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Retirement Planning > Social Security

Hats Off To AARP!

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Lets hear it for AARP. The huge and powerful lobbying organization for seniors has taken the offensive in attacking ideas to privatize Social Security. And none too soon.

The Bush administration already has begun its own marketing salvo, trumpeting the idea that a crisis in Social Security is imminent and that the system is in need of an immediate fix.

Besides wanting workers to be able to set aside a certain amount of their contributions for private accounts, the administration has not offered any definite indication yet of what it plans to push for in the way of change, although many things have been circulating in news reports. But this is a familiar tactic. Create a crisis (it can be done out of whole cloth) and then come forward with your preordained plan to deal with your self-created crisis. Its like weapons of mass destruction all over again. And like them, no amount of searching will turn up an imminent crisis in Social Security.

What will turn up is a deliberate distorted reading of numbers to create a steamroller effect.

Among the assorted ideas floated in the news: that transition costs of up to $2 trillion would be borrowed to finance the change to a privatized system and that this would pay for itself at some point much further down the line; that benefits wont be cut; that taxes wont be raised; that payouts from privatized accounts will be much fatter than what the government pays now.

All of this has simply one goal: sow seeds of doubt about a much-loved government program in the mind of the public and turn different generations against each other with the aim of restructuring the program.

Meanwhile, AARP is not waiting. In full-page ads it says: “WINNERS & LOSERS are stock market terms. Do you really want them to become retirement terms?

“Lets not turn Social Security into Social Insecurity. While the program needs to be strengthened, private accounts that take money out of Social Security are not the answer and will hurt all generations. There are places in your retirement planning for risk, but Social Security isnt one of them. Call your legislators and urge them to oppose private accounts that put Social Security at risk.”

There are less reckless ways of solving whatever problems Social Security may have than beginning to dismantle it through the creation of private accounts.

The reason that AARP is right to attack privatization is that Social Security is the only guaranteed income that many people are going to have in their retirement.

Defined benefits plans, while they havent gone the entire way of the dodo, are getting close. So, for most people now and certainly in the future, their retirement is going to depend on defined contribution plans and other self-directed mechanisms that will be tied in part at least to equities. And no matter what the experts say about the market having higher returns over the long term, its the short-term burns that really hurt and which, incidentally, can decimate a portfolio.

This is not rocket science. But according to most surveys you read it is rocket science for most people when it comes to devising a retirement portfolio. The insurance business above all should be aware of the value of a guarantee such as Social Security in a retirees portfolio.

If changes are to be made, then let them be made truthfully as to: benefits cuts that will be needed and who will incur those cuts; how privatization will be paid for; how much contributors stand to gain or lose by privatizing.

The administration doesnt seem to want to own up to hard choices; it would rather induce panic about the solvency of the Social Security.

A front-page blurb in the Jan. 6 Wall Street Journal reported that the White House said in a strategy memo to conservative allies that private accounts arent a cure-all and future benefits must be cut significantly to fix Social Security. To accomplish this, the memo says, the public must be convinced that the system is “headed toward an iceberg.”

When is the administration going to own up in public to what it says in private? Until it does, AARP needs to keep up the heat.

Steve Piontek


Reproduced from National Underwriter Edition, January 6, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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