Grand Plans, Part 1

In a press conference today the President gave a broad outline of what he views are the changes coming to social security. He wants people to be able to privatize a small percentage of their social security savings. He also wants to reassure current social security recipients that there will be “no change in their check.” Eloquent words or at least the most you can expect from this President.

Here are some of the facts regarding the Social Security System. The current fiscal surplus is invested by mandate in Treasury bonds. These bonds in turn help underwrite a vast portion of the existing federal debt. The Social Security Administration currently is the single largest holder of federal debt, accounting holding more than 60% of the government debts. The interest paid on the debt helps pay for COLA’s for the current social security recipients.

Under the current plan for retirees the SSA will go bankrupt in 2042. This seems like a long event horizon, 35 years in fact. What to do to help keep the system solvent? The President wants to privatize part of the system. At its face this seems sensible. But what exactly does it do to help meet the projected shortfall? Nothing. The individuals who opt for private investment will individually reap the profits or potential losses of such a move. This means that even though the overall amount of money within the system may increase, the increase in funding will be specifically earmarked for those individuals who took the risk. It would not benefit all those within the system. Those people who lose money in the private market should not be bailed out by those who did not.

What to do. Unfortunately, we must make hard choices. Sacrifices are required, and if we are not going to ask them of the current retirees already dependent upon their monthly checks, we must ask it of those planning their future retirement. If we allow individuals to privatize part of their Social Security savings they must do so knowing that they are only trying to help ensure the system’s solvency, and garnering themselves only what they had already counted upon.

Other options are seemingly harsh, but given life expectancy rates continue to climb it would not be unreasonable to continue to raise the retirement age at the same rate. Another even less attractive alternative given the current federal budget deficits would be for the government to set aside additional and future revenues to meet the projected shortfalls. Certainly not an attractive alternative, but possibly one that might have to happen as it is the least painful alternative available to risk-adverse politicians.

We have to do something to save Social Security, and while some do not believe that the President must act now, acting today will lessen the pain we will undoubtedly face in the future.