| Sargent & Lundy Savings Investment Plan |
| THE FUTURE OF SOCIAL SECURITY |
| The following excerpts are from an article in the August
18, 1997 issue of "Fortune" magazine. The opinions of the author,
Jeffrey H. Birnbaum, may or may not reflect those of the SIP Committee.
Washington has a new growth industry: fixing Social Security. Almost every think tank and interest group in town has a Social Security project under way. The only problem is, Social Security isn't broken yet and won't be for a long time. According to government estimates, the Social Security trust fund will be perfectly solvent for the next 32 years. After that it will still be able to pay benefits at a respectable 75% of current levels. Social Security will undergo some revision - perhaps within the next decade - and its outline can already be discerned. The system of the future will cost a bit more in taxes, delay retirement by a couple of years, distribute fewer benefits to upper-income retirees, and possibly permit the private investment of a small portion of the money that now goes into the trust fund. Most of these changes are what Carolyn Weaver of the American Enterprise Institute calls "shin kickers" - momentarily painful but relatively minor. This isn't a mere policy debate. what we're talking about here is how big a check you will receive from the government's most important pension fund. Here is a closer look at the leading options to keep your payout as close as possible to full strength: The Rich Will Pay More and Get Less Social Security already dispenses its largesse in a highly progressive manner. Retirees who had low incomes during their working lives get a higher percentage of that income back than do individuals who were top earners prior to retiring. Experts agree that any "fix" will skew those figures even more against upper-income earners. Rich folks will probably get whacked with higher payroll taxes too. At the moment, only wages up to $65,400 are hit by the 6.2% FICA tax, which finances Social Security. When the system is repaired, watch that ceiling rise. Everyone Will Have to Work Longer One of the main problems with Social Security is that people are living too long - or at least longer than they used to. When the program started, the average life expectancy was under 65, the age at which full retirement benefits were then paid. Now life expectancy is over 75. As a result, more people are collecting Social Security for a greater number of years. To stop the inevitable drain on the trust fund, policy-makers are likely to peg retirement more closely to life expectancy. A leading plan would gradually raise the retirement age to 69 from the current 67 (for people born after 1959) and also increase the number of work years counted in the benefit calculation, to 40 from 35. The Taxman Will Cometh Nobody likes a tax increase, but to keep Social Security up to par, a boost in the payroll tax is always a possibility. But there are other, slyer alternatives. The most inviting is a kick to the shins of the rich. Retires with incomes over $34,000 ($44,000 for couples) already pay taxes on up to 85% of their benefits. Lawmakers will be tempted to make changes in that same direction by taxing more, and perhaps all, of Social Security payments received by the affluent. Slyer still is the old cost-of-living ploy. Under it, the government's annual inflation adjustment would be pared, which would slow the rise in Social Security benefits for everyone. It would also push people - especially big earners - into higher tax brackets sooner, inflicting yet another bruise on the well-off. Gambling (With The Future) May Be Legalized Wall Street is salivating at the prospect of investing even a fraction of the half-trillion-dollar Social Security trust fund. Most people think they are smarter investors than Uncle Sam. One compromise would allow people who are still working to keep and invest part of the money they now lose to the payroll tax. In exchange, these folks would receive lower Social Security benefits when they retire. Another option would permit the government to invest part of the trust fund in private securities rather than in low-yielding Treasury bills. Theoretically this would improve the return of the entire system. Social Security never was supposed to provide retirement benefits to satisfy everyone. It was designed as a safety net for low-wage workers. Even today its average monthly check, $745 per worker ($1,256 per couple), isn't much. Instead of worrying about the size of your Social Security paycheck, you should save, save, save as much of your own paycheck as you can. |
This page updated on 8/25/97