Franklin Roosevelt signed the Social Security Act on August 14, 1935, in response to the desperate need of poor older Americans who survived the Great Depression. People needed cheering up and the Government needed a program to bolster public confidence again. The plan then was to take a little from everyone's paycheck via a payroll tax and give that money to the elderly. And at that time there were 41 workers for every one retiree. Older Americans celebrated its birth sixty-five years ago.
I've heard from the day I started earning a paycheck over twenty-five years ago, that Social Security would not be around for me by the time I was ready to use it. But, even if Social Security is still around for me, I'm not sure I'd want to rely on it. Is it something anyone would want to rely on?
I recently heard the story of a 78-year-old gentleman who had retired 15 years ago. He worked a blue-collar job for smaller companies that did not provide him with a retirement plan of his own–either a pension or a 401k. Even so, he and his wife (with her part-time employment) were able to raise and send to college two children. What about retirement? Well, he relied on the federal government to take care of him through the Social Security system.
With a small savings upon retirement, he and his wife were able to live comfortably on $23,000 a year, $13,000 of it from Social Security. Much of the balance came from a deal they were able to work out–trading their services as caretaker for a small organization in return for the rent of an apartment.
When that trade ended (a larger company bought the smaller one), they were shocked to discover how inadequate those Social Security benefits were for providing the necessary elements–food, shelter and clothing.
It's the sort of story that I'm sure is the rule, rather than the exception, for people who have relied almost exclusively on Social Security for their retirement.
So–what are we to do?
Consider this. Let's say you've been employed for 40 years and are ready to retire. Michael Evans, a Northwestern University professor of economics, says that Social Security would pay you a maximum of a little over $16,000 a year. He also says, if you invested the same amount of money over the years in the S&P 500, your annual income upon retirement would be in excess of $600,000.
Why does Social Security pay so little today? Partly because the program has expanded greatly over the years, paying for things like disabilities. Some would suggest it's become a welfare scheme instead of an old age pension program.
Whatever the case, something needs to be done.
We'd suggest a couple of things:
- Somewhere, at some time, we need to educate people about the value of saving money for retirement. I know–some people will insist they barely make it from paycheck to paycheck–so savings is out of the question. But any amount–no matter how small–is a start. And I realize that someone who can't afford to save much of anything this year might find a different financial situation in a year or two.
- Employers should be encouraged to pull together some sort of retirement scheme for their employees, even if the employer's contribution is minimal. Setting up the apparatus that makes it possible to save, through some sort of payroll deduction plan, is sometimes the best thing a business owner can do for his employees. And it's the right thing to do.
Since this is an election year, there appears to be no shortage of ideas as to what to do to with Social Security. The two likely presidential candidates have both advanced plans–and without providing a blow-by-blow description, there seems to be a significant difference in the two.
Al Gore has suggested that Social Security benefits be increased, and has developed his own plan called "Retirement Savings Plus". It essentially would have the government kick in $1,000 a month for those who could come up with their own $1,000 in personal savings. It would encourage savings–and it would provide an enhanced income for retirees. But we wonder how many people could afford to save $1,000 a month. And, if they could, then they might be ineligible to participate in the Gore plan.
George W. Bush has suggested diverting a chunk of all of our contributions to Social Security into a personal savings plan–in essence, privatizing the system. His plan would require us to save and the potential for a return on our investment would seem to be greater. Plus–and this is a big plus–it allows each of us to make our own decision. If we want to invest our money in risky venture, we can. We can also pick something far less risky, but which will pay a far better return than Social Security.
We vote for privatizing the system, at least part of it. We would put the responsibility on our own backs–and take it off the government. Today's workers are and want to be self-confident and self-reliant–and are comfortable investing for their future. Government dependency and trust in a "pension plan" based on the Old Economy is unacceptable and oppressive to workers in the New Economy. It's good both Presidential hopefuls recognize that as Social Security turns 65, it's time to retire that plan, and offer a new one to bolster confidence in government and cheer up the American public–again. IBI