Nick Smith, April 18, 2004

Each of us should be asking the question: "Will I be able to retire when I am between 60 and 80 years old, or will I have to continue working and earning money until I die?" Most individuals under 35 years old say that they don’t believe Social Security will be there for them when they retire. At the same time, the savings rate (the percentage of earnings they set aside for retirement) is the lowest of any generation of Americans. Many Americans have been seduced into a "Buy Now-Pay Later" mentality. Credit card and other debt have soared, and many have given in to the temptation of living for the moment with seemingly little regard for the future.

Social Security is at risk because it is a pay-as-you-go program that pays benefits to retirees from the taxes charged to current workers. In other words, payroll withholdings (FICA taxes) are paid in by today’s workers, and within a few days, they are sent out to pay benefits to retirees. In the early years of social security, there were 35 workers paying taxes to afford benefits for every one retiree. Today there are about 3 workers paying taxes for each retiree’s benefits and in 20 years, it will be closer to 2 workers. Over the years, social security payroll taxes have increased from 2% to the 12.4%. Continuing to increase taxes on workers should not be the solution.

The estimate made by the social security actuaries predicted that by 2018, there will be more money paid out than is collected in social security taxes. The fact is that even if government pays back the $1.4 trillion it has borrowed from social security the program can’t survive without huge tax increases and/or large benefit cuts. With a $12 trillion unfunded liability, social security cannot survive without change.

Americans should work on two fronts to help ensure a satisfying retirement. First, we must support social security reform that keeps the system solvent while strengthening the American economy. Secondly, we must accept more responsibility to save for our own retirement. With the prediction that in a few years the average age of death will be close to 100, it is even more important.

Assuming a return on equity investments at the average for the last 100 years, at age 25, if you started saving $10 a day, by the time you were 65 years old, you would have $1 million. If you wait until you are 35 years old to start saving, you would have to put in $23 per day to make that same $1 million by age 65.

About 70% of current retirees depend on social security for more than half of their retirement income. More than one third of that 70%, or about 24% of all retirees, depend on social security for 90% or more of their income. A little sacrifice, planning, and political involvement now, can make a big difference for future generations on how they will spend their retirement years.

Congressman Nick Smith, a Republican, represents Michigan's 7th Congressional District in the U.S. House of Representatives.