13 November 2004
Social Security 'reform' is a dangerous idea
DON'T WE EVER LEARN? If you go back 70 years and look at why President Franklin Delano Roosevelt proposed the Social Security Act, you will find he did it because he knew that when the average American got too old to work, he didn't have any money in the bank on which to live.
Six years earlier, many Americans who had invested heavily thought they were set for life. Then, in 1929, the stock market crashed.
Does any of this sound vaguely familiar? Six years ago, there were tons of Americans who had invested heavily in the stock market and thought they were set for life.
Then, the bubble burst in 2000, and many of those "wealthy" stockholders have now become Wal-Mart greeters.
I bring all this up because President Bush's latest proposal to save Social Security is to privatize it, at least in part.
In other words, instead of the government taking part of your paycheck as a Social Security tax and then returning that money when you get old, you would be asked to make retirement investments of your own on Wall Street.
I can think of many arguments against such a plan, but the biggest three are the stock market crash of 1929, the stock market crash of 1987 and the stock market crash of 2000.
Add the fact that the average American would rather walk on hot coals than put a dollar away for a rainy day, and you have a recipe for disaster.
Even if most middle-class Americans had any extra money to save, they wouldn't. That is not the way we operate. We not only spend every dime we make, we max out our credit cards and squeeze out every penny of equity we have in our home--if we own a home.
If anything, we are now in worse shape financially than we were when Social Security became law. A person couldn't get but so far in debt in the 1930s because he couldn't get credit. Now, with the popularity of credit cards, there is virtually no bottom to the financial hole we can dig for ourselves.
To put the average American in charge of his own retirement savings account would be dooming him or her to a life of poverty during their retirement years. A society with no sales resistance has little chance in a world filled with intriguing technological gimmicks. Investment dollars would be spent on DVD players and flat-screen TVs.
Yes, most Americans live for today, not tomorrow. And if they invest at all, they want big, quick returns. We are a "we want it now, no matter how much it costs" society. People with that kind of mentality don't make great savers.
So, Washington is seeking to put people who don't save, and are prone to getting in debt up to their ears, in charge of saving for their own retirement. This makes no sense to me.
The great thing about Social Security is that you can't pull the money out. It (theoretically) stays there until you reach retirement age.
How many people do you know who have pulled every dollar from their retirement accounts when some emergency arose? Offhand, I can think of at least a dozen.
So, under the proposed plan, could a person pull his money from his stock-market account anytime he so desired? If not, would he be forced to stand by and watch the value of his investments collapse without being able to do anything about it?
Could he shift his assets around to buy more profitable stocks? Would he be limited to purchasing stocks, not bonds or real estate?
How does Washington expect the average citizen to come up with an investment plan that would pay him monthly benefits for perhaps 30 years after he retires, when even the government cannot accomplish that feat?
After all, Social Security checks are funded by the payroll deductions of men and women still in the work force, not the accumulated principal and interest of actual money that retirees paid in.
Perhaps the most disturbing aspect of Social Security is that its fate keeps changing. Five years ago, all its problems were fixed and the government retirement plan was in good shape for 25 years. At least that's what Washington said.
Now, with the baby boomers about to retire, Social Security is once again in trouble. Didn't Washington know five years ago that there were baby boomers out there?
Sure, government officials knew, but they figured that many of these heavily invested men and women born after World War II would have hefty stock dividends to support them in their retirement years.
Then came the stock-market crash of 2000, and the equation suddenly changed. Now, those baby boomers might really need their Social Security checks after all.
And now, the government wants us to put our retirement dollars in that same stock market. Washington trusts us to make wise investments this time.
When the market crashed in 1929, it took 25 years for the Dow Jones Industrial Average to climb back up to where it had been.
Today, most stocks remain far below what they sold for in 1999.
If their retirement money is on Wall Street, what do retirees do in the 25 years it may take their portfolios to climb back to even after a crash?
Whether or not Social Security was a good concept 70 years ago is not at issue right now. It has become an integral part of our lives; most of us have paid big bucks into the system. We expect to get the benefits we were promised.
Given the way the program is set up, if young investors lose every cent in stock-market investments, they won't get a dime back. Remember, there isn't big pile of cash just sitting around in Washington. If payroll deductions aren't forthcoming, neither are retirement checks.
Saving Social Security is essential, but privatization is not the answer. In a spend-crazy society, this proposed "reform" might have future retirees getting worn-out DVD players instead of monthly checks.
Such junk won't sustain us financially in our old age.
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