Social Security Market-Based Reform Good For Young, Poor and Unsophisticated Investors

WASHINGTON, D.C. - American citizens are better equipped than politicians and bureaucrats to competently invest their own retirement funds. That, according to speakers at a major Washington briefing today, is why public and legislative pressure is building for a market alternative to the financially precarious Social Security system.

"There is no 'security' in Social Security," said Pete du Pont, policy chairman of the National Center for Policy Analysis. "Tax revenues won't pay promised benefits and the trust fund won't help. It's just a stack of worthless IOUs."

Fortunately, the speakers agreed, there is a sober, safe and reliable alternative. On January 6, after 2 1/2 years of investigation, the Social Security Advisory Council offered three plans based on various degrees of Social Security investment in equities markets. Three of the most commonly asked questions about this idea were addressed by Bill Shipman, principal with State Street Global Advisors.

  • Will lower-income Americans be hurt by a private system that lacks the progressive benefit schedule of the Social Security system?
  • No. Low-income workers born any year from 1930 to 1976 would receive more from the stock market than from Social Security - on average, well in excess of 100 percent more.
  • What if the stock market collapsed just when one stops working, leaving little or nothing for retirement?
    Even if the value of a person's portfolio right before retirement declined in percentage terms by the worst single day, month or quarter in history, he or she would still receive benefits well in excess of those projected from Social Security.
  • Won't baby boomers entering the stock market cause an unnatural bubble in prices, and won't they cause the market to collapse when they pull out of the market upon reaching age 65?
  • Their activities would hardly cause a blip on the market's screen. If all the Social Security taxes were invested only in stocks listed on the New York Stock Exchange, it would comprise 28 minutes of trading volume each day.

"We can no longer ignore the demographic projections and fiscal constraints which threaten the Social Security contract for future beneficiaries," stated Arizona Congressman Jim Kolbe, co-chair of the House Public Pension Reform Caucus.

Congressman Kolbe added, "Congress needs to be proactive and recognize that the Social Security program is headed toward a crisis and begin to examine, with an open mind, all reform options. Raising workers' taxes or decreasing seniors' benefits will not save Social Security, but will lead to another tax increase or benefit cut, and then another tax increase or benefit cut, and so on. Seniors and Generation Xers both agree this is unacceptable."

The cost of doing nothing was addressed by NCPA President John C. Goodman. Without reform, he said:

  • The tax rate would rise to unsustainably high rates and benefits would still have to be cut deeply.
  • By the time today's college graduates retire (about 2040), it will take between 41 percent and two-thirds of the taxable payroll just to pay Social Security and government health care benefits.

Former presidential contender Steve Forbes favors a gradual movement into a private system, with retirees and older baby boomers remaining in the current system, while younger Americans are given the chance to manage their own investments.

Unlike some other conservative backers of reform, however, Forbes opposes political tinkering with the Consumer Price Index.