Social Security Reform: Words Are Good but the American People Need Action

Published June 1, 2004

In his January 2004 State of the Union address, President George W. Bush reaffirmed his commitment to Social Security reform, saying, “Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. We should make the Social Security system a source of ownership for the American people.”

These are good words, but without leadership to move this proposal forward they are only words. For there to be meaningful reform of our retirement system we need leadership now. The longer we wait, the worse the problem gets. It would be intolerable to let the opportunity pass during this critical election year.

The American people understand Social Security needs fixing–they are ahead of the politicians on this issue. Only the President, using the full influence of his office, can make this happen.

Americans will rally behind Bush if he leads with an Ownership Society program that includes personal retirement accounts. With such an initiative, Bush will win re-election … and he will have the mandate to pass through Congress in 2005 real Social Security reform.

Americans know Social Security is a demographic time bomb. Its “pay-as-you-go” financing worked in the 1950s, when there were 16 workers for each retiree. But increased life spans and lower birth rates mean more retirees to support and fewer new workers to support them.

Today, there are only 3.3 workers per retiree, and Social Security taxes have had to be raised many times already to pay promised benefits. By 2035, there will be only two workers per retiree, and taxes would need to rise from the current 12.4 percent rate to 18 percent or more to pay the benefits the current program has promised.

Personal Retirement Accounts
It’s time to look at personal retirement accounts (PRAs).

Many people are shocked to learn the money they have been paying into Social Security over the years–more than 12 percent of their paychecks–has never been saved for their own retirement. Instead, it has paid for the benefits of current retirees, and anything left over has been spent by politicians on other programs.

America does not face this demographic crisis alone. All over the world–in Europe, Australia, Japan, and elsewhere–societies have had to confront the crisis of an aging population. Some nations have chosen an innovative approach that preserves the safety net for retirees and older workers while giving younger workers the opportunity to build a nest egg for their own retirement: personal retirement accounts in Social Security.

PRAs would make every worker a saver. Many families don’t have the money to save after they’ve paid the mortgage and put food on the table, on top of the 12.4 percent Social Security payroll tax. PRAs would allow them to save some of the money they currently pay in payroll taxes so they could build a nest egg of retirement wealth.

PRAs would give every worker an ownership stake in Social Security, not just a flimsy promise from the politicians about a “lock box.” Workers who died before their Social Security eligibility date could pass along their retirement savings to spouses or children–a right denied to millions of African-American men who die on average years before they are eligible to collect Social Security benefits.

We need to turn the current Social Security crisis into an opportunity to modernize the system to give individual workers control and ownership over their retirement assets. PRAs would give every worker dignity and a sound, stable financial plan that no one–not even the politicians–could take away.

Other countries have had a great deal of success in enhancing Social Security to give workers an ownership stake in their retirement. Chile, Great Britain, Australia, and former Soviet bloc countries already have adopted this common-sense approach. Even China and socialist Sweden have done so! If workers in those countries can save for their own retirement, why can’t American workers?

The time for Presidential leadership on Social Security is now. It is time to give American workers the dignity, choice, and control to save for their own retirement.

Bob Costello is president of His email address is [email protected].