[Social Security] COMMENT: Save low-income workers from retiring into poverty

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BY ALLAN B. HUBBARD

Last week, President George W. Bush shared his vision for a permanent solution to Social Security's challenges that ensures that low-income Americans who've worked all their lives no longer must retire in poverty.

The president has said repeatedly that benefits will not change for those born before 1950, but that we must all join together to strengthen Social Security for future generations, especially those with low earnings' histories.

Many Americans would be surprised to know that a low-income worker can pay into Social Security his or her entire life and still retire into poverty. If Congress fails to act, it will get worse.

Absent reform, Social Security benefits for low-income Americans will be cut by more than one-quarter in 2041, with those cuts growing deeper each year after that.

For low-wage workers, these massive benefit cuts would be devastating. Social Security makes up nearly all the retirement income for the lowest-earning Americans. Failing to address Social Security's insolvency would literally double the number of seniors living in poverty in 2041. That is simply unacceptable to President Bush and should be unacceptable to other elected leaders in Washington.

The president's plan strengthens the safety net by guaranteeing that when today's low-wage workers retire after a lifetime of paying into Social Security, their monthly benefit keeps them out of poverty. For low-wage workers just entering the workforce, his plan would ensure their Social Security checks are more than 40% higher than the checks of similar workers retiring today.

Some call this welfare, but we disagree.

If you work hard all your life and pay into Social Security, you should be protected from poverty. That's not welfare -- its common sense.

As we strengthen the safety net, we can also provide workers more control and ownership of their retirement security.

Voluntary personal accounts offer younger workers the opportunity to earn a higher rate of return from the taxes they now pay into the Social Security system while building a nest egg for the future.

Consider a single mom who works full time and earns $8 per hour. Under the president's plan, she could choose to have more than $600 of her payroll taxes invested each year in her account. That may not seem like much, but by retirement, her nest egg would be worth roughly $110,000 (in today's dollars), and much more than most families ever save (the median American household holds financial assets of less than $13,000). It also means a better retirement. The monthly income from an account this size would increase her Social Security benefits by almost $2,000 per year compared to a similar without a voluntary personal account.

Finally, when she dies, this real wealth can be passed on to heirs, and could help pay for college, start a small business, or make a down payment on a home. This inheritance would come on top of the benefit that Social Security already pays to surviving minor children.

Critics want to deny low-income workers the right to save any part of their payroll taxes in a personal account. Instead, they offer incentives for savings outside of Social Security. But the only people who could take advantage of these so-called "add-on" accounts are those who can afford to save already.

How many low-income single moms can afford to set money aside for 30 or 40 years? The president's plan gives low-wage workers the chance to start building a nest egg without affecting their take home pay or monthly budget.

True, personal accounts are new to Social Security, but they reflect the wisdom of an old concept: Money saved grows over time.

Half of all American families own bonds and stocks, directly or through retirement plans. The president wants to give the other half of the country the same ownership opportunity. He favors a true "ownership society" where Americans of all backgrounds have their own nest eggs. Voluntary personal accounts within Social Security are the safest and most direct means of attaining that goal.

The president strongly believes in building retirement savings through voluntary personal accounts and is just as committed to improving Social Security's safety net. Reform opponents would rob low-income Americans of this wealth-building opportunity while condemning millions of retirees to a life in poverty.

The president's plan offers Americans a more positive future. It is time for Congress to act.

ALLAN B. HUBBARD is assistant to the president for economic policy. Write to him in care of the Free Press Editorial Page, 600 W. Fort St., Detroit, MI 48226.