A Generation's Challenge


by Matt Moore

Three weeks ago, my wife and I brought home our first child, a brand new baby boy. The experience has invigorated my thinking about the kind of world we will leave to the next generation.

We Generation Xers have big challenges ahead: Getting Medicare spending under control. Reining in Medicaid. Fixing the health-care system. Repairing private pensions. Simplifying the tax code. But the centerpiece of the world we will pass on is Social Security.

Our grandparents -- the World War II generation -- created Social Security and expanded it to include disabled persons, survivors and spouses. Our parents -- the Baby Boomers -- expanded it further. Today, we're living with the result: A program that can't afford its bills and is designed to reflect the needs, wants and desires of a society that no longer exists.

Just think about the changes since the 1940s. Two-thirds of families then were two-parent households where dads worked at the same job their entire life and moms stayed home and cared for the brood of kids. Social Security's benefits were specifically designed to cater to this family structure. Today, this "traditional" family has been surpassed by single-parent households and two-earner couples.

At the same time, life expectancy has soared and the number of children per family has plummeted. As a result, the ratio of workers paying into Social Security versus the number of retirees taking out has fallen from 42-1 then, to 3-1 today. The decline will continue to 2-1 by the time we Gen Xers retire. Basically, we're living in a 3-1 world with a program designed by a 42-to-1 society.

We need a system that reflects today's society, while addressing the needs of tomorrow's workers. We need a system that provides choice, control and security in retirement, the current system cannot provide today's workers. We need a system that actually saves and invests money for the future, rather than spending every cent the minute it comes in.

The best way to achieve these goals is to set money aside today, invest it wisely and take advantage of compound interest over decades of responsible saving.

There are only two ways to do this:

  1. Give the money to a new government agency and trust them to save the returns.
  2. Or let individuals own the money and invest in personal retirement accounts outside the government's reach.

Given the government's track record on the current Social Security surplus and Congress' penchant for spending money it doesn't have, is there really any contest?

Saving our public Social Security system by incorporating personal investments isn't a new or wacky idea. Thirty countries around the world -- from Latin America to Asia to Europe -- have already done it. There is a reason why Conservatives in Britain, a dictator in Chile and socialists in Sweden all turned to free-market personal investment accounts to reform their Social Security systems: Ideology doesn't matter when you can't pay your bills.

If you don't like international examples, there are models much closer to home. Galveston County in south Texas opted out of Social Security before the door was closed in 1983. The Galveston plan shows you can incorporate private investments and workers can be better off.

Federal employees can invest in the Thrift Savings Plan, which works like a 401(k). All federal employees from the oldest senator to the rocket scientists at NASA to the local post office mail handlers can invest money in carefully constructed stock and bond mutual funds. The Thrift Plan is an excellent model for building and administering personal accounts.

The answer is clear. We know Social Security is in trouble. We know it cannot afford what it promises to our generation. We know there are models for how the program can be reformed, and we know they work. What are we waiting for?

As I see it, in 20 years when our children are running the show, I want them to be able to say: Our great-grandparents created a pay-as-you-go Social Security system. Our grandparents did nothing and threatened our financial future. But our parents recognized the problem and fixed it once and for all.

Matt Moore is a senior policy analyst specializing in retirement issues for the National Center for Policy Analysis.