Monday, November 15, 2004

Yet Another Plan For Social Security Reform

The always interesting David Warsh points to a Fortune article by Phillip Longman:

The idea starts with the creation of Early Retirement Accounts. Individuals could put one-sixth of the money they and their employers currently pay to Social Security into 401(k)-like accounts, which they could use to finance retirement beginning at age 62. How would Social Security make up for the loss of revenue? Monthly Social Security benefits would remain what they are today, but the age at which future retirees qualified for them would be delayed. Today you can qualify for early, reduced benefits at age 62; that age would gradually increase to 68. The retirement age for full benefits would be pushed back from 65 to 72.


In the event that you're physically unable to work, you could still collect Social Security's Disability Insurance benefits, which would not have to be cut, as they would under most privatization plans. Also, there would be no need to bother with annuities. People would be using their personal accounts to finance only a fixed number of years before they reached eligibility for Social Security benefits.

There are other advantages. For example, the early retirement account might actually persuade people to work longer. Research shows that people with 401(k)s tend to delay retirement. Why? Because the money's theirs. If they don't spend it, they can live higher on the hog later. Also, under this plan, people who continue to work until age 65 wouldn't be sacrificing Social Security benefits as they often do today; instead they would be building up credits for bigger benefits in the future.

Because of Social Security's long-term insolvency, taxes will be raised and benefits cut, one way or another. This plan preserves a valuable government-issued insurance policy against advanced old age--the program's original purpose. But it also allows people who want to retire early a good chance (though not a guarantee) of being able to do so. Given polls showing that more young people believe in UFOs than believe they will ever collect Social Security, that's not a bad political bargain.

Now, is there a Democrat out there smart enough to take the above and run with it?

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