Q&A on Social Security with Secretary John W. Snow
Why is the Social Security system facing problems?
As the recent Social Security Trustees' Report reminded us, the program remains on an unsustainable course, requiring prompt, responsible and bipartisan action to fix the program for our children and grandchildren.
America's changing demographics are at the heart of Social Security's pending insolvency. It used to be that 16 workers paid taxes to support one retiree, but that ratio has dropped to nearly 3-to-1 today and will be 2-to-1 by the time today's young workers retire. By 2017, Social Security will be paying out more in benefits than it takes in. By 2041 when younger workers begin to retire the system will be bankrupt.
Why is it important we act now to strengthen the system?
The sooner we address Social Security, the better it will be for all Americans. First of all, the longer we wait, the more expensive the solution becomes. The Social Security trustees recently reported that every year we wait to fix the system will add an additional $600 billion to the cost of reform.
Second, the sooner we allow workers to invest in personal retirement accounts, the better it will be for young Americans, because they will have more time to build assets that they control. Third, taking action now will be less expensive than waiting. Like paying off a mortgage or taking care of preventative maintenance on a car, it is cheaper to do today than it will be tomorrow.
We can't change our demographic reality, but we can update the system to give greater retirement options and hope to the youngest Americans, and beyond.
What is the President proposing?
President Bush has laid out principles for reform such as not changing benefits for those Americans 55 or older, not increasing the payroll tax rate and the creation of voluntary personal accounts so that younger workers can build a nest egg but he has also asked that the American people have dialogue, and that the Congress bring forward a variety of proposals. That dialogue is occurring, and those proposals are coming forth, so great progress is being made toward a more specific plan to save and strengthen the system.
What happens to the benefits of those currently receiving Social Security under the President's plan?
Americans who were born in or before 1950 will see no changes whatsoever to their Social Security benefits.
While they will not be directly affected by changes to Social Security, however, America's seniors should be involved in the national dialogue that we are having on the issue. The President knows that current and near retirees have an invaluable perspective on Social Security reform, and that they want their children and grandchildren to have a safe, secure retirement.
Why are personal retirement accounts an important part of Social Security reform?
By setting up personal accounts, we prepay retirement benefits Social Security would otherwise owe to today's young workers. Personal accounts would replace the empty promises of the current system with real assets of ownership. A young person who earns an average of $35,000 a year over his or her career would have nearly a quarter million dollars saved in his or her own account upon retirement. That would be a nice addition to the other Social Security benefits.
And the borrowing required for these accounts would not be like traditional government debt, which detracts from national savings and therefore presents a risk to our economy's future growth. Because every dollar borrowed to fund these accounts will be saved and invested by workers, national savings will not be affected, and our economy will continue to grow.
Unlike the "trust fund" that exists today only as IOUs, personal retirement accounts would provide the ultimate lock box for Social Security savings by keeping workers' money under their own control, not in the hands of a government who, unfortunately, will always find a way to spend it.