"Social Security: Are private accounts a good idea?" (Special Report, Jan. 24) generated an outpouring of mail on private accounts as well as many perspectives on the future of Social Security.
JUST WHAT IS SOCIAL SECURITY?
Social Security is actually the Federal Insurance Contribution Act (FICA), designed to keep retired Americans from poverty. It was not envisioned as an investment vehicle. I don't ask the carrier of my auto insurance to allow me to invest the premiums, nor do I wish to manage my Social Security premiums myself. I have investments of my own I control.
Seen as insurance against poverty, Social Security can be easily adjusted to carry forward for generations without major changes, and without throwing the onus of bad investing on the millions of Americans who are neither market-savvy nor versed in stock market participation.
Mark A. Brown, CPA
Since most of us are living longer, healthier lives, we should be willing to work longer and continue to pay into the system. Phasing in benefits calculated by price indexing rather than wage indexing would help keep the system solvent for at least another 75 years, if economic experts are to be believed. In the interest of fairness, we need to raise the taxable annual income level to at least $250,000. And we need to ensure that the system is both fair and progressive, providing enough to maintain the safety and dignity of impoverished and disabled elderly. Social Security was never meant to subsidize Uncle Mort's green fees and condo in Florida, but Great Aunt Dorothy should not be eating cat food, either.
Jennifer Grant Prileson
FEDERAL SHELL GAMES
I noticed that, according to your article, Social Security private investments would earn more than that money currently earns in the Social Security "lock box." As I see it, the federal government currently gets a cheap loan from our Social Security savings, but if we put our private account money in mutual funds, the government will have to pay a higher interest rate to attract money from the open market to make up for the $160 billion per year transition cost. This higher interest rate will then also apply to the $400 billion annual deficit and will then finally apply to our $7.6 trillion debt as we gradually refinance it each time bonds mature.
In short, for every additional dollar we earn in our private accounts, the federal government will be paying an extra dollar in interest on the debt.
La Canada-Flintridge, Calif.
THE MOST REGRESSIVE TAX WE HAVE
Reduce the tax rate to one-half of its current level, but eliminate the ceiling. The Social Security tax is the most regressive we have. By cutting the rate and eliminating the ceiling, people under the current maximum income of $90,000 will pay a reduced tax. The current maximum dollar contribution won't be reached until an individual reaches $180,000 in salary.
Leonard Donofrio, CPA
GIVE THE SURPLUS TO WALL STREET
Here's the compromise. Forget individual private accounts and all the administrative cost and investment education that go with them. Instead, run Social Security like a true defined-benefit program. Keep the current, promised benefit structure in place, but instead of putting the current surplus in Treasury IOUs, start putting it in the stock market. The stock market will get a terrific boost, and we avoid all the hassles of costly, small accounts that Wall Street doesn't want anyway.
THE THRIFT SAVINGS PLAN: A MODEL
My suggestion for reducing the financial cost of funding the projected shortfall in Social Security involves taking the $80 billion annual interest (for the 13 years between 2005 and the projected date -- 2018 -- of negative cash flow) to give about $1.04 trillion and invest it, for Social Security needs, in the same manner as the federal government's Thrift Savings Plan. This very popular plan for federal employees and members of Congress allows a choice of five highly diversified, low-cost mutual funds. In the Thrift Savings Plan, no direct investments in individual stocks are allowed. The higher interest in the mutual funds will grow the amount even more over the 13 years, and the exhaustion of the Social Security funds will be delayed.
DISCOURAGE EARLY RETIREMENT
In 2002 only 21% of workers waited until at least the normal retirement age. As a consequence, the average age of retirement fell from 66.2 in 1960 to 63.6 in 2002. Discouraging rather than encouraging early retirement would fix the problem.
THE ROLE OF SOCIAL SECURITY
Both your article "Social Security: Are private accounts a good idea?" (Special Report, Jan. 24) and editorial cite the ability to pass the funds on to one's heirs as a reason to consider Bush's plan for private accounts. Social Security exists to assure a minimum income level for the elderly, not nest eggs for the heirs of those that don't need Social Security.
Allen E. Anderson
I routinely pay taxes to fund federal programs for which I receive no direct benefit, such as school lunch programs, the Bureau of Indian Affairs, and the Veteran's Administration, to name a very few. I firmly believe these to be socially valuable and have no problem with my taxes being used to fund them, so why should Social Security be any different?
It is not a cash squeeze that endangers Social Security's future: It is the Wall Street investors and private bankers who give tens of millions of dollars in campaign contributions each year. Yes, the baby boomers will require a temporary boost in spending, but the Baby Bust will level it out. When this and all other government spending decisions are made, I'd feel a hell of a lot better if cash were not changing hands at the political level.
Jack E. Lohman
BORROW HERE, BUY THERE
U.S. employees will be allowed to direct 4% or so of payroll taxes into the new private accounts, to be largely invested in stocks. To replace these payroll taxes, which would otherwise go into the Social Security trust fund, the government plans to borrow by selling U.S. Treasury securities. Borrow here, buy stocks there: It looks like a big margin loan to me.
James W. Eyres
A WINDFALL FOR THE WEALTHY
Wall Street will not be the only recipient of a "windfall" if the Administration's proposals for private accounts are enacted. Since most of the stocks are now beneficially owned by those who are wealthy, the managers of the private accounts will, perforce, be buying mostly from them -- and at whatever prices they chose to accept for their shares.
Thus the wealthy will receive the first, the most certain, and possibly the largest benefits arising from the private accounts. The law of unintended consequences will again have come into play.
Jetson E. Lincoln
PROTECTING FUTURE BENEFITS
The discussion about Social Security private accounts gives short shrift to current Social Security beneficiaries and individuals near retirement age. If there is a current crisis these are the individuals most at risk. Their benefits may be safeguarded with one or a combination of two changes.
First, contributions may be increased. These funds may be generated by payroll taxes or general revenues. Second, the "earnings" on those contributions may be increased. This can be done in the same way that many public pension plans earn greater returns than Treasuries: namely by investing in higher-yielding (but riskier) investments. The latter prefunding arrangement would also discourage politicians from continuing to use Social Security "surpluses" to finance other programs.
PROTECTING FUTURE RETIREES
I will be 69 years old in 2032. I worry that I will have paid a very large percentage of my income into a government plan and will have nothing to show for it. Accordingly, Social Security payroll deductions should end for anyone born in 1965 or later and be shifted to 401(k) plans so these future retirees will reap the rewards of their investment when they retire. Those born in 1964 and before should continue some Social Security payroll deduction along with some government subsidy to cover the difference.
A GLARINGLY SIMPLE SOLUTION?
Rather than employing one of the drastic solutions suggested by your article on the Social Security crisis, why not simply decrease benefits as a percentage of wages? Over the next 10 to 15 years, a benefit cut from 42% to 35% of wages would result in a large savings for the SSA -- approximately a 17% savings in payouts once such a cut was fully phased in. At this time, the current wage-indexing plan could be kept in place at a much lower cost. This avoids the drastic benefit cut which I, as a college student of 19 years of age, could expect from a switch from wage indexing to price indexing. At the same time this plan would at least hold off any hypothetical crisis until a more permanent plan can be formulated.
Kevin M. Spezia
Ann Arbor, Mich.
THE TROUBLE WITH OPTING OUT
The ongoing debate about the privatization of Social Security does not seem to touch on an important point. If investment in private account plans is voluntary, low-income earners will not participate to any great extent. The higher-income earners for the most part will be salting away a portion of their earnings, not only in Social Security private account plans but also in IRAs or 401(k)s. The reduced Social Security benefits upon retirement will not be sufficient to support subsistence living for the former low-income earners.
The living costs in retirement of those low-income participants will then have to be subsidized by future governments or their families. Voluntary participation, as presently proposed by the Bush Administration, will not benefit the people who need it most.
Jacques P. Wolfner
The only way to fix Social Security and increase the fairness of the program is to either force everyone to be a part of the system or let people choose if they want to participate. There are millions of state and federal employees who are not required to participate in the system, including our elected officials. If they are forced into the system, there is no doubt a bipartisan plan to fix Social Security will soon follow.
MEMO TO THE NEXT PRESIDENT
I am a campaign contributor and vocal supporter of President Bush. Let me be very clear in reference to any proposal to cut Social Security payments or benefits. Neither the Iraq war or any morality issue will make me vote for anyone who messes with my future Social Security benefits.