Clinton faces social security, insecure citizens

Editor's Note: This is the first in a three-part series about issues President Clinton will face during his second term. This story focuses on Social Security.

Melissa Terrick has her whole life planned out.

After she graduates, Terrick (freshman-biology) plans to attend medical school either at the Hershey Medical Center or the University of Pittsburgh. She wants to become a plastic surgeon and practice near Pittsburgh. Terrick plans to save her earnings -- between $120,000 and $200,000 -- so she has something to live off of once she retires.

One government program -- Social Security -- may be in danger of ending. By the time Terrick reaches retirement, the money for Social Security will be gone if nothing is done. The tax money people pay now for Social Security is immediately given to those who are collecting it. In other words, the taxpayers are not paying for their own retirement income. People are living longer, and the baby boomers are reaching retirement age. Thus, there may not be enough money in the reserve to support the program.

More than 88 percent of Americans believe that Social Security will be in trouble within the next 20 years, and 60 percent believe they will not receive it when they retire, according to a Cato Institute survey.

If this occurred, it would end a 70-year history of the government providing a source of income for the nation's elderly, disabled and poor. Though the nation has always given benefits to these people, Social Security began during the Great Depression and was expanded under the Great Society programs.

In 1995, the government spent $334 billion, or 22 percent, of federal spending, on Social Security, according to the Congressional Institute.

As of October 1996, White House documents report 43,702,400 people received Social Security benefits, a .8 percent increase from the previous year. The average monthly benefits for October were $723 for retired workers, $683 for disabled workers and $686 for nondisabled widows and widowers.

Ernest Cinotti, a retired dentist, was one of those beneficiaries. Though he does not rely upon Social Security, he said he could be making a "heck of a lot more" in his golden years.

"I could have taken the money and invested myself," he said. "By now, I could have earned millions."

Cinotti has played the stock market since the 1960s and said it is an excellent way for the government to save the program. In the beginning, Cinotti had advisers, but now he has learned enough to invest the money for himself.

The Social Security Advisory Council has agreed with Cinotti's analysis but cannot decide on how to do it. They have drafted three proposals. One suggestion is that the government take the money and invest it in a common pool. Two others suggest that a portion of Social Security contributions be kept in individual retirement accounts that workers could invest on their own, according to the Congressional Institute.

One proposal suggests the current system stay intact, and a portion of the payroll taxes would be invested in the stock market from the years 2000 to 2015.

A second proposal states that the government would create mandatory individual savings accounts. The accounts would be managed by the government and would supplement existing benefits.

A third suggestion proposes that Social Security be a double-tier system with a flat-rate pension plan. This would be supplemented by Personal Security Retirement Accounts owned and managed by individuals.

Cinotti said the plan which is chosen should not be left completely up to the individuals to invest.

"People should have some control, but so should the government," he said. "If you ask people to put money aside themselves, they are just not going to do it."

"It's still risky," Terrick said. "I don't know if it's such a good idea."

The American Association of Retired Persons agrees with her. Some argue the working class will suffer the most by privatizing the system. They are the people who will rely on it as the main income and they are taking a bigger risk. Another concern is that the amount of money people receive is determined by market skill and the time period in which they are born.

"Our children and grandchildren would be forced to pay twice: once to protect current benefits and a second time for their own future without guaranteed Social Security benefits," said Horace B. Deets, AARP executive director, in a news release.

Still, researchers at the National Center for Policy Analysis, a nonprofit organization, concluded this program will save Social Security, and a similar system set up in Chile proves it. The government in Chile successfully implemented the program in 1981. Now, 90 percent of the population takes advantage of the program.

Joe Barnett, a writer and researcher for the National Center for Policy Analysis, said that Chile's program is quite similar to the United States predicament. Though it is a South American country, it does have a developed economy and will probably be the next country to enter into the North American Free Trade Agreement. However, it does have a lower standard of living.

"Chile is the first country in the western hemisphere to have a Social Security program, a program that precedes ours," Barnett said. "We can use it as a model to follow."

Chile began its program with a payroll system of taxing for Social Security benefits, the type the United States has today. By 1981, it got to the point where workers' revenue could not pay for the program without it being a "tax burden on the economy," he said.

Chilean workers had the choice to opt out of the existing Social Security system. They would do this by buying interest-bearing bonds equal to the present value of their future social security benefits. They would be able to redeem it when they retired to buy a private insurance annuity.

Instead of paying a payroll tax, new workers and those who opted out are required to contribute to an approved private pension plan of their choice. The private plans are similar to tax-free mutual funds, and workers can pass on any unused funds to their heirs.

"Of course it wouldn't make sense for people who are already retired to engage in this program," Barnett said. "They wouldn't have time to build up any earnings."

According to National Center for Policy Analysis, there are three groups of people who would benefit from this program. Every low-wage couple retiring in 2025 (age younger than 38 in 1996), average-wage couple retiring in 2013 (younger than 50 in 1996) and every high-wage couple.