A Look at the Social Security Plan

By: The Associated Press
The New York Times, January 20, 1999

WASHINGTON -- President Clinton is proposing a two-pronged plan using federal budget surpluses expected over the next 15 years to bolster the system Americans depend on for retirement income. The plan would:

Push about 62 percent of the surpluses into the Social Security programs' cash reserves. That amount is now projected at more than $2.7 trillion.

The government would invest about a quarter of the money in the stock market to try to increase its value -- a first for Social Security. Investment decisions would be made by an independent board.

The rest of the cash infusion would be kept, as Social Security's reserves have been in the past, in safer, but historically lower-yielding, U.S. Treasury bonds. There would be one difference, however, as those bonds are purchased in the future: Lawmakers could use the proceeds -- essentially money borrowed from Social Security by the rest of the government -- only to pay down the national debt, not for other spending, as is the practice now.

If the plan is enacted, officials estimate a cash shortage now expected to hobble the nation's public pension program starting in 2032 would be put off by more than 20 years to 2055. Also, the nation's publicly held debt by 2014 would drop to its lowest level as a percentage of gross domestic product since 1917.

Still, Congress and the White House would consider additional structural changes to Social Security, such as raising the retirement age.

Devote about 11 percent more of the surplus to new retirement savings accounts for most American workers that would be separate from Social Security, giving people a new source of old-age income. Based on current projections, government contributions to the accounts would total about $500 billion.

The accounts would work much like the 401(k) savings plans many companies offer workers, with a range of investment options such as stock and bond funds.

The government would give each person an annual lump sum for his account, then additional contributions paralleling his own savings up to a limit. A sliding scale would mean bigger subsidies for those with lower incomes and might disqualify the wealthiest, perhaps 5 percent, from the money altogether.

For example, a worker earning $45,000 a year might get an initial government payment of $100, then a 50 percent government match of the contributions the worker makes up to a maximum of $600. The result would be $1,000 in the worker's account at the end of the year, with $400 of it coming from the government.

The lowest-income workers might have their savings fully matched.


Global Action on Aging
PO Box 20022, New York, NY 10025
Phone: +1 (212) 557-3163 - Fax: +1 (212) 557-3164
Email: globalaging@globalaging.org


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