LIKE SO many students, and indeed, like so many Americans, I got a job this summer. I was paid by direct deposit, and every two weeks I watched a significant portion of my salary disappear into the gaping maw of Social Security and income taxes. Since this was my first real job, the evaporation of so much of my salary came as a surprise. It is only fair that some money go to pay taxes, but what worries me is that in the future, we will likely wave goodbye to more and more of our salaries. As a growing number of Americans become eligible for Social Security, their demands will put an ever-increasing strain on the workforce. According to the Social Security Administration, there are currently about three workers supporting each recipient of Social Security; soon this will be down to two to one. As long as we are saddled with Social Security without any assurance that the funds we put in will be there when we need them, the government should allow us to divert some of our payments to private, individual accounts.
In 2001, a bipartisan Social Security Advisory Board stated that the Social Security program needed change -- sooner rather than later -- while the surplus we currently enjoy can help easy the transition. That was five years ago. Since then, little has changed. Discussion regarding the establishment of individual accounts continues, and with each passing day we waste the opportunity to change a flawed system.
The time has come to switch to a program of individual accounts, which would allow a person or an employer to pay into an account reserved for the individual. The benefits of this system are readily apparent: Each person would save money for himself, which means that no matter what happens to Social Security as we know it, the benefits for the individual would remain. Individual accounts would also put more money into circulation for investment as they would be handled by private companies, not a government trust fund. Additionally, a person would actually receive the money he or she put away.
This system has two glaring weaknesses, however. One is that only a part of the money currently paid into Social Security could go into these funds, as the rest is needed to pay benefits to current recipients. The second downside is more troublesome: If something happened to the money in the accounts, for example if the stock market crashed, the money would be lost and the individual would keep nothing. A combination of the current system and the private accounts would allow us to maintain the security we receive from guaranteed payments while allowing us to support retiring "baby boomers," while also providing the additional security of private funds stored away.
No matter how these two are balanced, the time to act is now. Given current estimates and without any change in the current benefits payments or the tax rate, the money provided by taxes and the trust fund built up of previous Social Security surpluses will run out in 2040, right around the time when most of us would begin to collect our benefits. Additionally, the 2001 Social Security Advisory Board report advocated a change, no matter what the decision. This is especially crucial in the case of individual accounts, as they require long periods of time to accumulate interest.
The basic idea for individual accounts already exists in the private sector in the form of individual retirement accounts (IRAs), which allow people to pay in a certain amount each year and consider it a tax deductible. Social Security requires a similar approach. We are not ready as a society to switch to full dependence on private accounts, especially given the outstanding payments owed to those about to retire, but the basic premise is sound. Allow people to place 10 percent of what they currently pay in Social Security taxes in private accounts centered on conservative and diverse mutual funds, and then wait. If all goes well and the stock market holds up, in 40 years that money will have accumulated into a decent-sized nest egg. Supplement this with regular Social Security payments (decreased by at least 10 percent) and by personal savings, and we are well on our way to extricating ourselves from the current Social Security debacle.
Robby Colby is a Cavalier Daily Viewpoint Writer.
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