Columns » Warwick Sabin

Youthful discretion

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Most people around my age don’t sit around talking about Social Security benefits. But when the subject comes up, everyone always agrees that we will likely never be able to take advantage of the program. Either the treasury will have been emptied to pay the entitlements owed to our parents’ generation, or the system will have been reformed beyond recognition. We understand how Social Security works. The money deducted from our paychecks underwrites the benefits claimed by today’s retirees. There are no individual retirement accounts, and there is no guarantee that we will realize even a penny of what we have contributed to the system. Knowing this, it is amazing that a generational conflict is not erupting. The relative calm among young people is probably due to the fact that they don’t spend much time thinking about the subject. We are not actively concerned about how to make ends meet when we are retired. But what if we are the first generation to spend our lives contributing to a program that gives us nothing in return when we reach the entitlement age? If anything, young people today are likely to live longer than any previous generation, which will make it even more difficult to finance our retirement. President Bush is capitalizing on this kind of anxiety to promote his privatization scheme, which would create the kind of individual accounts that don’t exist today, allowing workers to invest part of their Social Security contribution in the stock market. Supporters of this idea contend that Social Security is on its way to insolvency anyway, so this would be a way to ensure that people my age get something back. They also point to a higher long-term rate of return for market investments, and insist that eliminating the government bureaucracy would cut costs. It’s a simple, compelling argument that appears to be rooted in common sense. However, it is predicated on false assumptions and overlooks some serious consequences. The primary false assumption is that Social Security is in crisis. That’s not actually true, especially as it applies to my generation. I have been in the workforce for roughly five years, and under the current system, I would be eligible for benefits in a little less than 40 years, in 2041. According to a study this month by Center for Economic and Policy Research (CEFR), a progressive think tank, the Social Security trustees report indicates that the program can cover all beneficiaries through 2042 without any changes, and even after 2042 the system would pay retirees a higher benefit (in today’s dollars) than what current retirees receive. The non-partisan Congressional Budget Office is even more confident, projecting that Social Security can pay all benefits through the year 2052 with no changes whatsoever. CEFR concludes, “By either measure, Social Security is more financially sound today than it has been throughout most of its 69-year history.” If today’s young people still consider that an unacceptable risk, they need to realize that the Bush privatization plan clearly takes advantage of us. We would continue paying into a system that slowly would be phasing out, ensuring that the retirees before us receive their benefits. In return, we would be given our measly investment accounts, which would not nearly make up what we would have been guaranteed if Social Security remained in its present form. As the CEFR study notes: “A worker who is age 35 can expect to see a cut in the guaranteed benefit of approximately 25 percent. A 15-year-old who is just entering the work force can expect a benefit cut of close to 40 percent. For a 15-year-old, this cut would mean a loss of close to $160,000 in Social Security benefits over the course of their retirement. Private accounts will allow workers to earn back only a small fraction of this amount. For example, a 15-year-old can expect to make back approximately $50,000 from the $160,000 cut with the earnings on a private account. If this worker retires when the market is in a slump, then it could make their loss even bigger.” And even though our benefits will be far reduced, the money diverted to our individual accounts will put the overall program into debt, forcing the nation to borrow to cover the obligations to ongoing entitlement recipients. One of Bush’s senior economic advisors, Joshua Bolton, admits that the shortfall, which could exceed $2 trillion over 10 years, would likely “require additional borrowing,” at a time when we already have massive budget deficits. The effects of all of this debt, in the form of higher interest rates, inflation, and a weaker dollar, will inflict far worse long-term economic damage on my generation than anything the Social Security privatization advocates can dream up to scare us. Social Security is a good program that needs to be protected, not destroyed. With decent fiscal management, today’s young people can realize the same level of retirement benefits as previous generations. We need to resist the temptation to fall for what sounds like a sweetheart deal, and we must always remember to read the fine print.

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