I have trouble understanding the current furor over “private” retirement accounts. We already have three flavors of them that receive favorable tax treatment: IRAs, Roth IRAs, and 401(k) plans. All three are voluntary, and all three offer all the benefits President Bush claims a “privatized” Social Security would offer. So why aren’t we talking about ways to get more people to invest in the private, tax-favored retirement plans we already have while making demographic adjustments to our current Social Security system to bring it in line with current and (projected) future population shifts? This would be far more sensible — and much simpler — than trying to gut Social Security.

First, let’s acknowledge two realities about Social Security that have existed since it began: It was never supposed to support anyone in luxury; and not all workers were expected to live long enough to get benefits.

To maintain the demographic balance Social Security had when it started — that is, the number of people working compared to the number of retirees — all we need to do is increase the retirement age to 72 or 73. Americans are living and staying healthy longer now than when Social Security originally became law, so this adjustment makes sense even if some people don’t like it. (At age 52, I should be one of the people who doesn’t like this idea, but I recognize it as sensible so I’ll go along with it.)

Second, Social Security benefits should provide enough for a scant living but not enough to maintain two homes or finance cruise ship vacations. The current method of adjusting Social Security payments to deal with inflation tries to stay in line with increases in wages. This is not necessary. By the time you’re old enough to collect Social Security, you’re usually not supporting juvenile children, and if you’re not working you don’t need to spend nearly as much on car expenses or public transportation as someone who faces a daily commute. You presumably have a closet full of clothes already and aren’t as interested in staying fashionable as people in their 20s. And — at least here in Florida — you get “senior discounts” on goods and services ranging from restaurant meals to baseball tickets.

In other words, it costs less to live when you’re retired than it does when you’re working and raising a family, not counting the cost of such luxuries as power yachts, motor homes, and — for golfers — membership and greens fees at private country clubs.

In 1970 Social Security provided enough money for retirees to live modestly in most of the country, but not enough to maintain a full-tilt life in our more expensive urban areas. A major reason Florida became a retirement haven during the 70s was that the cost of living here was so low that you could live a reasonable life here on Social Security alone, and live quite well if you had any savings or pension earnings on top of your basic benefits. A retired couple could sell their house in Connecticut, move to a trailer park in a place like Winter Haven, and not only bank a nice sum from the sale of their Connecticut house but significantly cut their future living costs. Arizona and other Southwest states offered similarly low living costs, and also attracted flocks of retirees. Mexico had (and still has) substantial colonies of U.S. retirees who moved there to stretch their retirement dollars even further.

Back in the “old-but-not-too-old” days, this was how people expected to live on Social Security. If they wanted to plan a more prosperous retirement, they either took jobs with good pensions or invested on their own. And many worked after they retired, even though their benefits were reduced by one dollar for every two they took in if they made more than a minimal amount.

Today, this one-for-two takeback applies only if you retire before your “full retirement age,” which depends on your year of birth. This Social Security Administration page gives you your full retirement age (mine is 66, since I was born in 1952) and other useful information about working after you’re retired. Note that the only real “takeback” now if you work after you are eligible for full benefits is taxation, in that some of your Social Security benefits may become taxable if you earn an amount over a calculated threshold.

Bringing back the idea that people with substantial incomes should get less Social Security than those who have few (or no) other resources would save billions of dollars every year without throwing any seniors into poverty.

Raising the retirement age to reflect lifespan increases over the last 50 years would save even more billions.

Together, these two actions would “save Social Security” while keeping it secure. They amount to a benefit cut, which is unpleasant, but they also avoid the need for the massive government borrowing a switch to privatized Social Security would require.

And for those who favor private retirement accounts, nothing would be lost. They would still be free to put money into IRAs, Roth IRAs, and 401(K) plans, just as they are today, without government coercion or social upheaval.

Is it possible that President Bush and his Congressional allies have forgotten that these private retirement accounts exist? You would think that in the spirit of conservatism, combined with compassion for future retirees whose labor has has been poorly rewarded, they would be pushing these voluntary retirement savings plans that we already have available instead of trying to gut the Social Security system that saves millions of senior citizens from poverty.

This entry was posted on Tuesday, February 22nd, 2005 at 3:54 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.