OPINION
From the February 19, 1999 print edition

Comment: Personal retirement accounts: the future of Social Security

A hundred years ago, Wall Street was viewed by most Americans as a mysterious and dangerous place to put their money. That's no longer the case. In fact, if today's trends continue, within a few years literally half our adult population will own stocks and bonds in one form or another.

I'm one of those investors. My portfolio is structured with an eye toward retirement, because Social Security is going broke and doesn't pay much to begin with.

Although the value of my holdings can fluctuate with the economy, I believe that over the long term, financial markets are the most powerful and reliable vehicle there is for outpacing inflation and genuinely "growing" my nest egg, thanks to what has been called the miracle of compound interest.

Yet the United States lags well behind other countries--including Britain, Hungary and much of Latin America--in harnessing the market's potential. What do those nations have that we don't?

All have created innovative systems that provide workers with personal retirement accounts, allowing them to invest a portion of their mandatory paycheck deductions. These plans are different from our 60-year-old Social Security program in four fundamental ways.

1) Participants, rather than the government, have direct control over their accounts, albeit under careful regulations designed to protect against fraud.

2) Savings and personal responsibility have replaced intergenerational transfer payments, so that today's workers finance their own, not their grandparents', retirements.

3) The money actually exists, as opposed to the Social Security "trust fund," which has been used to cover the federal budget deficit and consists of IOUs.

4) When they die, workers can leave remaining funds to their heirs.

When Social Security was established in 1937, there were 42 workers for every beneficiary, and life expectancy was below 65. Today there are three workers per beneficiary and life expectancy is nearing 80. That's a demographic head-on collision waiting to happen.


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© 1999 American City Business Journals Inc.

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