Re: Social Security Reform - Today's News.........
Donner - I do agree with you that there is a long-term problem with SS that needs to be addressed at some point. Perhaps "tweaks" is not the right word for the changes that are needed, but the point I was trying to make is that privatization of SS is not the panacea that some seem to think it will be (and I'd go further to say that it doesn't really even address the main problem). And so far, I hear this president talking mostly about privatization (since it fits his overall philosophy of getting govt. out of our lives), and less about other (albeit more painful) changes that will have much more of a positive effect on the long-term solvency of SS. To illustrate, here is an excerpt from a recent column by Jonathan Clements, of the WSJ:
----------------------------------------------------------------------
No matter how successful privatization is, we are still in a heap of trouble.
To get a handle on the problem's magnitude, consider some numbers from economists Jagadeesh Gokhale and Kent Smetters. They calculate that, if the federal government today were to pony up all the money needed to cover Social Security's future shortfall, it would have to fork over $8 trillion. By contrast, the entire value of the U.S. stock market, as measured by the Dow Jones Wilshire 5000 index, is some $14 trillion.
Yet Social Security's $8 trillion headache is a pittance compared to the money needed to cover Medicare's shortfall. The two economists estimate that liability at some $61 trillion.
Sound alarming? In truth, the looming Social Security and Medicare deficits are just symptoms of a far bigger problem: One way or another, people will have to retire later.
"I'm a big fan of privatization," says Robert Arnott, a money manager in Pasadena, Calif. "But it won't save Social Security." His argument: We are facing not a financial conundrum, but a demographic crisis. By 2035, we will have just 2.7 working-age people for every person age 65 and older, down from 4.8 to 1 as of 2000.
Sure, this aging of the U.S. population means the federal government won't collect enough taxes to pay the health and retirement benefits promised to seniors. But more critically, if everybody continues to retire at age 65, the U.S. economy won't produce enough goods and services to meet society's needs.
How all this plays out isn't clear. Maybe Uncle Sam will raise the eligibility age for Medicare and the existing Social Security system, and that will pressure baby boomers into retiring later. Maybe, as retirees sell off their stocks and bonds to buy prescription drugs and airfares to Arizona, we will get lower investment returns and higher inflation, and that will compel boomers to stay in the work force longer.
But whatever happens, privatizing Social Security won't save us from the inevitable demographic crunch. Want to beat the squeeze and still retire at age 65? You will need to be a whole lot savvier with your money, and that means clamping down on investment costs, avoiding foolish investment mistakes and -- most important -- saving like crazy.
----------------------------------------------------------------------
Anybody hear W saying anything about increasing the retirement age, raising taxes, or decreasing SS benefits?
RAE
