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January 25, 2004

We can't avoid Social Security reform forever

by Berna Yiğit Brannon

Berna Yiğit Brannon is a Social Security analyst at the Cato Institute.

In his State of the Union address, President Bush reiterated a commitment to bringing meaningful reform to our nation's Social Security system – new retirement savings accounts.

Social Security reform is high on the president's agenda because he understands the full scope of the Social Security crisis. Over the next 75 years, the program faces $26.4 trillion in unfunded liabilities. This translates into $4.9 trillion that must be invested today in order not to cut benefits or raise payroll taxes to pay for the promised level of benefits.

Without reform, Social Security would be paying out more in benefits than it would be collecting in taxes by 2018, and that by 2042 the Social Security trust fund would be exhausted.

If we wanted to invest enough money now so that Social Security would be solvent beyond 75 years, that amount would be $11.9 trillion. But for each year reform is postponed, the unfunded liabilities grow. If no action is taken, eventually, deep benefit cuts will be necessary.

When the government established Social Security, the average worker did not live much beyond the retirement age. In a society with a large population of younger workers, a shared risk pool was not a big burden on workers.

Times have changed. Americans are living longer and healthier lives, which is a blessing. At the same time, birthrates have fallen. Younger workers of today are supporting today's retirees and cannot be certain that they will see their promised retirement benefits.

When most workers today can expect to live for a considerable time after they retire, the continuation of a program that is not designed for such an occurrence does not seem appropriate. The faltering health of our Social Security system calls for a retirement savings program that has a direct link between contributions and benefits.

America needs a fully funded retirement system. Money saved today should be used for the retirement of those who saved it. Individual accounts accomplish that by giving workers ownership of their savings and equipping them with tools to secure their retirement.

President Bush should be applauded not only for taking a stance on a topic that is guaranteed to generate heated discussion, but also for realizing that throwing money at a system that no longer answers America's retirement concerns is not the solution.

This article originally appeared in the Dallas Morning News. on January 25, 2004.