There is something interesting about this post.
Posted on 02/23/2005 8:31:43 PM PST by CAOHCAUCSB
Summary
In his State of the Union Address, President Bush said again that the Social Security system is headed for "bankruptcy," a term that could give the wrong idea. Actually, even if it goes "bankrupt" a few decades from now, the system would still be able to pay about three-quarters of the benefits now promised.
Bush also made his proposed private Social Security accounts sound like a sure thing, which they are not. He said they "will" grow fast enough to provide a better return than the present system. History suggests that will be so, but nobody can predict what stock and bond markets will do in the future.
Bush left out any mention of what workers would have to give up to get those private acounts -- a proportional reduction or offset in guaranteed Social Security retirement benefits. He also glossed over the fact that money in private accounts would be "owned" by workers only in a very limited sense -- under strict conditions which the President referred to as "guidelines." Many retirees, and possibly the vast majority, wouldn't be able to touch their Social Security nest egg directly, even after retirement, because the government would take some or all of it back and convert it to a stream of payments guaranteed for life. Analysis
Bush made Social Security the centerpiece of his Feb. 3 State of the Union address. He gave more details of how he proposes to change the system -- but left out facts that don't help his case.
Social Security "Headed Toward Bankruptcy?"
The President painted a dire picture of Social Security's finances:
Bush: The system, however, on its current path, is headed toward bankruptcy . And so we must join together to strengthen and save Social Security.
"Bankruptcy" is a scary term that Democrats have used too, when it suited them, but it could easily give the wrong idea. Nobody is predicting that Social Security will go out of business the way a bankrupt business does. It would continue to pay benefits -- just not as many.
The President was a little more specific about that later in his address, while repeating the word "bankrupt":
Bush: By the year 2042, the entire system would be exhausted and bankrupt . If steps are not taken to avert that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.
But how severe would those benefit cuts be? In fact there are two official projections -- one by the Social Security Administration (SSA) and a somewhat less pessimistic projection by the Congressional Budget Office (CBO). The President referred to the SSA projection, which calculates that the system's trust fund will be depleted in 2042. After that, the system would have legal authority to pay only 73 percent of currently promised benefits -- and that figure would decline each year after, reaching 68 percent in the year 2075.
The CBO doesn't project trust-fund depletion until a decade later, in 2052, and figures that the benefits cuts wouldn't be so severe, a reduction to 78% of promised benefits. But either way, even a "bankrupt" system would continue to provide most of what's promised currently.
Furthermore, the President did not specify what he would do to fix the problem. He again urged creation of private Social Security accounts. But those would be of no help whatsoever in shoring up the system's finances, as acknowledged earlier in the day by a senior Bush administration official who briefed reporters on condition of anonymity:
"Senior Administration Official:" So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government.
And that "net neutral effect" is just over the long term, 75 years or more. In the shorter term, creation of private accounts would require heavy federal borrowing to finance the payment of benefits to current retirees while some portion of payroll taxes is being diverted to workers' private accounts. The administration projects it will borrow $754 billion (including interest) through 2015 to finance the initial phase-in of the accounts, and much more thereafter. The liberal Center on Budget and Policy Priorities -- which opposes Bush's proposal -- projected that $4.5 trillion (with a "t") would be required to finance the first 20 years of the accounts after they start to be phased in in 2009.
Private Accounts: A Sure Thing?
The President made those private accounts -- which he now prefers to call "personal" accounts -- sound like a sure bet:
Bush: Here's why the personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver -- and your account will provide money for retirement over and above the check you will receive from Social Security.
History suggests that the President is correct -- the stock market has averaged a 6.8 percent "real" rate of return (adjusted for inflation) over the past two centuries, according to Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School. The administration says a conservative mix of stocks, corporate bonds and government bonds would return 4.6 percent, even after inflation and administrative costs. And the administration also figures that private accounts would need to generate only a 3 percent rate of return to beat what Social Security provides.
But there's no guarantee that history will repeat itself. Markets are inherently unpredictable and volatile. At present, for example, all major stock-market indexes are still well below where they were five years ago.
Benefit Offsets
The President made no mention of one crucial aspect of the proposed accounts -- anyone choosing one would also have to give up an offsetting portion of their future guaranteed retirement benefits. If their investments in private accounts returned more than 3 percent annually over the years, they would end up better off than under the current formula. But if those investments did worse, they wouldn't make up for the portion of benefits that were given up, and the owner of an account would end up worse off. The President didn't explain that trade-off.
"The Money is Yours?"
The President also glossed over some severely restrictive aspects of the accounts he is proposing, saying flatly "the money is yours."
Bush: In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children and -- or grandchildren. And best of all, the money in the account is yours, and the government can never take it away .
That's not exactly true.
As described by the "senior administration official," the owners of personal accounts wouldn't be able to touch the money while they are working, not even to borrow. The money would remain in the hands of the federal government, which would administer the personal accounts for a fee which the official said would be about 30 cents per year for every $100 invested.
And even at retirement, the government would control what becomes of the money. First, the government would automatically take back a portion of the money at retirement and convert it to a guaranteed stream of payments for life -- an annuity. The amount taken back would depend on the amount of money the retiree requires to remain above the official poverty guideline. That's currently $12,490 for a couple or $9,310 for a single person. Only after the combination of traditional Social Security benefits and the mandatory annuity payments from the private account equal the poverty level would any remaining portion in the account be "yours."
"Senior Administration Official:" They would be permitted to leave those (leftover) funds in the account to continue to appreciate; they could withdraw those amounts as lump sums to deal with a pressing financial need -- and, obviously, any additional accumulations in the accounts could be left as an inheritance. But the main restriction, again, to repeat, is that people would not be permitted to withdraw money from the accounts to such a degree that by doing so they would spend themselves below the poverty line.
The President didn't mention the mandatory nature of these restrictions, calling them only "guidelines" and describing them only in positive terms:
Bush: (W)e will set careful guidelines for personal accounts. We'll make sure the money can only go into a conservative mix of bonds and stock funds. We'll make sure that your earnings are not eaten up by hidden Wall Street fees. We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement. We'll make sure a personal account cannot be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits. And we'll make sure this plan is fiscally responsible, by starting personal retirement accounts gradually, and raising the yearly limits on contributions over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.
Feb. 4 Clarification: We originally used the term "clawback" to describe the sum of money that the government would require workers to use to purchase an annuity upon retirement. The White House does not use that term and specifically denies that the mandatory annuity purchase requirement constitutes a "clawback." We have removed our references to that term to characterize the mandatory annuity purchase. Sources
George W. Bush, "State of the Union Address ," The White House, 2 Feb 2005.
"The Short- and Long-Term Outlook for Stocks," Knowledge@Wharton website, The Wharton School, University of Pennsylvania: 2 June 2004. (Free subscription required.)
White House Office of the Press Secretary, "Background Press Briefing on Social Security," press release, 2 Feb 2005.
US Department of Health and Human Services, "Annual Update of the HHS Poverty Guidelines," Federal Register 13 Feb 2004: 7336.
ping
I think we got one here.
reads a little biased IMO
You just signed up to post this ?
Live one here...
Hit n run
What's your take newbie?
There is something interesting about this post.
This is straight off the unbiased website factcheck.org. IM sure you all have heard of this. I am not trying to be a muckraker, just simply trying to start a discussion of social security. Anyone disagree with the numbers?
Me thinks we best sound the troll alarm.
You just driving by????
If our sainted leaders are so worried about Social Security, how is it they still haven't protected the money that's coming in? When you see the SS tax on your paycheck, just add it to the Federal Income tax portion to get your true tax rate, because the simple truth is they're spending it on other things that they aren't held accountable for.
I'll believe they're 'worried' when they start saving it.
I agree with privatazation of social security and Bush's proposal yet this article seems interesting to read. Everyday it seems we are getting new figures about how Social Security will turn out in the future. Will it be in 2042 as bush says, or 2052 as the Congressional Budget Office says. And we know that it will not go bankrupt, but it will not be able to fully pay the benefits out...
Yea, we should listen to the government groups who told us there was a $10 Trillion surplus in election 2000. I say by 2012 we are in the crapper. A heart bypass surgery cost 45k, SS is the least of our problems.
This is the definition of BANKRUPT. I think I will pay 3/4 of my bills next month and see how that goes over.
There is two things that stand out to me---
1. It states that if we do nothing to change things, that SS won't go "bankrupt" in the strictest sense, that retirees would get "at least 73-78% of what they put in". Well, that isn't good enough for me, thank you very much.
2. Did it state anywhere in this article that the personal accounts would be "voluntary"---which would mean that the "gamble" would be the choice of the retiree, with the knowledge of the difference between that and staying in the "old" system?
All of these political chicken-littles that are against this change, are acting like EVERY American retiree will NEED their SS to survive----which is not true. My husband an I aren't rich by any means, but we do have a retirement plan that is going to be our main source of funding---not SS. Isn't SS supposed to be a "safety net", not a "savings account"?
>>>Anyone disagree with the numbers?
I already pinged our resident expert.
Just come back to your thread when he responds. That will show if you are a muckraker(?) or not.
If Bush was talking about cutting 1/4 of the social security benefits old folks are currently expecting in the next twenty years, liberals would have a s--- fit. They would behave as if nails and other sharp metal objects were being passed through their digestive systems. It would be The Passion of the Liberal.
But if the benefits are going to fail after 20 years from now, suddenly liberals don't care.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
THERE IS NO CRISIS.
Keep repeating it and maybe it will come true! </sarcasm>
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