Q: I am against privatization. A few years ago friends who were depending on income from investments to live on in their retirement were forced to cut back drastically as interest rates and stocks dropped. Bush keeps saying "you can pass it on to your children," but the only way you can do that is if you die before you retire. In order to make sure you didn’t outlive your income, private account holders would have to purchase an annuity. What proposals does TSCL support to improve Social Security’s financing?
A: In order to ensure that private Social Security account holders do not outlive the payouts from their accounts, many privatization proposals would require the purchase of a lifetime annuity at retirement. Annuities are a contract with an insurance company that sends a monthly check for life. If the stock market is down when a person retires however, the private account holder could wind up with considerably less with which to purchase the annuity.
In addition to risk, annuities would not protect dependents and survivors as Social Security does. Although the statement has been made that private accounts could be “passed on to your children,” as you point out, the only way that could happen is if the account holder would die before beginning to receive payments. Generally once a person begins receiving annuity payments, any money left in the account when he or she dies goes to the insurer.
Under current Social Security law however, surviving widows, divorced spouses, and dependents eligible for benefits on the account of a deceased would be entitled to claim survivor’s benefits. Because virtually all privatization proposals would require a reduction in Social Security benefits of persons who opt for private accounts, survivors benefits based on the Social Security benefit of private account holders would also be significantly reduced.
TSCL believes that the government should continue to very gradually increase the age of eligibility for full retirement benefits. Americans are living longer lives, and spending more years in retirement. Gradually continuing to increase the retirement age is a much less drastic way to adjust benefits than overhauling the benefit formula, and would result in a far more adequate retirement benefit, especially for persons who chose to work longer. Encouraging people to work longer would also mean more payroll taxes coming into the system. When that worker does retire generally the amount of initial retirement benefits are increased due to delayed retirement credits and more years of earnings.
In addition, Advisor surveys indicate there is significant support among our grassroots membership for increasing the maximum wages upon which Social Security taxes are paid above the current level of $90,000.
June 2005
