Changing Social Security—Will Young People Go for It?

Adam Spiegelman, 33, of Los Angeles not only works 10-hour days as a segment producer for a TV talk show, he also produces his own vaudeville shows—so retro they're trendy—complete with comedians and performing dogs. He's a young man on the move, light-years away from retirement.

But when he pauses to think about Social Security, he says he likes the idea of a private account that would allow him to invest some of his Social Security tax money in the stock market. "No one my age is counting on Social Security," he says, "and getting some of that money back now is better than getting nothing later."

President Bush is assiduously courting younger workers like Spiegelman—ages 18 to 39—as he pushes for changes in the Social Security system, a system he says is going "broke" and "in crisis."

In rousing campaign-style rallies across the country, Bush tells older Americans not to worry—he will preserve the traditional Social Security program for people age 55 and older. Then he offers young people a "better deal" through private accounts.

But young workers may not be the solid base of support some politicians had counted on to help them change the venerable system. Spiegelman, for example, says if he could depend on the same kind of guaranteed Social Security benefit 55-year-olds will receive in a few years, he'd prefer that.

At the same time, older Americans are worried—about the proposals to overhaul the program—even though the changes wouldn't directly affect their benefits.

Looking at the White House plan to partially privatize Social Security, Gino Bush, 63, a father of three in Ithaca, N.Y., says, "A lot of young people are not going to be able to make it if their benefits get cut, and that's what Bush is really talking about. We'll be in bad shape if this goes through."

The classic political strategy—divide and conquer—doesn't work with Social Security, analysts say, because young and old are deeply connected as children, parents, grandparents.

"It's a big misconception that when it comes to Social Security, there is a kind of competition between the generations," says Lawrence Jacobs, a professor at the University of Minnesota who tracks and studies public opinion and the politics of Social Security. "This kind of thinking shows the dominance of political consultants who force-feed polls and focus-group results on policymakers. Anyone who has spent any serious time studying Social Security knows that the program is part of the fabric of families."

Young people do tend to be more supportive of private accounts, Jacobs says, "but in intelligent conversations or well-designed surveys, when you expand the conversations … you quickly find younger workers have a lot of concerns beyond their 401(k) or their own retirement plan."

In interviews with the AARP Bulletin, Americans of all ages and walks of life were quick to question how the private accounts carved out of Social Security would affect not only people their age but others as well.

Lauren Lindstrom, 28, a graduate student in Manhattan, says she has an IRA and a 401(k) "that are market-driven, and I'd rather have something secure like Social Security the way it is now." But, she says, "I worry more about people in their mid-50s and 40s—how are they going to make enough money with these new accounts? They don't have time."

Steve Hyatt, a 48-year-old attorney in Davie, Fla., likes Bush's plan to allow workers to divert a portion of their Social Security taxes into private investment accounts. But the father of two wants more details about the proposal because in the end, he says, "the main consideration should be the children."

National polls, news reports and even Internet conversations show most Americans see the popular 70-year-old program as a shared social obligation that transcends age, gender, race and ethnicity—even politics. In a recent survey by the Quinnipiac University Polling Institute, 65 percent even said they think a nonpartisan commission should design a program to reform Social Security, while only 26 percent said Congress should do the job.

Bush, too, says he supports Social Security, but his plan envisions a fundamental change in it. He would allow people under 55 to put as much as a third of their Social Security payroll taxes in a private account and tap into the stock and bond markets to build their retirement nest eggs. Bush says these accounts, with their potential for higher yield, would help cushion future generations against likely Social Security benefit reductions as fewer workers support more retirees.

The private accounts, the president says, also would give all Americans—even those whose earnings have never allowed them to invest—a chance to make money in the stock and bond markets.

AARP and other critics contend that private accounts carved out of Social Security funds add an element of risk to retirement savings while reducing the amount of benefits that Social Security promises.

A number of surveys have found that the accounts are attractive to many young people because, as the latest AARP poll shows, only 31 percent of Americans 18 to 39 years old believe Social Security will be there for them, compared with 82 percent of those 60 and older. The national poll of 1,000 people ages 18 and older was co-sponsored by Rock the Vote, a nonpartisan activist group for young people, and by the Joint Center for Political and Economic Studies.

But Social Security trustees say the system can pay full benefits through at least 2042, and then, even without changes, it will be able to pay 73 percent.

"Politicians are trying to talk young people out of hundreds of thousands of dollars in benefits they would have had at retirement by offering them a chance to control a lot less money," says Hans Riemer, political director of Rock the Vote.

Senior White House officials have said workers' traditional benefits would be reduced if they participate in the private accounts program.

"The Bush proposal uses a complicated formula that basically reduces traditional Social Security benefits for workers who choose private accounts," says Alison Shelton, AARP senior policy adviser. "Those workers must earn more than 3 percent on their private account investments to have a total benefit greater than the traditional benefit."

On top of that, administration officials have suggested changing the Social Security formula for future retirees—regardless of whether they choose private accounts or not—pegging benefits to the Consumer Price Index instead of wages, which rise faster.

Richard Burkhauser, chairman of the Department of Policy Analysis and Management at Cornell University, predicts that "18- to 39-year-olds would get the full impact of that change, and it will be huge." Analysts say benefits for these future retirees would be reduced by 1.1 percent a year.

And not everyone would be protected from the impact of these cuts by a large nest egg from a private account. On average, market accounts should yield more than the money left in the Social Security trust fund, Burkhauser says, "but there will be a greater variance in what individual investors earn. Some will make more money and some won't."

Melissa Giraud, 34, who works in radio in Cambridge, Mass., says, "Private accounts don't sound like a good deal to me. I think you'd have to get a fantastic rate of return to be better off with one of these accounts—and there is always a chance you could actually lose money." And, she adds, "What happens to those people? Who takes care of them?"

40 to 54: A Generation at Risk

Jack Sweeney, 54, is infuriated by the plan to change the structure of Social Security—just as he's nearing retirement. He put in 23 years as a New York City fireman and now works three days a week as a counselor in the department. Sweeney expects Social Security to supplement his pension, which won't keep up with inflation.

"My father contributed all his life and never got any Social Security—he didn't last that long," he says. "I'm working since I was 14—I worked at the A&P.; I paid in and I paid in. I think it's a disgrace. They're dismantling the New Deal."

If Bush's proposals go through, today's 40- to 54-year-olds will be the first to experience the sea change in Social Security. They would be the first and oldest group allowed to have private accounts, beginning in 2009.

These baby boomers "are the invisible and at-risk generation," says Fernando Torres-Gil, director of the Center for Policy Research on Aging at the University of California, Los Angeles, who headed the U.S. Administration on Aging under President Clinton. While many in this group have done very well for themselves financially, he says, a sizable minority—perhaps a third—are staking their hopes for a secure retirement on three key elements: working longer, leveraging the equity in their home and Social Security.

The oldest members of this group have less time to plan, invest and accumulate money with private accounts, but their benefits would be cut by only a few percentage points. The younger members are the most vulnerable to cuts.

Benefits, pegged to price increases, would be trimmed by 13 percent by the time a 47-year-old married worker with a household income of $48,000 retired, says Laurence Kotlikoff, chairman of Boston University's Department of Economics. And they would be cut even more if that worker took money out for a private account.

"Bush's idea is radical," says Robert Ball, head of the Social Security Administration from 1962 to l973. "The basic idea of Social Security is to provide a guaranteed floor of social protection. Individual savings accounts on top of that are a good idea, [but] taking funds away from the basic plan makes the system weaker, not stronger."

Even so, Julie Vandermost, 40, likes the idea of the private accounts. "Privatization is always better," she says. An environmental consultant in Laguna Niguel, Calif., she never counted on much from Social Security, she says, "and I'm fortunate to be in a position where I don't have to." As for any benefit cuts, "We still have 25, 35 years to make up the difference," she says.

For 46-year-old David Bradley, however, who with his wife, Terri, 55, owns a small funeral home in Chicago, diverting money into a private account and investing in the market is too risky at this point in his life: "I've lost money even though I invested in things that I thought were a good deal," he says. "Twenty years ago, who would have said the airlines would go bankrupt? Who thought Kmart would bite the dirt?"

55-Plus: ‘Save the Children'

"I worry about our children," says Jane Marcham, a 74-year-old retired journalist who lives in Ithaca, N.Y. "It's such a struggle to raise a family and pay for health insurance. After they send their own kids to college, they aren't going to be able to save anything for themselves. I think Social Security will be a lot more important for them than it is for us."

When it comes to partial privatization, Republican pollster Ed Goeas says, "the older generation tends to be protective of the younger age groups. They worry that they won't invest their money wisely."

And many people 55 and older interpret Bush's plan as an attempt to eliminate the program's protections that have reduced the portion of Americans age 65 and older who live below the poverty line from one-third in 1959, the earliest year for which national statistics are available, to one-tenth in 2003.

"Social Security isn't investing—it's insurance," says Michael Senterfit, 70, who retired from the U.S. Geological Survey and lives in Boulder, Colo. "And if we don't fight for it, Bush is going to give it to business, because he wants to privatize everything."

That would be fine with Dennis Miller, 58, a self-employed corporate headhunter who lives in Louisville, Ky. Under the current Social Security system, Miller says, "I'm being required to put [12.4] percent of my income into an account that returns 1.6 percent. That's pathetic."

How Bush's plan will play out is unclear, but it could ultimately affect even those 55 and older.

"Presidential proposals almost never get through Congress without being changed," says Ball. "The cuts Bush would propose for younger workers are so steep that I don't see legislators going for it. There would be a lot of pressure to spread the pain and cut benefits for everybody."

And there's the cost of the proposal. With private accounts diverting money from Social Security, economists say the government would have to borrow $1 trillion to $2 trillion over the first 10 years of the president's plan—and $3.5 trillion in the decade after that—just to cover the benefits promised to Americans 55 and older.

"The proposal calls for massive borrowing over many decades, which could damage global investors' confidence in U.S. Treasury bonds," says Kenneth Apfel, professor at the LBJ School of Public Affairs at the University of Texas and former commissioner of the Social Security Administration. "There is a real risk that the financing for Social Security, Medicare and all government spending could be destabilized. Honestly, I'm scared."

Federal Reserve Board Chairman Alan Greenspan said last month he supports shifting to private accounts. But he told the Senate banking committee that it's not clear how financial markets would react to the $2 trillion cost of the shift. "If you are going to move to private accounts," he said, "you have to do it in a cautious, gradual way."

AARP CEO Bill Novelli says Social Security can be strengthened by a series of "fixes"—such as investing part of the money in higher-yielding stocks or bonds or raising the cap for the portion of income subject to Social Security taxes from today's 83 percent to what it used to be: 90 percent.

"The system," Novelli says, "doesn't have to be dismantled."

The latest AARP survey found that a majority of all Americans agree. Two-thirds support keeping Social Security as close to the current system as possible.

And Ball maintains that when the debates are done, the smoke has cleared and all questions about the president's plan have been answered, Americans will still feel that way.