Social Security will survive, but there'll be some changes

Staying Ahead

June 01, 1998|By JANE BRYANT QUINN | JANE BRYANT QUINN,Washington Post Writers Group

MEMO TO baby boomers and twenty-somethings: It's time to grow up and accept the truth about Social Security. The system won't fail. It will be around when you retire.

It has to be changed, however, to accommodate the boomer bulge. Somewhere around the millennium, a deal will probably be worked out.

So you have to look carefully at the reform proposal from the bipartisan National Commission on Retirement Policy (NCRP). It will set a base from which the debate proceeds.

Unlike many other proposals, this one makes some creative compromises among the many different views on how Social Security should be changed. It's currently being translated into legislation, to be introduced next year.

The commission's co-chairs included politicians from both sides of the aisle -- Sens. Judd Gregg, a New Hampshire Republican, and John Breaux, a Louisiana Democrat, and Reps. Jim Kolbe, an Arizona Republican, and Charles Stenholm, a Texas Democrat.

The public isn't going to like some things in the NCRP plan. Polls show that most Social Security supporters are still living in a fantasy world.

You want no increases in Social Security taxes or the retirement age. Many Americans also want private Social Security investment accounts.

It's fiscally impossible to make that wish list work. If you won't accept higher payroll taxes on at least some people (say, higher earners), you'll have to accept a later retirement age.

The current full-retirement age is 65, gradually rising to 67 by 2022. Early retirees can claim a lower Social Security benefit at 62.

The NCRP plan contains no tax increases. Instead, it raises the full-retirement age to 70 by 2029 and the early-retirement age to 65 by 2017.

The full-retirement phase-in takes the most out of people born in the 1960s and later. They'd have to save more or work longer before retiring.

At retirement age, the plan takes care of lower-income beneficiaries. Their basic checks could be roughly the same or even higher than current law provides.

Workers with average or higher incomes, on the other hand, would get less than current law provides. The proposed reforms take the most from the people who need the program the least.

Every worker, however, would also have a private Social Security investment account. Two percentage points of your payroll tax would go into your account each year.

You could decide how to invest that money, choosing between a mutual fund invested in U.S. stocks and one invested in bonds. Eventually, other options would be added.

Payments from these accounts could be gravy on top of the Social Security checks received by lower-income people. Younger people could do better, too.

That's not necessarily true, however, for average- to high-income workers who are now in early middle age. Their private accounts might not have enough time to grow, to make up for the benefits they'll lose.

The plan lets you fill in this gap yourself, by making voluntary, annual contributions of up to $2,000 to your private Social Security account.

Private accounts couldn't realistically be proposed, if it weren't for the federal budget surplus, which is projected to run for years.

Your entire Social Security tax is normally earmarked for future beneficiaries. If 2 percent is taken out for a personal account, something has to replace that money in the government's accounts.

The budget surplus fills in for your 2 percent. If Congress uses up the surplus, by passing new spending programs or budget-busting tax cuts, private accounts might no longer fly.

The most controversial part of Social Security reform will probably be delaying the retirement age.

"Why move the age up now?" asks Robert Ball, former Social Security commissioner and author of the new Twentieth Century Fund report, "Straight Talk About Social Security."

The law already provides for an increase to age 67. Ball would like to wait and see how that works. Will jobs last that long? Will people be well enough to work to 70? Will more people have to go on Social Security disability?

Economist Eugene Steuerle, co-author of "The Government We Deserve" (Urban Institute Press) and a member of the commission, takes a different view.

As longevity increases, society is being asked to pay for more and more retirement years, he says. So what's the best use of the nation's future funds? Should we pay for multiplying years of retirement or use the money for education and other services for the young?

Our children and children's children need attention, too.

Pub Date: 6/01/98

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