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Social Security sounder than you might think

Economic Scene: The latest report from the trustees of the system show improvement in its finances, despite some grim coverage.

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Because of rising productivity over the decades, retirees in 2041 would reap greater Social Security benefits in real terms than the average $1,081 per month that today's retirees receive.

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But some analysts hold that the most relevant number for future retirees is the replacement rate – what typical workers would receive in Social Security benefits relative to what they had earned before retiring. That rate would drop from 36 percent today to 28 percent in 2041.

Alicia Munnell, director of Boston College's Center for Retirement Research, finds that drop troubling, especially since many corporations are replacing standard pension plans that carry fixed benefits with 401(k) plans, in which benefits often hang on trends in the stock market or other financial markets.

As of 2004, the typical 401(k) or Individual Retirement Account for a male, head of household age 55 to 64, had only $60,000 in assets. That sum would do little to improve the living standard of most Americans over many years of retirement.

In any case, the analysts interviewed agree that current declines in stock and home prices have enhanced the perceived value of Social Security. Only half of American workers are covered by pensions of any kind outside of Social Security.

Moreover, the recent stock market and real estate woes have further diminished any possibility for privatization of Social Security. The Bush administration proposed partial privatization of Social Security (or private accounts), but public reaction and the last federal congressional election decidedly shot down that plan.

Even Mr. Biggs, who several years back worked for a leading advocate of privatization, the Cato Institute, concedes that the only feasible political possibility at present would be government-encouraged private accounts on top of the existing Social Security system, not carved out of it. That, plus a cut in benefits, might be a "reasonable compromise" between Republicans and Democrats, suggests Biggs, now at the American Enterprise Institute, a conservative think tank in Washington.

Republican presidential candidate Sen. John McCain of Arizona ducks the Social Security privatization issue by proposing a commission led by former Federal Reserve Commission Chairman Alan Greenspan. His somewhat ambiguous words suggest he might support an add-on system of private accounts.

The Democratic candidates oppose privatization. But no action on Social Security is likely until after the November election.