Not so long ago, the merest mention of possible changes in Social Security was the third rail of American politics: so deadly that politicians simply steered clear of the topic.
Today Social Security reform is on the main rail and gathering steam. President Clinton, pledging to use any budget surplus to “save Social Security first,” heads to Kansas City Tuesday to open a national debate on the nation’s retirement system and Republicans and Democrats alike are proposing once-radical ideas for overhauling it.
Even Sen. Daniel Patrick Moynihan (D-N.Y.), whose credentials as a defender of Social Security are impeccable, has proposed that Americans be allowed to invest some of their Social Security payroll tax dollars in private accounts. Moynihan thus deserves credit for helping change the terms of the debate.
That there is a debate at all about the 63-year-old retirement system is because the 76 million Baby Boomers, born after World War II, are getting old. They begin retiring in 2010. If no changes are made to boost the rate of return, raise the retirement age or lower benefits, Social Security will be able to pay just 75 percent of benefits by the year 2029.
As the overall population has become more comfortable with investing in stocks and bonds, both individually and through mutual funds for their own 401(k) and Individual Retirement Accounts, it no longer seems far-fetched that some kind of private investment may be a component of a 21st Century retirement system.
The solvency of Social Security could be “fixed” without fundamentally altering it, but the rate of return on those retirement “savings” would continue to decline, and Americans seem increasingly willing to do more–provided the downside risk is limited.
“A minimum retirement guarantee, along with survivors’ benefits, is surely something we ought to keep,” said Moynihan. That should be a given.
Clinton has planned four town hall meetings on Social Security between now and December. Led by House Speaker Newt Gingrich (R-Ga.), the Republicans propose a commission to report by February.
As the debate proceeds this year, serious questions need to be asked. Should the retirement age be raised beyond 67 for those turning 62 in the year 2022? Should the age at which benefits can first be collected be raised from the current 62?
If the nation decides private investment is the way to go, should it be through individual accounts or pooling? Who decides what are prudent investment options? What about administrative costs? Transition costs? Fraud?
The U.S. is a laggard in considering some privatization of its national retirement system. Many other countries have already made the leap, and we should take advantage of their experience. The British system had a problem with administrative costs early on; Chile’s system may be overregulated. We can learn from them.
