Federal Reserve Chairman Alan Greenspan ruffled feathers on Capitol Hill yesterday by stating the obvious: The federal government cannot pay all the benefits it has promised under Social Security. Greenspan went on to argue that policymakers should trim benefits for future retirees.
While presidential candidates have chosen to denounce Greenspan’s statements and pretended that Social Security’s problems don’t exist, women should heed his warning.
Women disproportionately rely on Social Security because they live longer than men and have fewer opportunities to save for retirement during their working lives. Social Security’s fate is thus critically important to many women’s retirement security.
False outrage aside, Greenspan’s statement comes as no surprise to a politician worthy of his or her job. Each year, Social Security’s Board of Trustees issues the same warning. In about ten years, Social Security will begin paying out more in benefits than it collects in taxes. In 40 years, when today’s young workers begin to retire, Social Security will be able to pay only about two-thirds of promised benefits. Those retirees will either face drastically reduced benefits or future workers will see payroll taxes skyrocket. Both outcomes are unpalatable.
Fortunately, with timely action, Americans can avoid this fate. By allowing current workers to use a portion of their Social Security taxes to fund personal retirement accounts, policymakers would begin to address Social Security’s long-term financial problems. Workers would invest in bonds and stocks and accrue a significant nest egg throughout their working lives. At retirement, they would be able to use those assets to supplement Social Security benefits.
In addition to giving workers the chance to accrue savings, this reform would prefund future benefits, making Social Security sustainable over the long-run. Instead of relying on taxes from future workers to pay benefits, retirees would draw upon assets built up over decades. Such a plan would take an initial infusion of resources to cover current retirees, but ultimately a more financially sound system would emerge. The initial sacrifice would we well worth the long-run payoff.
Attacking Greenspan for highlighting Social Security’s real and growing problems is dangerous folly. Americans deserve an open and honest discussion about how politicians intend to address the looming pension crisis in this country. Women in particular must demand of their political leaders solutions, not slogans. We have too much at stake ignore this critical issue.