August 9, 2005
By Edwin J. Feulner, Ph.D.
If Social Security were a worker instead of a government
program, it probably would have retired several years ago. After
all, the New Deal program turns 70 on Aug. 15.
While no one wants to send Social Security off
into the twilight, this is the perfect time to add to its
responsibilities. It has been successful as a retirement program.
Now it's time to improve it by also making it an ownership program
that will allow every worker to create safe and secure nest eggs
for their retirement, and pass on what they don't use to the next
Some history is in order.
When Social Security was created in 1935, the retirement age was
set above the average male life expectancy. It was designed so the
average man would never collect any Social Security benefits, which
were intended only to help those who "outlived" their savings.
Luckily, that's changed. People live longer, and future generations
can expect to do even better.
But that means ever more retirees depending on ever fewer workers.
There were 42 workers for each retiree in 1945. Today there are
only 3.3. And by 2025, the ratio will drop to about two workers per
Unless we fix Social Security, we'll eventually have to require
each married couple to support the benefits of one retiree while
still paying their own household expenses. The only way to do that
would be to raise taxes on that couple, slash benefits for that
retiree, or both.
But there's a better way: Create personal retirement accounts for
workers. These voluntary accounts (no one should be forced to
invest in something, even if it will provide long-term benefits)
would allow each employee to invest a certain percentage of his or
her Social Security taxes in a personal account.
research shows these accounts would start helping workers save
right away -- which is why it's critical to get them up and running
as soon as possible. For example, a married couple in their early
thirties with each spouse making between $50,000 and $55,000 loses
$608 every month that a personal-account plan isn't implemented.
That's more than $7,000 a year -- real money that would have been
available to them when they retired, if they'd been able to invest
in a PRA.
PRAs would allow even low-income earners to build up a substantial
nest egg over time. And the workers would actually own their nest
eggs. They could spend it as they wish, using it all to finance
their golden years or conserving some to pass on to their
They would also correct one of the biggest problems with today's
Social Security -- the fact that it's a bad deal for those who die
Since today's Social Security provides only a guaranteed benefit
with no possibility of ownership, it's possible for a worker to pay
Social Security taxes (FICA on your paycheck stub) for decades, die
suddenly before retirement and receive nothing more than a one-time
$255 death benefit. With PRAs, all the money that worker had saved
up would be passed along to his heirs to provide at least some
comfort and security at a difficult time.
For the next decade, Social Security will take in more in payroll
taxes than it pays out in benefits. So this is the time to use
those surpluses to create PRAs for every worker.
Sen. Jim DeMint, R-S.C., and Rep. Jim McCrery, R-La., recently
introduced legislation that would do just that. Their bill would
set aside some $80 billion in its first year alone. This money
would be invested in regular-issue government bonds in accounts
actually owned by workers. That's a vast improvement over the
current system, under which Social Security surpluses are returned
to the government's general fund and immediately spent on
government projects like building indoor rain forests in
Allowing workers to control some of their own Social Security
taxes would have the added benefit of forcing Congress to end its
shady accounting practices. Today's Social Security surplus allows
lawmakers to hide tens of billions' worth of borrowing. But if that
surplus were invested in PRAs, Congress would have to borrow the
money openly in financial markets (exposing the real cost of
deficit spending) or slash spending to more reasonable
Happy Birthday, Social Security. And here's to the next 70 years,
with personal accounts and retirement security for all.
Ed Feulner is president of The Heritage Foundation
(heritage.org), a Washington-based public policy research
If Social Security were a worker instead of a government program, it probably would have retired several years ago. After all, the New Deal program turns 70 on Aug. 15.
Edwin J. Feulner, Ph.D.
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