President Bush plans to intensify his campaign to win public and congressional support for restructuring Social Security.
AARP Associate Legislative Counsel Lisa K. Davis took your questions on Social Security reform and the AARP's stance on the issue.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Lisa K. Davis: Social Security certainly is an issue that affects everyone. I am glad that you are taking time to participate in this online chat!
I haven't heard much discussion concerning Means Testing for social security benefits as a future option. If Social Security was truly designed to act as a safety net to ensure at the aged have at least minimal subsistence, wouldn't it be reasonable for those retirees for whom Social Security checks is a small portion of their income or savings to forgo this benefit?
Lisa K. Davis: I am so glad you asked this question. Although eliminating or reducing benefits for those with high income sounds appealing, there are just too few retirees with very high incomes to save any big money. At AARP, we believe that if everyone pays in, everyone should get the benefit they earned. To make a real dent in the shortfall, the means test would have to be set at a fairly low limit and would penalize middle-income seniors as well as the very wealthy. That's why AARP does not support means testing.
Why is our administration so insistent of pushing the privatization of Social Security when this system has failed in the UK and other nations? Also what is AARP doing to fight this change. It seems a tax increase would sustain Social Security without going private and the immense amount of money that our administration would have to spend to implement privatization. We are broke with record deficits and we cannot afford this.
Lisa K. Davis: The United Kingdom's experience with partial privatization clearly illustrates some of the major problems with transforming Social Security into a system of private accounts. In the U.K., there have been huge problems with fraud and bad advice to comsumers. In fact, Adair Turner, who helps run the British pension system, recently wrote a piece in the NY Times pointing out the problems with the British system and suggesting the U.S. should not follow their example.
Please answer the apparent conflict in ARRP's objection to private accounts as too risky and the offering of mutual capital growth funds in AARP's name that seem to offer a similar strategy.
Lisa K. Davis: I am so glad you asked this question because I want to clear up this misconception. AARP supports private investment accounts IN ADDITION to Social Security's guaranteed, inflation-protected lifetime benefit. Investments in savings on top of Social Security's foundation are key to a secure retirement. AARP works hard to improve pension coverage and access to savings, but a diversified retirement portfolio should include a portion not subject to the risks of the stock market-like Social Security.
Can the AARP acknowledge that the demographic problem of Social Security will cause a major fiscal problem for the US in or about 2018, when the system begins to run a deficit?
It's important not to deny this fact -- when Social Security starts running a deficit, the general budget must transfer funds to Social Security to cover the gap (which is how the "trust fund" is redeemed), causing major budget cuts in other programs, major tax hikes, major deficits, or some combination thereof.
Lisa K. Davis: AARP agrees that Social Security will require some changes to meet the needs of future generations. The question is how do we best address solvency and strengthen this bedrock American program. Private accounts worsen solvency and do not address these challenges. Social Security can pay full benefits until at least 2042 and more than 70 percent thereafter. However, the sooner changes are made, the less onerous they will need to be and the more time people will have to prepare for their impact.
Given the existing programs for providing funds for retirement, what will the private accounts proposed by President Bush add?
Lisa K. Davis: You're right. There are a lot of tax-preferred savings vehicles under current law including Roth IRAs and 401(k)s. And there are many things that we can do to boost savings and improve these mechanisms such as expand the Saver's Credit and promote automatic enrollment in 401(k) plans.
However, creating indivdual accounts funded with Social Security contributions does not improve retirement security and, in fact, weakens Social Security for all generations.
Okay, I don't get it. What is the problem with the reform plan. It protects current retirees and gives younger workers like me an OPTION of trying to save a little more.
Sounds like the best of both worlds.
The AARP's own Web site has a big section about compound interest and how it creates wealth.
Lisa K. Davis: While plans to divert part of Social Security's contributions into individual accounts are often promoted as voluntary, many of them, such as Plan 2 of the President's Commission to Strenghten Social Security, would cut guaranteed benefits significantly whether you chose the account or not. AARP believes that savings opportunities should be increased and improved, but not at the expense of Social Security.
AARP opposes carve outs because of the individual risk that the stock market places on beneficiary.
Why would AARP then support the aggregate diversification of the trust fund to gain greater returns? Risk is risk. Don't we place the Trust Fund at risk by doing that?
Lisa K. Davis: This is a great question. There are important differences between investing Social Security's payroll tax dollars in a system of risky private accounts versus diversifying the Trust Fund investments. With private accounts, individuals bear the risk. Whereas with Trust Fund diversification , benefits will still be guaranteed by law.
Ann Arbor, Mich.:
Thanks for taking this time. Can you explain why personal accounts are risky, even though they would be broad indexed funds and harness the long term growth of the market, rather than a few years. I believe that historically (even during the depression) the market provides a better rate of return than Social Security.
Lisa K. Davis: Thank you for taking the time to participate. While index funds are often part of a diversified portfolio, they still go down as well as up. Individuals will still be subject to market fluctuations and disparate impacts depending solely on when they retire. For example, imagine two people with the same earnings and investment choices. The first, who retires in 1999 at the peak of the bull market would have significantly more money than his friend who retired two years later when the stock market bottomed out. That is why Social Security needs to provide a strong, reliable benefit.
The president's plan is for younger workers and does not affect those 50 and older why is AARP relevant? It seems to me that you're trying to win over future members, not work for the betterment of future retirees.
Lisa K. Davis: AARP members care about their children and grandchildren. They recognize that Social Security guaranteed benefits will be just as important to their younger family members as they are to them. Also, it is a mistake to assume that older Americans will not be impacted in any way if money is diverted from Social Security into private accounts. Private account proposals typically add 1 to 2 trillion dollars to the national debt to finance their start-up costs. Given current deficits, it is very likely that there will be pressure to cut government spending, possibly including programs that serve older Americans.
I just wante to say "thanks" to AARP for taking the polital heat and standing up to the administration and those in congress who want to gut the Social Security system. As I near retirement, I am fortunate to be among those who does not have to depend on the system for survival. However, I know many who do, and many who will. I was unhappy with AARP a year ago for supporting what has proven to be a flawed (and vastly more expensive) drug bill. But you have come through on this.
Lisa K. Davis: We're always happy to hear that we are representing our members well. Thank You.
What is AARP's position on raising the payroll tax. That seems like the most straightfoward answer to all of this.
Lisa K. Davis: Unfortunately, there are no easy answers to strengthening Social Security. Any reasonable solvency proposal will likely include a balance of revenue and benefit changes. One thing that AARP supports is raising the cap on taxable payroll from its current limit of 90,000 dollars per year to about 140,000/145,000 dollars a year. This is in keeping with historical levels and is one of the more progressive solvency options available that would eliminate about 40 percent of Social Security's long-term shortfall.
Why is no one discussing raising the age at which people collect benefits? The program was put in place when life expectancy was 65, it is now 77. THAT is the reason that the program is in trouble. If we decrease the number of people collecting benefits to a reasonable number, the program will work. Certainly, a 65 year-old is capable of working, if they need to, and are not infirm, like they were 60 years ago, due to health advancements in our society. No one wants seniors living on the streets, which is why I don't think abolishing the program is a good idea -- nor do I like personal accounts. The program was designed for people UNABLE TO WORK, not those who don't WANT to work.
Obviously, if this change were made, perhaps all those over 50 wouldn't have a change in their benefits, but something needs to be done. The whole idea of pitting 'young against old' is very demeaning to both sides.
Lisa K. Davis: AARP opposes any further increases in the normal retirement age. As you probably know, it is gradually rising from 65 to 67 years of age. While some workers can and want to work longer, many others cannot due to health conditions. We also hear frequently from workers in their fifties and early sixties who, due to age discrimination, cannot find employment.
I also wanted to echo what others have said -- keep the good fight, virtually all of my AARP friends and neighbors are opposed to Bushs' plan. I also think that if some of the rumored 'attack' ads. begin to appear that AARP responds quickly and not make the mistake that John Kerry did when faced with the Swift Boat ads thanks again!
Lisa K. Davis: Thanks for your support. We are pleased that both our Democratic and Republican members understand that AARP is nonpartisan and takes positions on policies rather than politics. We're glad our members are with us on this regardless of their political persuasion.
Washington, D. C.:
How much of the future social security shortfall would be met if each year's excess social security payroll tax money now being spent on non-social security programs were kept in, say, a lock box?
Lisa K. Davis: Well, lockbox is a term we haven't heard in a while. The Social Secutity Trustee's projections assume that the Treasury bonds in which the Social Security surplus is invested will be paid back with interest just like the always have. A lockbox mechanism would do nothing to improve solvency.
New York, N.Y.:
How are people like myself who are disabled supposed to continue living our lives without Social Security? I and many others are able to maintain an independent lifestyle in spite of being disabled; that would be severly curtailed if we were to receive less Social Security Disability than we are now. Also -- many of us do not have any savings, so private accounts would do nothing for us.
Lisa K. Davis: Thank you for pointing out that disability benefits are an important part of Social Security. While no one is suggesting eliminating disability benefits, many individual account proposals could lead to reductions in these benefits. The Citizens Consortium on Disability, an umbrella group of major disability groups, has come out against proposals to divert money from Social Security into private accounts.
I understand that the date at which Social Security outflows would begin to surpass inflows from SS payroll taxes has moved back several times over the past two decades. Is it likely that normal economic growth which is above the conservative estimates used by Social Security and the GAO will result in that date being pushed back several years further?
Lisa K. Davis: You're right that the key solvency dates have been pushed back several times over recent years. The Social Security Trustees estimate that annual economic growth will average about 1.8 percent over the next 75 years. Although improved economic growth would certainly improve solvency, it is unlikely that we can completely grow ourselves out of the problem. Strenghtening Social Security for future generations will require moderate adjustments to both benefits and revenues.
What efforts have been made (either by groups such as AARP or by the federal government) to educate citizens about responsibly planning for retirement? It seems that educating citizens to save and plan for retirement could go a long way toward solving the social security crisis. I.e., reduced benefits would not have as adverse an effect on retirees with strong savings.
Lisa K. Davis: You're exactly right, retirement security is more than SOcial Security, and we should do more to promote savings. AARP offers a variety of financial planning tools and information on our website and through outreach to employers as well as to our 35 million members through our 53 state offices. Please, visit our website http://www.aarp.org to learn more about all that we do for all Americans age 50 and over.
Lisa K. Davis: Thank you all so much for participating in this online discussion. I wish I could have answered all of your questions, but unfortunately I'm not a good typist. I hope you will visit our Social Security website for more information and to join our campaign. You can find it at http://www.aarp.org/SocialSecurity. Thanks again!