Economics Professor Andrew Samwick, a key player behind President George W. Bush's Social Security reform plans, spoke yesterday to a group of students at Sigma Alpha Epsilon Fraternity yesterday about his views on the future of these possible changes.
Samwick said he believes that a privatized system of personal retirement accounts ought to replace the current system, in which current workers pay for current retirees.
The Social Security system must be changed because of long-term trends in mortality rates, he said.
Currently, there are 3.2 workers per retiree, but according to projections, there will only be 1.8 workers per retiree in 2075.
Thus, if the current Social Security system were to remain intact, by the time current Dartmouth students are ready to retire, the government will only be able to pay about two-thirds of the current level of benefits, he said.
As a result of these concerns, former Vice President Al Gore proposed during the 2000 presidential campaign that the budget surplus be used to pay down the debt, and that the money saved on interest be credited to Social Security.
Samwick said that under such a plan Social Security could remain stable longer under the Gore plan, until about 2055 instead of to about 2037.
However, according to Samwick the problem with Gore's plan is that it fails to answer the question of what will happen in 2055.If the government invests individuals' savings for them in personal retirement accounts, however, Samwick said he believes the problems created by demographic changes can be avoided.
Investors would have a choice between several different types of plans, he said.
For instance, Samwick said that one could choose a passive management plan, or one in which one's rate of return is the same as that as an index of a large number of stocks
However, an investor with a higher tolerance for risk might elect an active management plan, which would mean that one's portfolio is less diverse, but could mean a potentially higher rate of return, he said.
Samwick also spoke about potential pitfalls that the Bush plan could encounter.
For instance, he believes that Bush lost ground in the polls in the days immediately before the election because of a perceived weakness in his Social Security plan.
Journalists asked Bush if it is true that he had promised money to both beneficiaries and workers under his plan. The Gore campaign subsequently capitalized on his inability to give a good answer to this question.
Samwick said that, while it is true that Bush's plan does pay both beneficiaries and workers, it is necessary that there is a transition generation.
While the government may need to pay the extra cost, or one generation may need to pay for two retirements, Samwick believes that the benefits of saving Social Security over the long term outweigh the problems that will arise during the transition.
