It has always been pretty clear to me that the notion that we could fix our retirement system by handing it over to Wall Street was, well, nuts.
Taking a relatively stable and secure retirement account and opening it to the vicissitudes of the market, which may have seemed like a good time when the Dow Jones Industrial Average was spiking up through the roof, always had a dark side — one we are witnessing now as the markets crumble and major investment firms bite the dust.
And while most Americans — to their credit — oppose the plan, keeping it from gaining any real traction in the political realm over the years, despite support of it — in one form or another — from politicians of both parties. But it hasn’t died, remaining a goal of conservatives — including Republican Presidential Candidate John McCain.
Here is the language from the national Republican platform:
We are committed to putting Social Security on a sound fiscal basis. Our society faces a profound demographic shift over the next twenty-five years, from today’s ratio of 3.3 workers for every retiree to only 2.1 workers by 2034. Under the current system, younger workers will not be able to depend on Social Security as part of their retirement plan. We believe the solution should give workers control over, and a fair return on, their contributions. No changes in the system should adversely affect any current or near-retiree. Comprehensive reform should include the opportunity to freely choose to create your own personal investment accounts which are distinct from and supplemental to the overall Social Security system.
McCain had long been a privatization proponent — though his approach has changed from strict privatization to a mix of the current system and private savings accounts tied to cuts in benefits. Here is an excerpt from a March story in The Wall Street Journal (I was alerted to this by OurFuture.org):
A centerpiece of a McCain presidential bid in 2000 was a plan to divert a portion of Social Security payroll taxes to fund private accounts, much as President Bush proposed unsuccessfully. Under the plan, workers could manage the money in stocks and bonds themselves to build a nest egg and, at retirement, also receive reduced Social Security payments from the government. Proponents say the combination of the nest egg and government payouts could give a retiree more than the current system, but opponents say the change would undermine the Social Security system.
Sen. McCain’s 2008 presidential campaign Web site takes a different view, proposing “supplementing” the existing full Social Security system with personally managed accounts. Such accounts wouldn’t substitute for guaranteed payments, and they wouldn’t be financed by diverting a portion of Social Security payroll taxes.
Mr. McCain’s chief economic aide, Douglas Holtz-Eakin, a former head of the Congressional Budget Office, says economic circumstances forced changes concerning Social Security policy. Vast budget surpluses projected in 2000 evaporated with a recession, the Bush tax cuts and the cost of responding to Sept. 11.
As a result, the McCain campaign says the candidate intends to keep Social Security solvent by reducing the growth in benefits over the coming decades to match projected growth in payroll tax revenues. Among the options are extending the retirement age to 68 and reducing cost-of-living adjustments, but the campaign hasn’t made any final decisions.
“You can’t keep promises made to retirees,” says Mr. Holtz-Eakin, referring to the level of benefits the government is supposed to pay future retirees. “But you can pay future retirees more than current retirees.”
Asked about the apparent change in position in the interview, Sen. McCain said he hadn’t made one. “I’m totally in favor of personal savings accounts,” he says. When reminded that his Web site says something different, he says he will change the Web site. (As of Sunday night, he hadn’t.) “As part of Social Security reform, I believe that private savings accounts are a part of it — along the lines that President Bush proposed.”
And that’s the key line — “along the lines that President Bush proposed.” Here is what the president proposed in 2005, when he pushed hard for his version of reform:
As we fix Social Security, we must make it a better deal for our younger workers by allowing them to put part of their payroll taxes in personal retirement accounts.
- Personal accounts would be entirely voluntary.
- The money would go into a conservative mix of bond and stock funds that would have the opportunity to earn a higher rate of return than anything the current system could provide.
- A young person who earns an average of $35,000 a year over his or her career would have nearly a quarter million dollars saved in his or her own account upon retirement.
- That savings would provide a nest egg to supplement that worker’s traditional Social Security check, or to pass on to his or her children.
- Best of all, it would replace the empty promises of the current system with real assets of ownership.
Hmm. “Bond and stock funds.” “Assets of ownership.” Isn’t that what has been swirling down the drain over the last month?
I don’t raise this out of the blue. The Wall Street Journal wrote about this last week and the Obama campaign has been hitting McCain on the Social Security issue of late. OurFuture.org, though, has offered the toughest critique, along with a report explaining the impact that a privatization scheme would have on retirees.
The main findings are that for future generations, Social Security privatization would:
- Cut lifetime benefits by $240,264
- Make 8.6 million senior citizens vulnerable to poverty.
And these numbers do not even reflect the recent volatility of the markets.
American workers shouldn’t have to face this kind of uncertainty. The cautionary tale is before us — listen to this NPR Morning Edition report on soon-to-be retirees who thought they would live off their savings and investments, but whom the experts now council to “keep on working.”
