For instance, giving the truly old and those with lower lifetime incomes a greater edge in the Social Security system wouldn't be hard. A solid minimum benefit of about $9,000 per person (roughly the poverty line) could be provided easily, especially if concentrated on the later part of old age. This minimum could rise with wages or living standards, even if the benefits for higher earners grew more slowly. Similarly, if we increased the early retirement age, beneficiaries would be in the system for fewer years -- raising revenues because workers would contribute longer and allowing higher annual benefits since payments would be needed for fewer years.
Benefits could be adjusted actuarially so that lower amounts are paid when people are in their sixties and higher amounts as they age. Meanwhile, to help cover the costs of these higher benefits for lower-income people, higher-income workers could be required -- just as holders of private retirement accounts are -- to cover some of the costs of any survivor benefits.
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With any proposal aimed at protecting the elderly, solid testing and assessment are required. Currently, the government does not make public the information needed to measure Social Security's effectiveness as an anti-poverty program for the elderly against proposed alternatives.
The seemingly straightforward goal of protecting the most vulnerable first and foremost has been muddled in the recent Social Security debates. The right argues that personal accounts are fairer to blacks and those with less education because these people die younger on average and otherwise can't spend their retirement money freely before their time comes. The left, meanwhile, insists that the retirement age can't be increased for the same reason: It's unfair to the poor, who are less healthy and more likely to hold physically demanding jobs.
Both arguments share the same flaw -- the assumption that the fairness and effectiveness of the whole system can be judged by looking at a specific provision or particular set of losers or winners. Parents with two children may give more time to the younger and more food to the older, but that doesn't mean that the kids are being treated unfairly.
So it is with Social Security. Yes, giving more benefits to those who live to age 90 than to those who live to 80 favors healthier groups in the population. But lower-income groups with shorter life expectancies can be compensated in other ways, such as a good minimum benefit. Sound Social Security must be measured by how the system as a whole delivers.
Consider personal accounts in view of Social Security's original mission. Would these accounts protect the poorest elderly? By themselves, no. In general, personal accounts do not redistribute: What people get back depends on what they put in. Moreover, under any system of personal accounts, people will have to buy some annuities to meet their needs should they live to a very ripe old age. Yet, that requirement also plays favorites, this time to people who live longer.
Making protection of the vulnerable the first order of business does have a cost. It means less -- whether lower benefits or higher taxes -- for those of us who are not as likely to be poor. But if that seems threatening, remember that Social Security benefits are already equivalent in value to about a $400,000 401(k) plan for the average-income couple retiring today. Add in Medicare, and the total package of benefits for a couple is projected within less than 25 years to exceed $1 million.
With benefits soaring this high, Social Security reform should not be mainly about enabling the average American to retire in middle age, pay little tax and avoid saving. Rather, changes should aim to keep necessary sacrifices manageable while demanding fewer transfers from our children to us and more from them to our grandchildren. Social Security's creators believed the system should keep the wolf from the door at the end of life. Any system that does that helps reassure us all since none of us knows whether we will outlive our good health -- and our money.
Author's e-mail: esteuerl@ui.urban.org
Eugene Steuerle is a senior fellow at the Urban Institute. He served as deputy assistant secretary of the Treasury for tax analysis from 1987 to 1989.
