Relying too much on Social Security might tarnish golden years

It seems Americans have caught a break on Social Security.
According to a recent Congressional Budget Office report, the program isn’t going broke as fast as people thought.

CBO estimates the so-called trust fund won’t be exhausted until 2052. That’s a decade beyond the estimates of Social Security trustees.

Unfortunately, the most likely outcome of the new estimate is that politicians won’t feel a pressing need to do anything about fixing the system anytime soon. That’s too bad, because it still is in desperate need of change.

For the time being the Social Security system is paying its own way; it doesn’t require money from the general federal budget. It takes in more revenue than it pays out in benefits and that will likely continue until 2019. At that time, benefits will catch up to revenues and begin to outpace them. As more baby boomers retire, the gap will only widen and the situation become more problematic.

Anyone with a basic understanding of economics knows, and the CBO report reiterates, that when outlays exceed income the government will have four options to rectify things: lower benefits, raise Social Security taxes, shift money from elsewhere in the federal budget or borrow the money to cover costs (deficit spending).

Each of these options has its drawbacks. Lowering benefits or raising taxes would bring howls of protest from those affected, the other options less so, so it’s likely some combination of those will be part of the solution Congress eventually passes.

Spreading out and camouflaging the real costs of the program will appeal to those seeking favor with voters, just as it does with so many other government programs. By doing so, Congress will be able to spin things to make it look as though someone else is picking up the tab.

One major problem with the latter two options is they will have a stunting effect on economic growth. Shifting money from other federal programs most likely won’t result in the loss of funds from those programs; there’s nothing so permanent as a federal program. Rather, Congress will probably either raise taxes to pay for the revenue losses or it will borrow to pay for them. Either way, politicians can deny Social Security is responsible. If, however, they rely on deficit spending to fund Social Security, they and taxpayers will have to face up to the fact that the program isn’t working.

To avoid that possibility, we suggest Congress act now to avoid the problem altogether and begin to shift Social Security from a government program to one owned by individual workers. President Bush has pushed such a proposal to allow individually owned retirement accounts within Social Security.

Such accounts would allow workers to invest money for their retirement as they see fit. This could result in higher retirement incomes than what they could expect from the current program. Opponents of such a move protest that while it’s possible to increase returns over what Social Security pays, it’s just as likely investors would lose money.

They point to the stock market’s boom and bust cycle over the last decade or so, as well as the millions lost in Enron and other corporate scandals. Those concerns have some validity.

However, facing the possibility of having their retirement income dependent on sound financial decisions, we believe worker/investors would be more attentive to their investments and not allow the kind of reckless speculation that contributed to the most severe market fluctuations of recent years.

In addition, privatization opponents lament the billions of dollars a move away from Social Security would cost. It seems to us that such a cost will have to be borne in one form or another at some point in time and it’ll likely just increase as time goes on.

More importantly, though, some type of privatization of Social Security would give Americans more freedom. Any time we rely on government to take care of us, we cede to it a bit of our free will. When we take money from the government, there are nearly always strings attached. In the case of Social Security, the string is that we have less money to invest in our own futures. Sure, we can use some of the money we don’t give to the government for such investments and smart people do, but some workers are lulled into believing Social Security will take care of them in their golden years. Having to rely on monthly Social Security checks will quickly take the shine off that gold.