Social Security

Bush: "Social Security headed for bankruptcy"
Bush: Wrong on Iraq, Wrong on Social Security

Q&A on Social Security

By Bill Straub, Scripps Howard News Service
January 16, 2005

Q: Is there a Social Security crisis?

A: No. There is no imminent threat to Social Security as the word "crisis" might indicate. Even if nothing is done to change the system, the Congressional Budget Office predicts retired people can expect to receive full benefits to 2052 — 47 years hence. Social Security trustees, meanwhile, using more conservative data, said the system will be able to pay 100 percent of promised benefits until 2042.

Thereafter, if no changes are made and money continues to flow into the system through the payroll tax, recipients can expect to receive about 75 percent of their anticipated benefits.

Q: Is Social Security going bankrupt?

A: Hardly. As a result of reforms adopted in the early 1980s that increased payroll contributions, Social Security trust funds presently maintain more than $1.4 trillion in U.S. Treasury bonds and the assets are growing. About 154 million people are paying into the system. More money is entering than is being paid out.

Q: So what's the problem?

A: Beginning in 2018, Social Security will start paying out more than it collects, forcing the system to dip into the trust fund. The baby boom generation, the largest in the nation's history, born between 1946 and 1964 starting right after World War II, begins collecting its benefits. Today, there are three workers depositing money into the system for each beneficiary. Within a few years, the ratio will drop to 2-to-1. The 77 million boomers present an obvious strain to the system, leading the president and groups like AARP to address the issue.

Q: What does President Bush recommend?

A: The details remain unclear — the administration has yet to offer a proposal — but basically he wants to permit younger workers to take a portion of the payroll taxes targeted for Social Security and invest the money in personal savings accounts. Meanwhile, older Americans will receive full Social Security benefits.

Q: What are personal savings accounts?

A: Basically, they are government-approved investment plans. Currently, excess funds in the Social Security system are invested in U.S. Treasury bonds, which on average earn lower interest rates than stocks. Workers under the Bush plan would have a range of investment options and the money accrued from these investments would go into the individual's personal account, not into the system.

Q: What's the advantage there?

A: President Bush maintains the personal investment accounts will earn a better rate of return than that realized from the U.S. Treasury bonds.

Q: Are there any drawbacks?

A: It certainly isn't a cheap solution. Analysts predict the transition costs — the price for moving from the current system to the hybrid system — could hit $2 trillion.

Q: Anything else?

A: Among those opposing the plan is AARP, formerly the American Association of Retired Persons, which maintains the president's plan is too risky. The genius behind Social Security, AARP says, is that it provides retirees with a guaranteed, defined payment that they can count on month-to-month. The White House plan likely will reduce any guaranteed payment and there are no assurances that beneficiaries will earn more money through personal savings accounts. Basically, opponents assert the Bush plan would shred the safety net provided by Social Security.