What Crisis?

Critics of Social Security claim that the system is near collapse. Privatizing the system, they, argue will give everybody better protection in old age. But without a complete understanding of what Social Security already provides to Americans, how can we know whether to junk it in favor of something else?

First, despite what its critics claim, Social Security is not similar to a savings or investment program whose purpose is to yield the biggest return. Social Security is more like a disability and life insurance policy that provides vital protections to virtually every member of our society. Currently, seven million survivors of deceased workers and four million disabled Americans receive income support.

The Social Security Administration calculates the value of the disability insurance as the equivalent of a $203,000 policy in the private sector; for a 27-year-old average-wage worker with two children, Social Security provides the equivalent of a $295,000 life insurance policy. The total value of these two policies nationally is about $12.1 trillion, more than all the private life insurance currently in force.

Second, Social Security provides a lifetime retirement annuity whose benefits rise with inflation. Many corporate pensions run out after 20 years, and most are not adjusted for inflation. While there is a lot of loose talk about greedy geezers living luxuriously on the backs of their impoverished children, the facts tell a quite different story. Without Social Security, approximately half the elderly in America would fall below the poverty line.

The notion that these basic protections would be unnecessary if we all saved more money is simply false. The truth is that neither of these protections is available in the private market at a price that the vast majority of Americans can afford.

Social Security works because virtually all of us belong to it and pay into it. Social Security, after all, does not consist of a bunch of piggy banks with our names on them. Our pooled contributions insure that almost every senior citizen receives a minimum income.

Although some of us need the protection more than others, all of us get some benefits. It is the nature of such pooled plans that both the most fortunate among us (the wealthy) and the least fortunate (those who die young and without a family) get the least from the program.

It is a fallacy that everyone can do better than average if we take control away from the Government. Averages exist because some of us do worse and some of us better. In the brave new world of individual accounts, each winner would be matched by a loser. The only way we can insure that every citizen has a minimal retirement benefit is by requiring that we all participate in the Social Security system.

Though the search continues, there is no free lunch. Advocates of privatizing Social Security dangle the prospect of riches in front of impressionable young workers, but hide from them its high costs and risks.

The privatization plans proposed, by two minority factions of the Advisory Council on Social Security come with an enormous transition cost. One plan would require increased taxes amounting to $6.5 trillion during the next 72 years; the other would raise payroll taxes by 1.6 percent, costing American families $13 billion each year.

Social Security has some minor problems, but faces no life and death crisis. In fact, without any changes at all, the system will be able to pay full benefits for the next 30 years and more than 70 percent of those benefits for 75 years.

Moreover, the entire Advisory Council agreed that modest changes - such as including state and local government workers in the system - could eliminate a fair share of the projected gap between revenues and benefits.

Thus, as this debate continues, let us agree that we cannot all be above average, and that when it comes to benefits we should compare apples to apples. We shouldn't give up a critical universal insurance program for no insurance at all. And we should not compare a guaranteed lifetime inflation-adjusted annuity to a 401 (k) plan or brokerage account.