July 28, 1999 | Commentary on Social Security
When I applied to college four years ago, the first thing I wrote down was my nine-digit Social Security number. When I graduated this May, it was the last thing I wrote down before receiving my diploma. During my senior year it was a crucial bit of information that I could repeat in a split second on the regular occasion that a bartender doubted my baby-faced 21 years.
In fact, my Social Security number has seen me through a number of milestones, from earning my driver's license to applying for a passport and most recently when I filled out my first W-2 form. But those nine digits were never much more to me than just another set of numbers. As a recent college graduate I'm ashamed to admit that until recently I really didn't have a clue what a Social Security number was really used for. What worries me even more is that I am not alone.
This summer five of my closest college friends have become new members of the American workforce. Every two weeks they collect their paychecks and run out to one of the many Capitol Hill happy hours. Missing from those paychecks is an average of about $150 that the government takes in Social Security taxes. These "educated" college graduates don't understand where this money goes. Which is too bad, because unless young people start learning about Social Security and doing something to change it, we may never get a decent return on the money we've paid.
Here's the problem: The Social Security taxes young workers pay are not "saved" for their retirement. They are spent to pay the benefits of current retirees. In 1950 there were 15 workers to support every retiree. Today there are only three. The result: In just 15 years Social Security will pay out more in benefits than it collects in taxes. If nothing is done, Social Security will face financial collapse.
Privatization is one solution young people should learn about. Personal investment accounts would allow workers to take a percentage of their payroll taxes and invest it in stocks, bonds and other private investments.
According to William W. Beach of The Heritage Foundation, if the American Social Security system were privatized (as Great Britain, Australia, Chile and others have done) "not only would Americans earn more money for their retirement, but the long-term pressure on the federal budget would diminish."
In a recent study, Beach presented a number of hypothetical situations involving different workers. For instance, a 21-year-old couple living in Tyson's Corner, Va., each earning $35,000 annually, will pay about $515,872 in Social Security taxes in their lifetime and can expect about $701,323 in benefits. But if this same couple invested their taxes half in bonds and half in a broad-based stock portfolio they would retire with $1,825,983!
While this couple would lose more than $1 million under Social Security, affluent professionals are the least affected group under today's retirement system. The damage will be more severe on single mothers, low-income single males, and average-income married couples with children. A low-income, single, African-American man in his mid-20s, for example, can expect to receive less than 88 cents for every dollar he pays into the system, Beach's research shows.
The Social Security reform debate is not about current retirees or even those nearing retirement. As my father always reminds me, he's getting his. But the outcome of that debate will affect me, my brothers, and my two young nephews. The bad news is, if you plan to retire after 2014, don't expect to get what the government has promised you. The good news is, the Social Security system can be saved but we must be prepared to accept change. Young people have an obligation to get involved in this debate.
Kelly Newton, a summer intern at The Heritage Foundation, just graduated from James Madison University in Harrisonburg, Va.
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