Cover Story

Security breach

"Security breach" Continued...

Issue: "Social Security breach," Feb. 19, 2005

The advantages to this idea are large: (1) A worker like Mr. Jamieson could potentially gain a much higher rate of return on his payroll tax than the 1 percent to 2 percent he would receive through an unreformed Social Security. (2) An influx of money into capital markets could lead to an investment boom that creates new wealth and propels the economy forward (see p. 4).

The potential downside is that nobody really knows whether the stocks of the future will perform as well as the stocks of the past. An investment boom spurred by personal accounts could lift the market for decades. Or the same demographic forces that threaten Social Security (see "Fertility trouble") could also exert downward pressure on stock prices. (Some economists worry that baby boomer retirement could hurt the economy and the stock market.)

The other downside is that personal accounts would divert payroll tax money currently slated to go to today's retirees. No one in Washington dares to cut benefits for current or near retirees, so money to cover their benefits would have to come from somewhere else. Right now it looks like debt is the favored source. "We're going to borrow $758 billion over the next 10 years to set up the personal retirement accounts," said Vice President Dick Cheney on Fox News. "We think that's a manageable amount. . . . Trillions more after that."

Mr. Jamieson says he wants to hear more about how the program would work and he worries a little about stock market volatility, but he likes the idea of being able to manage his Social Security contributions as he would other retirement plans: "I'd probably be pretty conservative."

With President Bush's plan, he would at least have that choice. But he and others his age might also find that life will have three certainties instead of just the famous two: death, debt, and taxes.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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