Interview ¦ July 3, 2000
A Challenge, Not A Crisis
Forget the electioneering blather. We don't have to upend Social Security to save it.

By Jane Bryant Quinn, Reported by Temma Ebrenfeld

Dear friends, how do I get your attention? I seem to be the only kid in the village who's not crying wolf. Here's the quiet truth: Social Security is not in crisis. It's a challenge but not a sinking ship. Young people won't be left empty-handed unless they vote to let that happen. The problems are fixable with incremental change.

Many reformers have the system's basic premise in their cross hairs. Instead of a relying on a guaranteed payment to supplement your investments, they think you should invest your Social Security contribution, too. But we don't have to upend the system in order to "save" it. Whether it's better to switch to private stock accounts is a separate question. Amid the election-year blathers, here are some fundamentals to keep in mind:

1. Social Security isn't going bankrupt. That's a word that the privatizers fling around just to keep you scared. Instead, in 2037, Social Security's surplus (or "trust fund") will run dry, under current projections. But payroll taxes keep rolling in. Those taxes alone could finance 72 percent of current benefits, to young and old alike. As gazillions of technical experts point out, it doesn't take huge adjustments in taxes and benefits to close the gap.

Can anyone imagine a Congress that fiddles while orphans and grandmas don't get their full checks on time? But, hey--shouting "bankruptcy" pays off, politically. Only bores complain. (For your own future benefits, check , or call 800-772-1213.)

2. The Social Security trust fund isn't a joke. Just say "trust fund," and partisans on all sides of this issue foam at the mouth. But the fund is a genuine contributor to the sturdiness of the system. It's a promise to pay, secured by Treasury securities, which in turn are secured by taxpayers. The government has to use the money currently pledged for whatever we all decide Social Security benefits should be.

Withdrawals from the trust fund are expected to start in 2015. Where will Treasury get the money? You usually hear about three possibilities--raise taxes, chop benefits or cut deeply into other spending. But there's a fourth option: the government could borrow some of the money. In fact, that's a strong argument for repaying the debt that's held by the public today. By greatly reducing what we owe, we'll be in good shape if we want to reborrow in the future.

We ran up debt in the '80s to pay for military and other programs, and now are paying it down. Why not use this option again, to get past the boomer retirement hump?

By the way, we've already had a small trial run on redeeming government chits. Medicare drew on its hospital trust fund from 1995 through 1997, while Congress readjusted the program. Today, that fund appears to be good through 2025.

3. We don't even know, for sure, that the trust fund will dry up in 2037. That's just a projection. To be on the safe side, Social Security's trustees have assumed slower economic growth than we've averaged over the past 75 years. If it turns out that future growth equals that of the past, the Social Security problem all but goes away, says consulting actuary David Langer in New York City.

4. There will be fewer workers to support each future retiree, but the burden isn't as bad as you think. What matters is the number of dependents per worker--children as well as grandparents--and people have fewer children today. In 2030, it's projected that workers will still be supporting fewer dependents than they did back in 1960.

5. It's not at all certain that young people will get more for their Social Security money by investing it privately. Remember that your payroll tax currently goes toward the benefits for retirees (including your parents and grandparents). If 2 percentage points are deducted from your tax and deposited in a private account, the government would have to get that money somewhere else. Who do you think would pay? The tooth fairy? You'd pay, in the form of lower benefits or a higher tax.

The Employee Benefit Research Institute in Washington, D.C., has a computer model used by all the serious players in Social Security reform. Unlike the unserious players, EBRI adjusts for costs.

It turns out that it's not so easy for 2 percent investment accounts to cover lost benefits and costs. Americans in the highest fifth of the income range would indeed do better, says EBRI president Dallas Salisbury. Those in the bottom 50 percent would probably do worse. Those in between could go either way, depending on how their investments did. This can't be explained on bumper stickers, in an election year. But the winners and losers will emerge, when Congress has to consider actual plans.

6. The feasibility of private accounts remains in doubt. No one wants to sweat the details, but let me mention just a few: • Small accounts--Nearly 40 million people have incomes of $10,000 or less. If they invested 2 percent of their payroll tax, they'd be adding $200 or less per year. Who would manage that tiny sum, and at what cost? • Misjudgment and fraud--Half of Americans don't own stocks in any form. Many more know zip about how markets work. Do we care if they invest badly and have to retire on less? What happens if an "identity thief" gets your Social Security number and raids your private account? (Sometimes a national nanny makes sense.) • Foul-ups--Occasionally, employers misstate names or Social Security numbers. In 1998, 8 million reports could not be matched to a Social Security account. Currently, many such errors can be fixed retroactively. But what if money didn't get posted to your private account? Do you have to swallow the investment loss?

7. Young people haven't abandoned the intergeneration contract. Yes, they'd like private accounts, especially for stocks. But they don't want to bring the insurance system down. In surveys, they've tended to reject cuts in benefits, including increases in the retirement age.

Retirement has always been a three-legged stool, with one leg absolutely firm. Experience says don't give that up.