 |
How can personal accounts help low-wage workers?
December 23, 1998
"There is no more Democratic idea than building a generation
of wealthy Americans who participate in our economy rather than feeling isolated
from it."-Sen. Bob Kerrey (D-Neb.)
Social Security Is a Bad Deal for the Poor
Social Security simply costs too much and pays too little to be a good deal
for any worker, but it is a particularly bad deal for low-wage workers who depend
on it most.
Social Security was designed to supplement private savings, but
low-wage workers simply don't have enough money left over to set aside for retirement
after paying the Social Security tax. Consequently, nearly one in three of today's
seniors depends on Social Security for more than 90 percent of his income.
Social Security's benefits often are not enough to protect workers
from poverty. In fact, more than 1 in 10 seniors live in poverty. For some groups,
the statistics are even worse: 19 percent of widows and 29 percent of elderly
African-Americans fall through Social Security's safety net.
Investment Opportunities and Account Ownership
The government should give all workers the freedom to redirect their payroll
taxes into individually owned retirement accounts that could be invested, similar
to IRAs or 401(k) plans. Those accounts would give low-wage workers a better
deal for the dollar and provide far higher benefits than does Social Security.
A guaranteed safety net funded by general revenues could ensure that no more
workers retire in poverty.
- Higher benefits: Through the power of compound interest, all workers
would be able to accumulate substantial savings. Take, for example, a 28-year-old
worker making $13,500 per year and paying $1,674 in Social Security tax. If
she invested in a conservative savings program that earned just a 4 percent
return, she would accrue $177,147 by age 67. That amounts to a monthly benefit
of $1,243-$400 more per month than the benefits promised by Social Security.
- Private property: Workers would own their savings. Therefore, if
an individual died before reaching retirement, he could leave his accumulated
savings to family members. That is important to low-wage workers who typically
do not live as long as do the rich.
- Fair and secure: Workers deserve the chance to participate in a system
that makes the most of their contributions. In addition, personal accounts
would free low-wage workers from dependence on government for retirement security,
so benefits would no longer be subject to the vagaries of politicians. Finally,
all workers could accumulate real wealth so no one would be condemned to retire
in poverty.
See Carrie Lips's report, The
Working Poor and Social Security Privatization: Restoring the Opportunity to
Save, to learn more about how personal retirement accounts could affect
low-wage workers.
"It's your money, your choice, your future."
2001 Index | 2000
Index | 1999 Index | 1998
Index
|
|
