Barbara B. Kennelly, President/CEO
The Washington Post
made several errors recently in their comments about Social Security privatization. Let's start with the Post. Ruth Marcus says the 2005 Bush privatization proposal, which Senator McCain supported, would have reduced annual Social Security benefits for an average earner, retiring in 2045, by only about 16 percent and 28 percent if retiring in 2075.
However, the Bush privatization plan
cuts Social Security benefits in two
ways, one of which was ignored in the Post's coverage. The first benefit reduction, cited by the Post, occurs because of the price indexing of benefits
. However, private account holders would also be subjected to an additional cut in traditional Social Security benefits that reduces benefits by the amount contributed to private accounts, plus an interest charge. For the average wage earner, the cut would amount to almost half of their Social Security benefit.
Once you add these cuts together, as Jason Furman at the Center for Budget and Policy Priorities
did in 2005, the medium wage earner retiring at 65 in 2075 would have a 73 percent cut in benefits. A worker at a higher income, around $60,000 in today's dollars, would see a 97 percent cut in his or her traditional Social Security benefit. Virtually all of this worker's retirement income would depend on a private account and additional savings. Clearly, the events of the last few weeks have shown us, having every dime of your retirement savings subject to the ups and downs of Wall Street is not a good idea.
Meanwhile, Factcheck.org calls this statement from Senator Obama in Florida
"But if my opponent had his way, the millions of Floridians who rely on it would've had their Social Security tied up in the stock market this week"
a "whopper" because the privatization plan that Senator McCain supported would have excluded current seniors. O.K., so maybe Senator Obama could have thrown in another "would" into his sentence for clarity as in "who would
rely" but is that really such a whopper? Hardly.
While proponents of private investment accounts would exclude people 55 and older from their plans at the time of implementation, people reaching 55 thereafter would not
be excluded from private accounts and their consequences. Workers nearing retirement are particularly vulnerable to drops in the stock market since they have less time to recover from their losses. Senator Obama was correct when he said, "if my opponent had his way" - that is, if privatization had been fully in effect - millions of Americans would have had their retirement money tied up in the stock market in Social Security private accounts. If private accounts had been in effect, Americans would have been worrying not only about the future of their money markets and their 401(k)s, but also about the future of their market-based Social Security accounts.
Also, participation in private accounts cannot be said to be truly voluntary. Many privatization plans, including the Bush plan, contain features, such as cuts in traditional Social Security benefits, which were so large that Americans would be forced to participate in the account and take market risk in the part of their retirement income that is supposed to be secure. That's the problem with privatization and that's the issue that Senator Obama was raising.
All privatization plans have the same problem. Private account plans don't work without huge cuts in future benefits or increases in taxes - more than necessary to just fix Social Security - or trillions of dollars in increased public debt.
We should care about tomorrow's widows as much as we do today's. We should be worried about the retirement security of tomorrow's grandparents as much as today's. Those who retire under a privatized Social Security system, as supported by Senator John McCain, are going to have some unhappy surprises.