Congressional Response: Senator George Allen (R, VA) Reponds to Your Social Security COLA Petition

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Congressional Response: Senator George Allen (R, VA) Reponds to Your Social Security COLA Petition

Thank you for contacting me regarding Social Security reform and allowing workers to place a portion of their payroll taxes into personal retirement accounts. I appreciate your concerns and value your input on this important matter.

According to the new Social Security Trustees' report, the government will begin to pay out more in Social Security benefits than it collects from the payroll tax in 2017 and the shortfall will grow larger with each passing year. This is the first time in the history of the trustees' report that the date of the insolvency has been moved up, from 2018 to 2017. By 2042, when workers in their mid-twenties begin to retire, the system will have exhausted the entire trust fund. Present tax rates under the existing law will only be sufficient to pay 73 percent of the scheduled benefits, meaning benefits will be drastically cut if nothing is done ahead of time. To pay full benefits, the payroll tax will have to be increased by thirty percent going from the current 12.4 percent to 16.9 percent, a measure that I strongly oppose. This dilemma is the result of extended life expectancies and declining birth rates. In fact, when the Social Security system first began, there were 16 workers per recipient and in 1955, there were 8.6 workers per recipient of Social Security. Today, there are slightly more than 3 workers for every recipient. As the baby boom begins to retire over the next 10 years, however, there will be just two workers per beneficiary.

Currently, there are a number of legislative proposals that use some sort of personal retirement accounts, which I believe is a logical step in reforming the Social Security System as at least an additional retirement option. Like President Bush, I feel that an individual should have the choice to remain in the current system or if they choose, they can divert a portion of their contribution to a personal retirement account. To give a specific example, a person earning an average of $35,000 annually throughout their career and contributes the maximum amount to their personal retirement account each year, will have saved a quarter of a million dollars upon retirement. Another important feature about a personal retirement account is that upon the death of the beneficiary, the account can be passed along to a spouse or a child. Under the current system, a beneficiary's contribution cannot be passed along to his or her spouse or children.

Some of the concerns about personal retirement accounts are the fears that a person's contribution will not be safely invested and that only stock brokers will benefit. A personal retirement account could only be invested in secure bond and stock index funds, including a life-cycle that would protect workers from sudden changes in the market. Unlike current Social Security benefits, an individual's retirement plan is owned by the individual and therefore cannot be touched by the government. Analysts agree that stock brokers will only gain 16 cents for every $10,000 in a retirement account that they manage.

While I am aware that there is much apprehension surrounding the possibility of reforming Social Security, we cannot wait until the trust fund is exhausted to enact changes. I agree with President Bush that it is imperative that we act now to protect Social Security benefits for current retirees and take steps to ensure Social Security's long-term solvency. I want to assure you that I will not support reforms that will raise the payroll tax nor will I support cutting benefits for those currently receiving or those who are about to receive Social Security. Another proposal that I will not support is mandatory participation for those individuals whose employers do not participate in the current social security system and in many cases are receiving a better rate of return. Mandatory participation would increase the amount of outlays to beneficiaries, creating a tremendous financial burden on the Social Security system. There are a number of different factors that need to be considered before reforming the system. As your Senator, I am carefully weighing all these factors and I am committed to making sure that current as well as future retirees receive their fair amount of Social Security.

Once again, I appreciate you alerting me to this matter and please feel free to contact me again about issues important to you. If you would like to receive an e-mail newsletter about my initiatives to improve America, please sign up on my website (http://allen.senate.gov). It is an honor to serve you in the United States Senate, and I look forward to working with you to make Virginia and America a better place to live, learn, work and raise a family.

With warm regards, I remain
Senator George Allen
October 2005