Two-thirds of Social Security recipients rely on Social Security for at least half of their income. One-third of Social Security recipients rely on Social Security for all of their income (approximately $600 to $1,600 per month).
Obviously too many retirees are living from Social Security check to check.
Should this continue? Or should we consider a sensible change in the current system for the 21st Century?
Enter George W. Bush with a modest proposal: While guaranteeing all existing benefits to retirees and to older workers, let younger workers (45 and under) opt, at their discretion, to divert approximately one-sixth of their payroll tax into a private retirement fund. This fund could not be touched until retirement and would be managed only by government-approved professional fund managers. In turn, the employee would forfeit approximately one-sixth of his or her Social Security income upon retirement. The proposal empowers the individual worker to diversify his or her sources of retirement income. A typical worker putting aside $1,000 per year at a return of 6 percent to 7 percent over 40 to 45 years could amass a retirement fund of $400,000 to $500,000.
Which option would most young employees choose: A Social Security check of $1,000 per month at age 65 for so long as he or she may live; or a Social Security check of $833 per month plus $400,000 to $500,000 in the bank? The answer is obvious. The latter constitutes real retirement freedom–assets to help the kids with the mortgage or the grandkids with tuition, to fund an annuity, a favorite charity, a dream holiday, whatever. At death, moreover, these assets could be passed on to the next generation.
There will be transition costs to this new system, because the amounts invested by younger employees will reduce the fund available for paying current benefits. Mr. Bush sensibly proposes a bipartisan commission to consider this hard question. With government surpluses stretching beyond the horizon, this one-shot transition cost should be manageable over a 20-year period.
The Bush proposal has been praised by distinguished Democrats in the Senate such as Bob Kerrey of Nebraska, John Breaux of Louisiana (both of whom served on the recent bipartisan Social Security Commission), and retiring Sen. Pat Moynihan of New York. Senator Moynihan, however, wryly has observed that this innovative proposal could create a serious problem for Democrats. Working people with assets just might become Republicans.
