Social Security: How long will it last?

Despite the additional three years of solvency Social Security officials say we should act now to put the program on sound financial footing for future generations. In a recently released statement, Social Security Commissioner Kenneth Apfel said, "Today's workers need to know that Social Security will be there for them in the future and they need time to plan adequately for their retirement."

President Clinton agrees. In his State of the Union address, the president proposed reserving a projected 1999 budget surplus until everything possible had been done to strengthen Social Security for the 21st century. Clinton says he will "resist any proposals that would squander the budget surplus, whether on new spending programs or new tax cuts, until Social Security is strengthened for the long term." What that will actually mean, however, is anyone's guess. Some economists say hoarding the surplus is actually a bad idea, and that investing it would be better for the economy.

Meanwhile Republicans are pushing to use federal budget surpluses to set up private retirement accounts for Americans to supplement Social Security.

Everyone agrees there is a problem... and everyone has a different idea of how to address it. Experts say most likely, any solution will include one or more of the following.

Payroll tax rise
One suggestion is to raise the Social Security payroll tax, which is now 6.2 percent on the first $68,400 of wages. Proponents say the plan would raise much-needed revenue, but opponents say it would negatively impact the economy by reducing take-home pay of most workers and increasing the amount employers have to pay in payroll taxes.
Rise in payroll tax ceiling
Another option is to raise the limit on income subject to payroll taxes, or to eliminate the limit completely.
Reduction of benefits
Another option would reduce benefits paid to wealthier retirees, or perhaps provide benefits on a sliding scale, based on financial need. Some worry that such a move would lessen support of the Social Security system among higher-income workers.
Retirement age increase
The age of eligibility for Social Security is set to rise from 65 to 67 over the next 30 years. Some suggest raising the retirement age even further, to age 70.
Cuts in cost-of-living adjustment
Supporters of this proposal say the current cost-of-living adjustments are overcompensating for inflation and should be reduced. Opponents say low-income people who depend on Social Security for most of their income will be hit hardest by this.
Benefit tax rise
Currently, single beneficiaries with an income of $25,000-$34,000 are taxed on up to 50 percent of benefits. Those with incomes of more than $34,000 are taxed on up to 85 percent of benefits. Some say Social Security benefits should be taxed the same as other pensions -- as income once the worker's contributions are recovered.
Conversion to personal retirement accounts
Some suggest transforming Social Security into a two-tier plan. The first tier would be a bare-bones benefit for retirees. The second tier would be a forced savings plan in an individual retirement account. Part of the payroll taxes each worker pays would be diverted into an account to be invested in mutual funds or other vehicles. This does have some risks, however. Investments in the stock market can decline in value, sometimes taking years to recover. Under a privatized plan, some workers might lose money on their investments and end up with insufficient funds when retirement rolls around.

AARP is closely involved with the discussions, but so far is holding off any judgment. Stan Cooper, Communications Representative for AARP says, "We have an open mind. We're not coming in with our feet in cement. We just want to see what solutions come out for reform before we decide which ones we will support."

But retirees are not the only ones with a stake in this. The financial industry will most likely do some lobbying of its own. The industry stands to make some big management fees if some of the money now paid in payroll taxes go into privately directed retirement accounts. And of course taxpayers have a huge concern. Nearly 150 million people currently pay Social Security payroll taxes and some of the proposed solutions could hit many of them in the pocketbook.

So what now? President Clinton is calling for 1998 to be a year of dialogue on the Social Security dilemma. In December, he will convene a bipartisan White House Conference on Social Security and begin bipartisan negotiations with congressional leaders early next year. It is an issue that hits home with the president, since he will be one of 77 million baby boomers who will begin retiring over the next 12 years.

Current retirees are encouraged by the moves so far to find a solution. "We think it can be fixed without a major overhaul, because it's not in crisis," says Cooper. "We are pleased that people are considering it now because if you wait until 2028, it will be too drastic."