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A Q&A on Social Security
by Bill Straub
Scripps Howard News Service


January 15, 2005

President Bush is warning that Social Security, often cited as the federal government's most successful and popular domestic program, is headed for a train wreck unless drastic steps are taken - and soon.

The system, created in 1935 to help seniors with their retirement, is on course to run out of money and "will be flat broke" before today's young workers can begin collecting benefits, he says.

Bush wants to change the system so young workers can invest a portion of their Social Security taxes in private accounts. Foes counter the president's proposal is too risky. Here's a look at the situation.

Q: Is there a Social Security crisis?

A: No. There is no imminent threat to Social Security as the word "crisis" might indicate. Even if nothing is done to change the system, the Congressional Budget Office predicts retired people can expect to receive full benefits to 2052 - 47 years hence. Social Security trustees, meanwhile, using more conservative data, said the system will be able to pay 100 percent of promised benefits until 2042.

Thereafter, if no changes are made and money continues to flow into the system through the payroll tax, recipients can expect to receive about 75 percent of their anticipated benefits.

Q: Is Social Security going bankrupt?

A: Hardly. As a result of reforms adopted in the early 1980s that increased payroll contributions, Social Security trust funds presently maintain more than $1.4 trillion in U.S. Treasury bonds and the assets are growing. About 154 million people are paying into the system. More money is entering than is being paid out.

Q: So what's the problem?

A: Beginning in 2018, Social Security will start paying out more than it collects, forcing the system to dip into the trust fund. The baby boom generation, the largest in the nation's history, born between 1946 and 1964 starting right after World War II, begins collecting its benefits. Today, there are three workers depositing money into the system for each beneficiary. Within a few years, the ratio will drop to 2-to-1. The 77 million boomers present an obvious strain to the system, leading the president and groups like AARP to address the issue.

Q: What does President Bush recommend?

A: The details remain unclear - the administration has yet to offer a proposal _ but basically he wants to permit younger workers to take a portion of the payroll taxes targeted for Social Security and invest the money in personal savings accounts. Meanwhile, older Americans will receive full Social Security benefits.

Q: What are personal savings accounts?

A: Basically, they are government-approved investment plans. Currently, excess funds in the Social Security system are invested in U.S. Treasury bonds, which on average earn lower interest rates than stocks. Workers under the Bush plan would have a range of investment options and the money accrued from these investments would go into the individual's personal account, not into the system.

Q: What's the advantage there?

A: President Bush maintains the personal investment accounts will earn a better rate of return than that realized from the U.S. Treasury bonds. Investors will benefit from compound interest and the money can be passed on to survivors. The president cites this outline of a plan as part of his effort to promote an ownership society.

Q: Are there any drawbacks?

A: That's according to whom you ask. It certainly isn't a cheap solution. Analysts predict the transition costs - the price for moving from the current system to the hybrid system - could hit $2 trillion at a time when the country is engaged in a war in Iraq and running up significant deficits. No one seems to know where the money will come from. The White House also is contemplating cuts as part of its plan, tying annual benefit increases to inflation as opposed to the wage index, a move that could result in a slower rate of growth.

Q: Anything else?

A: Among those opposing the plan is AARP, formerly the American Association of Retired Persons, which maintains the president's plan is too risky. The genius behind Social Security, AARP says, is that it provides retirees with a guaranteed, defined payment that they can count on month-to-month. The White House plan likely will reduce any guaranteed payment and there are no assurances that beneficiaries will earn more money through personal savings accounts. Basically, opponents assert the Bush plan would shred the safety net provided by Social Security.

Q: Are those opposed to the president's plan offering any alternatives?

A: Nothing specific. Current law assesses the payroll tax on only the first $90,000 of an individual's income. Removing that cap would bring more money into the system. Some have noted that the money lost to the Treasury by the three tax cuts championed by President Bush during his first four years in office would more than cover any future Social Security shortfall.

Q: What's going to happen?

A: The administration has launched a full-court press with the president and Vice President Dick Cheney publicly pushing for change. Bush has made Social Security reform the top initiative of his second term. Businesses that support the president, many of whom stand to benefit from the private savings accounts that invest in stocks, are rolling out an advertising blitz. But the proposal faces staunch opposition on Capitol Hill from Democrats and many Republicans view it as politically risky, especially among older Americans who traditionally vote in large numbers.


Reach Bill Straub at straubb(at)


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