Posted on

The President states his case

Knowledge may be power, but the fear of the unknown can be even more powerful.
When President Bush announced an overhaul of the Social Security tax system during his State of The Union speech, Americans ‘ and especially younger Americans ‘ should have leaped with joy. Instead, fear mongers have had their way with the President’s plan.
Opponents say wheeling and dealing in the stock market is a risk. It would pad the pockets of Wall Street brokers. Social Security has worked for 70 years, so why change it now?
Here’s the truth: Reform of Social Security makes sense, and it will work.
In 1950, there were 16 workers to support every one beneficiary of Social Security. Today, there are only 3.3 workers supporting every beneficiary.
It will be even worse in a few years.
Bush was in Louisville on March 10 as part of his ’60 cities in 60 days’ trek across the nation and outlined his proposal.
Anyone who has ever run a business or balanced a checkbook knows that unless more money comes in than is given out, there is going to be trouble. That trouble is what’s facing the government today and why Bush is looking for an overhaul of the system.
In approximately 14 years, Social Security will begin to run a deficit. To avoid the deficit (and keep the current setup) would mean either higher taxes or lower benefits.
Each year that goes by without reform will cost an estimated $600 billion.
But even if Social Security’s financial problems could be fixed by raising taxes or cutting benefits, the system would still need to be reformed.
Social Security’s rate of return on payroll taxes is pitiful (about two percent) and declining.
History has shown that markets are volatile. But history has also shown that markets go up over the long term.
Think of your retirement fund as a Crock Pot, not a microwave.
Since 1926, the average rate of return on the stock market has been 7.56 percent. Even the worst 20-year period from 1929 through 1948 (which includes the stock market crash and the Great Depression) had a positive rate of return of 3.36 percent.
Compare that to today’s one to two percent return of Social Security.
Citizens who don’t know anything about the stock market could choose to invest in government bonds, which typically yield between a three to four percent return.
A child could tell you which figures are higher.
For low-income workers, the benefits are substantially better.
Let’s say Joe graduated from high school and had never worked a day in his life.
Momma Joe has had enough of her now 22-year-old freeloading son and forces him to get a job. Joe pounds the pavement and finds work that pays $7 an hour ($14,560 per year).
Joe stays at the same job from age 22 until he retires at age 65 and only receives a two percent rate-of-increase raise each year.
Under the current Social Security system, Joe would receive $655 a month when he retired.
Under the President’s revised plan, Joe elects to invest his four percent into a ‘C’ fund that historically returns 10.99 percent annually. After 43 years of work, he would have a monthly draw of $3,860.49.
That’s quite an improvement.
In today’s Social Security, if you die before reaching retirement, your family receives a very small amount in return for a lifetime of contributions. Reform would give workers the opportunity to pass their savings ‘ every single dime ‘ on to surviving family members.
So, under Bush’s plan, Joe would leave a privatized retirement nest egg of $579,797.90 untouched to pass along as inheritance to his family.
Folks who are scared to enter into the world of personal retirement accounts should also understand that the President’s plan makes those types of accounts strictly voluntary. If a worker chooses not to create a personal retirement account, he or she could continue to draw benefits from a form of the traditional Social Security system, which would be changed to be permanently stable.
Change isn’t always needed or welcomed, especially when it comes to the financial well-being of Americans.
In the case of Social Security, however, modification is essential.