Let's Democratize Compound Interest

One of America's most cherished ideals is that we leave our children a better life than we have had. Another is that we end a life of hard work with more than just memories.

Unfortunately, while Social Security has done wonderful things for current and past retirees, the Social Security Administration's own trustees say that if the system is not changed, it may well keep tomorrow's retirees from realizing these two parts of the American dream.

To start a dialogue on change, we - a diehard conservative and a lifetime liberal - are working together to educate folks on the need for long-term reform. Simply put, this is not a partisan issue. This is about saving Social Security for today's seniors without hurting our children. It's also about ensuring equal economic opportunity for all Americans.

Social Security involves retirement security and affects the lives of just about every American, both during our working lifetimes and especially in retirement. But just as one cannot core an apple without piercing its skin, we can no longer separate the future of Social Security from the context of overall retirement security.

The American people's economic opportunities, or lack thereof, to save and create wealth during their working lifetimes are directly related to the future of Social Security and how we ought to think about reforming the system.

There's no finer example of the lessons to be learned in this debate than that of Oseola McCarty. Now 90 years old, Ms. McCarty spent her entire life laundering shirts, never earning more than $9,000 per year. However, upon her retirement she became an instant celebrity when she donated $150,000 for a scholarship program at the University of Southern Mississippi.

How is that possible?

How can a woman who lived in poverty amass such a sum of wealth and a significant amount more?

In her words, "It was the magic of compound interest." By putting away a few cents a week, sometimes a few dollars, Oseola McCarty realized the American dream through compound interest, which Einstein is said to have called the most powerful force in the universe.

The power of compound interest could be harnessed to help save Social Security and give every American worker and family the chance to walk in the footsteps of Oseola McCarty.

For instance, imagine two different workers who make $24,000 per year. As mandated by Social Security, they both contribute about $2,500 per year towards their retirement, working from age 20 to age 65. But during this time one earns 1.9 percent on his contribution while the other earns 8 percent. Guess how much they have when they retire.

The first person ends up with about $175,000 while the second has a nest egg worth about $975,000. That kind of difference has a lot to do with why people from both sides of the political fence are beginning to look at Social Security reform.

Though Social Security was never intended to provide complete retirement income, that's exactly what it's become for millions of Americans. It is supposed to be the safety net "leg" of the proverbial "three-legged secure retirement stool," with the other two legs being personal savings and pension income.

But with the bottom 60 percent of American families having less than $1,300 in savings and only about half of the workforce being covered by employer-provided pensions, we can no longer afford to view Social Security as a stand-alone program - although in reality, it is.

If we allow workers to redirect a portion of their payroll taxes into their own personal retirement accounts, we can enable every American to create savings and wealth for real retirement security. And in the process, we can lay the groundwork for a higher standard of living for our children and grandchildren. We can reform Social Security to maintain today's safety net and, at the same time, give every American worker and family a portable 401(K)-type personal retirement account to save, create wealth, and watch it grow.

I (Rep. Sanford), along with other members of Congress, of all political stripes, already have legislative proposals aimed at saving Social Security - along these lines. Bipartisan efforts such as these not only represent ideas to preserve Social Security for the long term, but to perfect it. They represent ideas to strengthen, for every American, all three interrelated legs of the secure retirement stool. They represent ideas to enable every American worker and family to retire as Oseola McCarty did.

Social Security was, and is, a great investment for our grandparents and parents, but we cannot continue to fix the current system by tinkering around the edges.

We have to put into the hands of hardworking people the tools to attain real retirement security. For our children's sake, it's time to make certain that each investment in Social Security is still a step toward the American dream.

* Mark Sanford is the Republican U.S. Representative for the 1st District of South Carolina. Sam Beard is president of Economic Security 2000.

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