan is a good start, however it still needs some work and more involvement from the United States Congress and Senate.”