Pilkerton's Prognostications

This blog contains some of my past articles for the school newspaper and other musings I feel like posting. Beware liberals!

Wednesday, February 08, 2006

the Social Security of the Union


Last week, the president gave his fifth State of the Union address to a very anxious nation.
Coming a few days after the Iraqi election, the president had the ammunition to make bold and controversial plans for the coming year. The most controversial item in his agenda is his reform of the current Social Security system. This idea turned the scene on Capitol Hill into what looked like a rowdy session of Parliament, complete with hooting and hollering from the Democrats' side of the aisle.
While President Bush gave no specifics on how the current system would be overhauled, he presented a vague outline of ideas for turning this money pit into something prosperous for our generation. Those people from approximately 55 and up have little to worry about when it comes to Social Security; the system is still working for them, and they'll be able to retire without much incident. The prognosis becomes bleak after the baby-boomers retire, when the ratio of those paying in to those receiving goes completely out of whack. The President suggests that by the middle of the century, the current system will become completely exhausted, leaving those ready to retire in a dire situation.
This idea of reforming the current system isn't anything new in Washington. The Clinton administration toyed with reforming Social Security and even called it a crisis situation.
While the Bush administration isn't going as far as to call it a crisis, they still see the need to seriously tweak the system for future generations. The current social security system has a percentage of everyone's paycheck going in to a fund, which, logically is paid out to those of retirement age. Of course, everyone knows that retirees will have a difficult time living on Social Security checks alone, hence the need for IRA's and other retirement savings accounts.
The idea of this new reform suggests that instead of paying into a national fund, one may allocate a percentage of their income to be deposited in to a personal savings account. One may use this account to invest in stocks of their choice or simply invest in mutual funds with limited risk and a decent longterm earning potential. This fund would not be available to clear out until retirement age is reached and also will be able to pass on to children or grandchildren if unused or partially used. This incarnation of Social Security would give the individual paying in the impetus to invest wisely and give a very concrete knowledge of what they will receive upon retiring.
The critics of this system, of which there are many, including Republicans, see the fatal flaw being the presupposition by the government that the individual has the ability and know-how to properly manage their money. This proposal for Social Security is essentially a government-run IRA account and there are people who simply have poor money management skills (hence the need for government Social Security) and would most likely fritter away their money and be left penniless for retirement. The system would most likely have safeguards for the fiscally challenged segment of the population, such as the inability to liquidate funds due to a mid-life crisis or any other whim. It is uncertain whether or not there would be any government matching of funds, such as a 401k plan, but the proposal for this reform are not even close to being ready and when released will most likely be stalemated by the Democrats and more moderate Republicans on the hill.
This idea of Social Security is an affirmation of the classic ideal of liberalism and small government that has permeated Washington with the Republican dominance of the current legislative assembly.
The idea of being personally in control of one's retirement, without letting the government worry about it could be somewhat daunting for those of college-age and under who are still struggling with big student loans and small incomes, but the fact is that the current Social Security system simply won?t be there when those same students are of retirement age so a change is needed.
Along with revamping Social Security and assuring the population of a steady income for retirement, this reform would provide a nice boost for Wall Street and make investing a much more researched and involved process. The possibility of retirement funds being destroyed by the stock market tanking would be minimal at best, if not even safeguarded by the government. This would be the best argument for investing in mutual funds or low risk money markets.
I admit a little skepticism on how the transfer of one system to another would be accomplished smoothly. President Bush spoke of a gradual transition from one system to the other which should quell the fears of those approaching retirement age and those currently milking the Social Security system. Any way you slice it, this is a ballsy move for the president and it will no doubt be a hot debate over the next year or so and probably longer.


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