President Bush\'s Social Security Proposal

President Bush's Social Security Proposal

In the 1990s the bull market, backed by soaring technology stocks, had many middle aged Americans considering early retirement. As an example, Steve Griggs had a sizeable nest egg based primarily on Texas Instruments stock and thought he was well positioned.

However, the decline in the stock (from $83 a share to $23 a share) directly correlated to a significant decline in his retirement (Ehrenfeld et al., 2005). it's a story many Americans can relate to.

With the unpredictable stock market, the age for claiming full Social Security benefits going up, and the increasing number of baby boomers reaching retirement age, the topic of the viability of Social Security, as it now stands, is one of great interest. President Bush sees one of America's most important challenges to overcome is the revamping of the failing Social Security system. For this reason, he has proposed an innovative plan. This paper will overview this plan, as well as look at its benefits and disadvantages.

President Bush's Social Security Proposal:

Like many Americans, President Bush sees that the continuation of America's Social Security plan, as it now stands, is simply not feasible. The system is slowly bankrupting itself. As such, the President has outline an innovative, yet controversial plan to save Social Security for those who depend on it currently, as well as ensure that younger workers are not simply left out in the cold.

President Bush's plan is quite simple. Workers would be able to deposit their money, that would normally be taken out of their paychecks in the form of Social Security, into a personal retirement account. For every dollar that they deposit, their traditional benefit - delivered in a monthly Social Security check - would be diminished by a dollar, plus the interest rate the money would have earned in Treasury bonds. To come out ahead of the traditional system, an account would have to realize returns on investment of at least 3% above the rate of inflation (Weisman & White, 2005).

Benefits of President Bush's Plan:

First, it's important to understand that "about 75% of American families pay more in Social Security and Medicare taxes than in income tax" (Sloan et al., 2004). At 15.3% on the first $87,900 of salary, this is a hefty sum. And despite this large percentage of income being taken these benefits are not guaranteed, and in fact, it is almost certain that these benefits will be cut in the next decade. It becomes more and more likely that by the middle of this century, all those hard-earned dollars that today's twenty- and thirty-year-olds have paid into Social Security will simply not be there.

Privatizing social security ensures the post-baby boomers that their money will be there for them when they retire. It takes the control out of the government's hands, which has notoriously not been the best financial advisor in history, and places in the hands of the individuals who earned it. In addition, eventually, it will reduce the expenses of the Social Security Administration as more and more workers no longer have to rely on the system. In addition, it puts money into the U.S. economy, not sitting stagnant in the U.S. treasury.

Disadvantages of President Bush's Plan: