The nosedive in the stock market this month highlights the extra risk involved in putting retirement money into the stocks, as those who would privatize Social Security suggest.
But both major presidential candidates propose individual retirement accounts that could be invested in stocks and bonds.
Between now and election day, their different Social Security plans promise to be a major element of the campaign.
Not surprisingly, polls show that Americans are having a hard time understanding this issue. The debate is cloudy.
Vice President Al Gore calls for a voluntary savings scheme on top of the current Social Security system. The money set aside by lower- and moderate-income workers would be matched generously by Uncle Sam.
Texas Gov. George W. Bush suggests taking a chunk out of the 12 percent Social Security payroll tax, perhaps one-sixth, to put in an individual account on a nonvoluntary basis.
Under both plans, the accounts would be subject to the vagaries of the stock market.
"How would you like to be cashing in your individual account at this time?" asks former Clinton administration economist Alicia Munnell. She points out that if a retiree had invested solely in an index mutual fund that tracks the Dow Jones Industrial Average, he or she would be 15 percent worse off than a person who retired when the Dow peaked last January.
Under either the Gore or the Bush plan, an individual retiring would likely want to invest in an annuity that would provide regular payments lasting a lifetime. These investments probably would not be indexed for inflation, as are Social Security pensions. And they are costly.
The Social Security Administration announced last week that the 45.2 million Americans receiving Social Security pensions will get a 3.5 percent raise in 2001 to offset inflation.
That will bring the average monthly check for retirees to $845 next year - not enough to rent a small apartment in many big cities.
The Gore plan would leave this modest pension untouched. It would encourage tax-advantaged savings accounts as a "third leg" to retirement provisions. (Corporate pensions are a second leg for those fortunate enough to get one.)
Mr. Bush has purposely not spelled out details of his plan.
"A secret plan to save Social Security is not going to work," charges Alan Blinder, an economist at Princeton University and adviser to Gore. He notes that various privatization plans proposed by commissions and academics cut back benefits, raise the retirement age, or boost taxes for those who are not near retirement or already retired.
Bush, in debating Gore Oct. 3, indicated that $1 trillion would be taken from the budget surplus (not the Social Security surplus) to cover money removed from payroll-tax receipts for putting in private accounts.
That's the source of the Gore charge in last Tuesday's debate that Bush was spending $1 trillion on older people's benefits and spending the same $1 trillion on young people (to put into their individual accounts).
Bush promises to appoint a special commission to work out specifics of his plan. Such a group would be capable of working out a logical financing scheme. But because of the so-called "transition problem" in moving toward privatization - that is, financing the benefits of present retirees or near-retirees, benefits would have to be cut and/or the retirement age raised for younger workers. Bush has not ruled this out. He just doesn't talk about it in the campaign for understandable political reasons.
A new analysis for the Institute for America's Future, a liberal Washington policy group, calculates that the Bush plan would mean a 50 percent cut in regular Social Security benefits for a person 30 years old today.
Bush plan advocates say such cuts would be offset by gains from investment in the financial markets by the individual accounts.
But Dean Baker, co-director of the Center for Economic and Policy Research in Washington, questions that view.
Using the somewhat gloomy assumptions of the Social Security Trustees for the future of the economy as a basis, he calculates that the stock market annual return would be only 3.5 percent in coming decades. That's not much more than the 3 percent return on government bonds. Privatization advocates expect the market to return about 7 percent annually.
If the Trustees' assumptions are too pessimistic, the predicted insolvency of Social Security will fade years further into the future.
In debates on Social Security, Mr. Baker has challenged Bush advisers to prove his market numbers wrong. They haven't tried.
There's no crisis, Baker says.
(c) Copyright 2000. The Christian Science Publishing Society