AARP Members See Investment as Option

To the chagrin of the most powerful lobby for older Americans, Republican George W. Bush appears to have struck a vein of political gold with his call to allow workers to divert some of their Social Security payroll taxes into personal investment accounts in the stock market.

At the AARP convention here, the appeal of the stock market as a partial substitute for Social Security got a surprisingly positive response among the very constituency that once feared any change in the program.

Of course, the seniors’ monthly Social Security checks wouldn’t be touched under the Bush plan, which is likely to be aimed at workers 45 and younger. But some retirees, rather than being fearful, seemed willing to encourage their children and grandchildren to risk a portion of security for a bit of independent wealth--even in a troubled stock market.

“The important thing is to give people a chance to earn more money” through investments, said 76-year-old Anthony Messineo of West Palm Beach, Fla., who reports that he has done well financially by moving money in and out of the stock market as it goes up or down by 5%.

Texas Gov. Bush, by keeping his plan vague and drumming insistently on the themes of financial independence and individual freedom, may have sensed not only a demographic shift but a political one as well. If seniors intrigued with the idea of investing some Social Security funds vote their convictions, Bush, the likely GOP presidential nominee, may get a big political dividend.

“Bush has absolutely tapped into two important themes: the widespread distrust of government and the perhaps irrational belief that the stock market will continue to generate huge returns,” said John Rother, director of public policy for AARP (formerly the American Assn. of Retired Persons).

This is a politically painful but realistic admission coming from one of the leaders of AARP, whose 34 million members make it the key lobby on senior issues. AARP has been among the strongest defenders of Social Security’s function as a provider of guaranteed retirement, disability and survivors’ benefits for all Americans.

Although officially nonpartisan, AARP is clearly worried about the potential of the Texas governor’s plan to alter the perception of Social Security and make people question its rate of return rather than focus on the guaranteed benefits it provides.

Bush turned down repeated invitations to address the convention, which drew more than 20,000 AARP members. His Democratic rival, Vice President Al Gore, came Wednesday and appealed to the audience to help him defend Social Security, which turns 65 this year, against what he called “stock market roulette.” Gore was applauded but didn’t get any real yells of approval until he attacked HMOs.

Because Social Security is such a complex issue, the best tactic seems to be simplicity, and Bush has reduced his pitch to a basic theme: Look how well the stock market has done long-term (the Standard & Poor’s index of blue chip stocks rose at an average annualized rate of 18% from 1990 to 2000), and won’t you be better off if I send some of that tax money your way?

“If they give me the money, I’m in charge of my own destiny,” said Stacey Miller, 31, a marketing supervisor for Time Warner in Orlando, working at a booth at the convention’s exhibit hall. “I have faith in me for my future. I have no faith in the government.”

Don Casto, a 63-year-old retired schoolteacher, also likes the idea, arguing that individuals could fare much better with part of their funds invested in stocks than they would under today’s Social Security program.

Gore, a defender of the current program, can’t promise fatter returns than Bush because he doesn’t look on Social Security as an investment. Instead, he holds the traditional Democratic view of the program as a social safety net.

So Gore is forced to play defense, pointing out the volatility of the stock market--his staff notes that Bush’s key economic advisor, Larry Lindsey, dropped out of the market because of the risks--and raising questions about the cost and uncertainties of the Bush plan. But Social Security is so intricate that it’s difficult to discuss its finances without confusing people.

Donald Micklewright, a retired chemical engineer who shares Gore’s viewpoint that Social Security should be left untouched, came out puzzled from an AARP session on the subject. “They threw so many things at us so fast that it was hard to understand,” he complained.

If AARP and Gore are having problems generating intensity of feeling among people like Micklewright, who should be their natural allies, they could face an almost impossible selling job among young voters like Tracey Fairel, who already have a dim view of Social Security’s future.

Fairel is eager to get her hands on some Social Security money to invest. “There’s nothing left after I make the car payment and the house payment and pay the baby sitter,” said the 28-year-old information director for the Rome, Ga., visitors bureau. “I want some money to put in the market, because I don’t know if Social Security will be around when I retire.”

The argument over Social Security is really a debate over competing visions of society. Gore and the Democrats talk about shared responsibility, the obligations we owe each other to provide protections against the vicissitudes of old age. For Bush and the Republicans, the key issue is the expression of individualism, a chance for each person to amass wealth without the restraining hand of government.

But nobody is talking about radical change. Social Security would remain untouched for anyone now getting benefits or nearing retirement age. Bush hasn’t offered any specifics, but his plan likely would be available only for workers under the age of 45. And it would be voluntary. Each worker would decide whether to switch a portion of the payroll taxes--probably 2 percentage points of the 12.4% Social Security tax.

Both men have one thing in common: They want to convince voters there is an easy, pain-free solution to the problem of paying for the retirement of the baby boomers, the 76 million Americans born in the years 1946 through 1964.

Right now, Social Security is enjoying a surplus, with more money coming in from payroll taxes than is going out to beneficiaries. But the surplus, which is invested in treasury securities, will be drawn down as the waves of boomers retire. The crisis is expected to begin in 2015, when Social Security benefits paid will exceed the taxes collected. By 2037, the system will be insolvent--in that year payroll taxes will cover only 72% of the benefits promised under current law.

The 28% gap could be closed by raising taxes, cutting benefits, or a combination of both--unpopular choices for anyone running for president.

Instead, Bush and Gore share the same belief--or hope--that the booming economy will keep growing and generate huge federal budget surpluses.

Gore says using the surplus to pay down the national debt will free up lots of money in the future. Presumably, it could be used to pay future Social Security benefits, and extend the solvency of the trust fund until 2050. But what if the surpluses never materialize?

Rather than depend exclusively on workers’ payroll taxes as it has for 65 years, Social Security could become dependent on general tax revenue under the Gore proposal. The vice president also pledges to set aside large amounts of potential surpluses to shore up Medicare. Together, these commitments could squeeze money available for programs aimed at younger Americans.

Bush’s approach has significant problems too. He wants to spend large amounts of future surpluses to pay for tax cuts. And if he transfers 2 percentage points of the payroll tax to finance the private individual accounts, that is hundreds of billions of dollars that must be replaced to pay Social Security checks to beneficiaries.

The Bush camp acknowledges some general revenue may be needed to manage this shift, but won’t give any numbers. Just as the Gore plan for a painless solution could disappear if there are no budget surpluses, the Bush blueprint could fade too.

And there are uncertainties about how voters might react if the stock market sinks. Will the government make up the losses people suffer in their individual accounts? And what about the costs of setting up and running separate accounts for 150 million workers? Bush is hazy on all of this, saying a bipartisan commission will come up with answers after he is elected president.

Despite the lack of details, some voters seem to be warming to the Bush idea.

“I like it,” said Sean Dillion, a worker at Gunderson Inc., a railroad car manufacturing plant Bush visited in Portland, Ore., last week. “We’re making our own decisions on the 401(k)s [retirement plans], so I trust I could do as well with Social Security.”

Joe Wait, 44, superintendent of material handling, said the plan might win his vote for Bush. “If the opportunity is there for increasing the value of our earnings on retirement savings, we ought to take a look at it. It looks very positive to me.”

But Jose Maestas, who usually votes Democrat, was skeptical, saying the Bush plan is “like taking my paycheck to Las Vegas and risking it.”

The disagreement among the Gunderson workers may foreshadow the discussions and debates in shops, offices and homes as voters pick a president and members of Congress who will determine the future of Social Security.

“This is a good debate for a democracy,” said Henry J. Aaron, an economist and Social Security expert at the Brookings Institution, a centrist think tank in Washington. “There are two very different visions of Social Security.”

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Times staff writer Richard T. Cooper contributed to this story.

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BACKGROUND

Social Security is a pay-as-you-go system, with the taxes of 153 million workers flowing into Washington and then going out to pay monthly benefits to 31 million retired workers and spouses, 7 million survivors of deceased workers and 6 million disabled people and their families. The payroll tax is 6.2% each paid by the worker and the employer on salaries up to $76,200 this year. (Medicare’s tax is an additional 1.45% each from the worker and employer levied on all salaries.) Social Security will pay out $410 billion in benefits this year, about 25% of the federal budget. The average retired worker receives $804 a month. The maximum payment is $1,433 a month. The poverty rate among Americans over 65 is 11%. Without Social Security, it would be 47%. About two-thirds of all retired people depend on Social Security for more than half their income. About 18% of retirees get 100% of their income from Social Security.