Response to Social Security proposals breaks down along generational lines KANSAS CITY (Kansas City Star), February 13, 2005:
Carolee Noble isn't taking any chances with her Social Security benefits.
The 64-year-old Kansas City, Kan., resident started collecting her first checks just a few weeks before President Bush began unveiling plans to overhaul the nearly 70-year-old safety net.
The plan being promoted by the president would allow workers to put part of the taxes on their wages into private investment accounts that resemble 401(k)s.
For now, Noble plans to bank as much of her Social Security money as possible and to continue working part time as a receptionist to cover living expenses and to keep her health plan and other benefits.
“I won't have a large amount of savings otherwise,” she said.
Noble's daughter, Audrey Davis, plans a different course.
Bush has told those 55 and older that their benefits would not be reduced. Davis is 45, so she's planning to put more of her money into individual retirement accounts and the 401(k) plan offered by the financial services company where she works as a data systems clerk.
Meantime, she wonders what will become of the contributions to Social Security she's made over more than two decades in the work force.
“If they privatize it (Social Security), I want every penny I put in back,” Davis said.
Riley Davis, Audrey's 21-year-old son, said he doubts that anything Washington does now will be meaningful by the time he becomes eligible for benefits. He's counting on income from a career or a business to help cushion his old age.
“My goal is to get a job where I don't have to worry about it,” said Davis, who works part time at an area television station while pursuing a degree at the University of Missouri-Kansas City.
The numbers challenge
About 47 million Americans currently receive Social Security retirement, survivor or disability checks. The monthly benefits, about $926 on average, are a major source of income for two-thirds of older Americans and the only source for about one in five, according to the Social Security Administration.
Another group of about 159 million Americans, or 96 percent of the U.S. work force, are covered by the system but not yet receiving benefits. Most are putting 6.2 percent of their paychecks into the system, along with 1.45 percent for Medicare in the form of FICA taxes, both to help pay benefits to current recipients and to establish credit for their own benefits. Employers also contribute 6.2 percent in Social Security and 1.45 percent for Medicare taxes.
Number crunchers have long predicted that changing U.S. population trends will threaten this system. The number of older workers eligible for benefits is projected to increase 75 percent, to 84 million, in 25 years. The benefits promised them will rise nearly 27 percent, to $19,000 annually from $15,000 now. The number of workers paying into the system is projected to shrink to about 2.1 for each beneficiary from 3.3 workers currently.
“It would be fiscally imprudent and economically risky to allow Social Security spending to increase as promised by current law,” Daniel Mitchell of the Heritage Foundation concluded in a recap of the situation published last month.
However, others say Bush's plan to divert part of workers' payroll taxes into private savings accounts would increase strains on the system, not relieve them.
The Center on Budget and Policy Priorities, for example, estimates that the plan would put the system in the red six years earlier than the president predicted the current system will enter that territory. Researchers there also calculated that diverting money from the system would result in benefit cuts that workers can beat only if the proposed personal accounts top inflation rates by at least 3 percentage points.
More details of the changes proposed by Bush are expected to become known later this month. Based on information outlined in his State of the Union address, however, analysts broadly expect that workers 55 and older would continue paying the same Social Security and Medicare taxes as they do now.
Younger workers also would continue paying at least 2.2 percent into the Social Security system but would be allowed to put the remaining 4 percent, up to $1,000 a year, into personal savings accounts that offer some of the same investment choices as a 401(k) plan.
Bush indicated in his address that the investment choices probably would be like those available to federal employees through the Thrift Savings Plan. That plan allows federal workers to divide their savings among five conservative to middle-of-the-road mutual funds.
The administration's plan isn't the only option being debated. Several proposals also are being pushed by congressional Democrats, so expect plenty of political wrangling before any changes are made.
Generational contrasts
Riley Davis said he needs to learn a lot more details about the plan before evaluating its merits.
Twenty-somethings such as Davis currently are promised a median $19,000 in first-year benefits and $193,700 over their lifetimes, according to a Congressional Budget Office study. Currently projected funding will cover only $18,300 of the first-year benefit or $162,500 of the lifetime benefit, researchers calculated.
But nothing in what's known about the proposed changes so far indicates how the combination of traditional contributions and personal accounts would actually close those gaps, Davis said. “If I'm going to pay for Social Security, I want to get Social Security,” he said.
Workers in the middle of their careers face more daunting questions, notes Audrey Davis. “Some form of Social Security will be there for us, but do we want to count on living on it? I don't think so,” she said. Davis said that she and many of her co-workers don't yet know enough to make informed decisions about their best choices among the proposed changes.
And if, as expected, choosing the personal accounts is voluntary, some dismal participation rates on 401(k) and other existing savings plans may bode badly for the future, she said. “I work for a financial services company and even there, it's surprising how many people don't participate” in retirement savings programs, Davis said.
Nationally, only 47 percent of the nation's workers have pension coverage other than Social Security, and 32 percent have personal savings set aside specifically for the later years, the Social Security Administration estimates.
Davis also said she is skeptical of how much help truly conservative personal accounts might be for workers in the long run at current low interest rates.
Income from deposited savings is so low that the last time her bank offered a choice of savings incentives, “I took the casserole instead,” she said.
Noble, meanwhile, is putting her Social Security checks into the safest savings and investment choices she can find. And she's keeping her job skills sharp. “Even with Social Security, I will need a part-time job, too,” she said.
Carolee Noble, 64, receptionist: “Even with Social Security, I will need a part-time job, too.”
Audrey Davis, 45, data systems worker: “If they privatize it (Social Security), I want every penny I put in back.”
Riley Davis, 21, graphic design student: “My goal is to get a job where I don't have to worry about it.” By Gene Meyer, The Kansas City Star (gmeyer@kcstar.com)
Copyright: Kansas City Star http://www.kansascity.com
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