Should Social Security Be Scrapped, Changed? : <i> System’s Great Success Is Best Argument for It </i>
On its golden anniversary, Social Security already qualifies as one of the great success stories of the 20th Century.
Fifty years ago, more than half of all older Americans were, in President Franklin D. Roosevelt’s words, “ill housed, ill clad and ill nourished.” Twenty-five years ago, elderly Americans were twice as likely to be poor as other adult Americans. Today, the median income of older Americans is still less than half the median income of working-age adults, but the proportion of poor elderly has dropped to about 14% from 35%.
Social Security is the primary reason for our success in reducing poverty among the elderly; today, it constitutes 40% of their income. Twenty million older people depend on it as their most important source of income.
If Social Security did not exist, poverty rates among the elderly would more than triple, and half the nation’s elderly would again be “ill housed, ill clad and ill nourished.”
Ironically, some critics point to Social Security’s stunning success as proof that it has outlived its usefulness. Abolishing Social Security makes about as much sense as doing away with private pensions and Individual Retirement Accounts or forcing healthy people to quit work because of their age.
Major Source of Income
The fact is that Social Security will continue to be the major source of retirement income for today’s younger workers despite the growth in pension coverage and the increased incentives for individual savings.
A 1982 report commissioned by the American Council of Life Insurance projected that at the beginning of the next century, Social Security will account for more than two-thirds of the total retirement benefits of current workers who expect to receive both a private pension and Social Security.
Even today’s workers with annual incomes of more than $30,000 are expected to continue to depend on Social Security for most of their retirement benefits.
Some statisticians argue that young workers could get a greater “rate of return” on their “investment” by opting out of Social Security.
Certainly some 28-year-old workers, born at the height of the Baby Boom in 1957, could build a bigger retirement portfolio if they invest wisely and work steadily for the next 40 years. But this ignores some of the more unpleasant realities of life.
The facts are that a 28-year-old Baby Boomer has a one-in-four chance of dying before age 65 and a one-in-six chance of becoming severely disabled for a year or more.
Protection Against Risks
Since three out of four Baby Boomers will marry and have children, Social Security provides them and their families with protection against risks that no savings or investment plan could ever adequately protect against and for which private insurance would be prohibitively expensive.
Even today’s youngest workers, on average, are expected to receive retirement, survivors’, and/or disability benefits equal to all their Social Security taxes, plus all their employers’ matching taxes, plus enough interest to cover inflation.
But Social Security’s success has never been--and should never be--based solely on how much an individual receives, but rather on how well all individuals are protected.
Valuable Protection
Today, 10 million people under the age of 65 receive Social Security benefits. These benefits keep almost 5 million children and their surviving or disabled parents and other disabled adults above the poverty levels.
The Research Institute of America calls Social Security the “hard foundation” upon which to build a financial plan. The institute calculates that Social Security provides a 35-year-old executive, a spouse and two children with a total protection plan equivalent to $799,622 in insurance coverage for death, disability and retirement.
This clearly shows how important Social Security is for the financial security of younger workers.
Neither Social Security, nor IRAs, nor private pensions can provide us with all the retirement income we would all like to have. Common sense dictates that we develop as many retirement income sources as possible. But we must remember that no other retirement plan can be expected to replace Social Security as the bedrock upon which almost every American’s financial security is based.
IRAs provide us with a great opportunity for individual retirement savings. But only 17% of all eligible Americans have IRAs.
Private pensions, for all their virtues, provide retirement benefits for less than half of all retirees.
Although pension coverage is projected to grow, most workers in small businesses, which constitute almost half of all employment, will never be covered under a private pension plan.
Even employees covered under such plans may never receive a pension since the average American changes jobs every 4.4 years, while most companies require 10 years of work to qualify for a pension.
Benefits Rarely Adjusted
And private pension benefits are rarely, if ever, adjusted for inflation.
Furthermore, there is an alarming trend among companies with strong pension funds to declare a surplus, cash in their pension fund, pay off employees and use the rest to fight off hostile takeovers or to acquire another company.
Social Security’s future is bright. The Reagan Administration’s projections show that Social Security will celebrate its 100th birthday in 2035, with financial reserves--even discounting for inflation and increased benefit costs--that will be eight times as great as today.
In fact, Social Security trust fund reserves are expected to grow so rapidly that I have introduced legislation to reduce the withholding for 94% of all Social Security taxpayers.
Yes, there are challenges to be met and changes to be made to improve Social Security over the next 50 years. But those challenges and changes should reaffirm the traditional principles of the program to ensure that Social Security will be a great American success story of the 21st Century.
