Elaine Chao writes: Making Social Security Better
Making Social Security Better
By Elaine L. Chao, May 20, 2005
America honors and respects our senior citizens in many ways, the most significant being the Social Security system, that for 70 years has provided a financial safety net in retirement. But in the coming decades, population trends will undermine Social Security for future Asian Pacific American (APA) retirees, unless steps are taken soon to get the system on sound financial footing. The future problems of Social Security will cut right at the heart of the APA community –– securing the financial security of our children and grandchildren.
If you were born before 1950, Social Security will be there for you. But the demographic trend of fewer and fewer workers in proportion to retirees is going to make the current Social Security system unsustainable in the coming decades. Social Security is a “pay-as-you-go” system (i.e., today’s workers are taxed to support today’s retirees). For those in the APA community that are under the misimpression there is a Social Security trust fund where the government is holding their money, the truth is, there is not. The taxes the members of the APA community are paying into Social Security today are going right back out the door and being spent, on today’s retirees and other government programs. Because people are living longer in retirement, the declining ratio of taxpaying workers-to-recipients is going to be a crushing financial burden for this country.
America is far from alone in facing these challenges, as I was reminded at a recent summit of the Labor Ministers of the world’s most developed nations. People in France, Germany, Italy, Japan and Russia are facing the prospect of significant benefit cuts, retiring later and making substantially larger pension contributions. Their dilemma is a cautionary tale of what will happen to us if we don’t face up to the solvency problems of Social Security now — before there is a crisis.
The President recently outlined three goals in strengthening Social Security: Guarantee that future generations receive benefits at least equal to today’s, make Social Security better for those who need it most and replace the empty promises being made to younger workers with real money. He has pointed out that most of the challenge of getting Social Security on solid financial footing can be met by indexing benefits for wealthier recipients to the rate of inflation, while having benefits grow faster than inflation for lower-income workers. The APA community would be assured of getting at least what today’s retirees are receiving and lower-income seniors would do better than under the current system.
The President has also proposed an innovation called “Voluntary Personal Retirement Accounts.” These accounts would be voluntary and empower workers by allowing them to invest a small portion of their Social Security taxes in a conservative mix of bonds and stocks, or into a risk-free Treasury Bond account. Workers would own these accounts and could leave them to their spouses and children. This is a tremendous improvement over the current system, where you can pay into it your entire working life and get nothing in return for yourself, or your family.
The inheritability of these accounts would lift nearly 200,000 widows out of poverty. Many women also suffer greatly today because under the current Social Security system, if a marriage lasts less than 10 years, a woman who stayed home with her children is not entitled to any of the Social Security benefits her working husband accrued. The accounts would be split between spouses at the time of divorce and lift 270,000 divorced citizens from poverty by 2050. And children would stand to inherit their parents’ Voluntary Personal Retirement Accounts. That is real money for kids and some peace of mind for parents.
The writer, Elaine L. Chao, is the U.S. Secretary of Labor and a member of the Social Security and Medicare Board of Trustees.
