Social Security is taking center stage in President George W. Bush’s second term, with both sides of the political divide concerned about how to secure it for future generations.
According to the government’s Social Security Web site, it is projected that by 2042 these trust funds will be exhausted and only able to pay 73 percent of benefits and this number will decline every year after.
In his inaugural address, Bush said that he is focused on trying to privatize social security accounts. Current college students will divert four percent of their payroll taxes, as they retire, to a private account as an “add-on” to Social Security, much like the 401 (k), which is accepted by both Democrats and Republicans.
Many Americans opt for a 401 (k) plan to invest their retirement money in the top 500 companies in the stock market.
Because the younger generations’ money will be going to private accounts, Bush plans to pay for them by borrowing. This tactic has raised a red flag for many critics.
Social Security is based on a worker’s lifetime of work and is financed by two trust funds: The Old-Age and Survivors Insurance and Disability Insurance.
As Bush tours the U.S. to promote his plan to privatize accounts for young workers, the AARP and MTV’s Rock the Vote are joining together to fight it. AARP, a powerful group of 35 million senior members is reaching out to the younger crowd to stand against Bush’s plan for Social Security.
After spending $5 million in advertisements with Rock the Vote, officials of AARP hope to educate the younger generation about the implications of Bush’s plan. They say that with his plan the younger workers will be “gambling” their money. They also say that close to $1 trillion will be borrowed for this plan to work and would include a reduction in Social Security benefits.
Advocates of Bush’s plan say that the younger generation has grown up with the stock market and isn’t afraid to invest in it. His supporters reason that the younger generation will largely support a plan that they invest in on their own, rather than Social Security, a plan that is projected to fail by the time they retire.
A recent Gallup poll said that 64 percent of Americans believe Social Security will be bankrupt by 2042 if changes are not made to the system. According to a Newsweek poll, those under 35 have a more pessimistic outlook on social security than those 35 and above.
Today’s 25-year-old woman would see her benefits cut 27 percent just two years before she actually retires in 2042 if no changes are made to the system, according to the government’s Web site.
When retiring on Bush’s plan, there’s a difference in benefits, depending on one’s personal wealth and when one retires. Those who have staying power and can plan their retirment according to the success of their investments will be rewarded with a greater payout. For lower income and middle-class Americans however, staying power is not an option.
Under the Social Security system, the benefit calculations are based on an average of 35 highest years of earnings. The retirement age at which one can receive their full Social Security benefits is 65.
A few known roadblocks cause the problems that face younger generations. For one, most lower income and middle-class Americans save little typically and private accounts won’t be as beneficial, according to Newsweek polls. This add-on to Social Security will serve to cushion the blow of benefit cuts when current workers retire in several decades, according to Bush. The second problem is the 76 million Americans from the baby-boom generation who will begin to retire and the resulting strain on funds, depleting benefits for workers.
Other countries have similar and more devastating problems. More than 20 countries including Britain, Australia and Sweden have established versions of personal accounts to deal with retirement.