Young people who will retire in 2035 should not be forced to live with a Social Security system that was invented in 1935. The world in 1935 was a much different place. In 1935, cell phones, space travel and robotics were all the stuff of science fiction.
As a nation, we have changed with the times. But the Social Security system is rooted in Depression era thinking. It is time to bring Social Security into the 21st century.
Certainly, we must applaud the success of the Social Security program. Through payroll taxes and benefit payments, Social Security touches more Americans than any other federal program.
To its credit, the Social Security retirement system has kept millions above the poverty line since 1935 and today 50 percent of retirees depend on it to provide more than half of their monthly income. Despite its successes, though, the Social Security retirement program will be stressed when baby boomers start retiring at the rate of 10,000 a day in 2008. Somehow we need to find a way to provide for these retirees without penalizing generations to come.
What are some of the factors that require new thinking? First, when Social Security was enacted, the average life expectancy was age 60. Today, thanks to health and medical advancements, it is 78.
Second, 30 years ago, there were five workers supporting every Social Security recipient. Today that ratio is 3.4 workers per retiree. By the year 2030, when the baby boom generation is fully retired, the ratio will be two to one. Third, and most important, current payroll tax surpluses are not being saved for the future, meaning that the Social Security Trust Fund is essentially a stack of IOUs.
Given these facts, is it any wonder that a growing number of younger workers take it as a matter of faith that the Social Security program won't be around for them when they retire?
Faced with similar circumstances, many other industrialized nations have taken steps to reform their government retirement policies. In Great Britain and Australia, a pay-as-you-go Social Security system has been replaced with one that allows for workers to invest part of their payroll taxes in the stock or bond market. A basic safety net is retained, but workers in these nations now have the opportunity to create a retirement nest egg for themselves beyond the safety net. The United States would do well to enact similar reforms. Polling data shows that most Americans support private investment accounts as part of Social Security.
Certainly, reforming Social Security will be no free lunch. Inevitably, some benefits will need to be curtailed in order to make the Social Security system affordable over the long term. But significant benefit cuts and/or tax increases will need to occur simply to shore up the current system.
Bill Frenzel served as a Republican congressman from Minnesota from 1971-91. He is an expert on budget and fiscal policy and is a member of the President's Commission to Strengthen Social Security.