Will Bush Save Social Security?
The presidential plan doesn't include higher payroll taxes or lower payments to Americans 55 or older. Bush wants to gradually phase in voluntary personal retirement accounts, which would allow workers to direct a third of their payroll taxes to their accounts. Workers would have a choice of investments in stock index funds and bonds, which should appreciate faster than inflation. However, some economists like Richard Berner believe the Administration's growth projections for personal accounts are too optimistic, and rely heavily on strong demand from the developing world, and atypically fast economic expansion.
Americans who choose not to participate in the private accounts program will receive standard Social Security payments. However, Republicans have admitted that younger employees will collect fewer benefits than their parents. The Bush Administration plan claims that Social Security will be "reformed to be permanently sustainable," but it doesn't explain how.
Despite the name, personal accounts wouldn't be under your direct control. The money in these accounts would be administered by a government agency, who would charge management fees. Like Social Security, personal accounts could not be accessed before retirement, to prevent workers from "playing the lottery" with the money. At age 47, participants in the voluntary accounts will be further supervised when they are automatically enrolled in a "life cycle portfolio." This will divert the funds in the account into investments the government considers least risky.
The Bush proposal has attracted a great deal of organized opposition. The AARP attacked personal accounts, claiming they were too difficult for most people to manage, and would make Social Security even more unstable. Unions suspect that brokerage firms will profit from personal accounts, as many corporations donated to pro-privatization lobbying groups. AFL-CIO President John Sweeney criticized the Bush plan, calling it "a risky scheme for America, but a sure bet for the financial services industry."
Surprisingly, much of the criticism of the Bush Administration's plan has come from the government itself. Comptroller General David Walker, chief of the Government Accountability Office, estimates that Social Security will be bankrupt by 2018, unless the government raises taxes, decreases benefits, or goes further into debt. He states that there is no "trust fund," as taxes directly pay Social Security benefits, and the excess is spent by Congress. The Congressional Budget Office estimates that the transition to private accounts would cost $1.1 trillion between 2009 and 2015. Bush appointee Alan Greenspan stated his concern for the future of Social Security when he stated, "Unless productivity growth increases significantly ... either the retirees or active workers, say in the year 2030, must have a significant slowdown in their standard of living."
Democrats have refused to consider the President's reforms, but haven't offered their own strategy. House Democratic Leader Nancy Pelosi stated that the Republicans need to return money to the Social Security fund that was diverted for other purposes. However, the Washington Times reports that Bush's budget plan projects a deficit of $610 billion. This deficit is bridged by spending the Social Security surplus. If this sum was raised through income tax hikes, for example, it would require a steep 63% increase! However, this radical reform would only be a temporary fix. It wouldn't address the growing demographic imbalances between the huge number of retiring Boomers, and the smaller productive Generations X and Y.
Although Democrats and Republicans agree that Social Security needs reform, there's no consensus on how to fix the system. So far, the government has suggested small changes, or denied the problem exists. Greenspan reprimanded Congress on their inaction, and pointed out that Social Security obligations could be met through printing massive amounts of money. He said, "We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power." Pumping excess money into the economy leads to high inflation, erasing any economic gains American seniors earned through decades of work. You may receive your full benefit check in the future, but this may only pay for a bag of groceries.
What can you do to protect your future? Don't rely on changing government promises. Invest your savings in real assets that appreciate faster than price inflation. Silver has gained 81.3% since 2001, while official statistics on consumer inflation indicate that prices increased 10.3%. Silver has outstripped mainstream stocks over the past 4 years, and bonds are no longer a safe haven. Bond prices will continue to drop as the Federal Reserve's interest rate hikes filter into the economy. Mortgage rates will eventually rise, and hobble the real estate market.
In addition to these macroeconomic trends, silver has a supply deficit, and increasing demand in the developing world. It also has intrinsic value, unlike the IOUs placed where the Social Security fund should be. Don't take the chance that Social Security will be much smaller or bankrupt when you retire. If you don't want to take physical possession of your silver, considering rolling over your traditional IRA into a precious metal IRA (see http://www.sterling-trust.com/irapreciousmetalfaqs.html for an example). Unlike personal accounts, you can choose your coin dealer, your fund management company, and the proportion of precious metals you want to invest in. Don't rely on promises; take control of your retirement.