April 29, 2005


Thriving in Retirement through Social Security Personal Retirement Accounts

By Mario Rodriguez

Paying yourself first.

For millions of Americans, this basic principle has served as the cornerstone of successful retirement planning. And it could also do the same for the Hispanic community through Social Security, under President Bush’s proposal to allow younger workers the option of building their own nest eggs through personal retirement accounts.

Young Americans work hard each day, only to have the federal government take 12.4 percent of their earnings through Social Security taxes before they even see their paychecks. In other words, before people can decide how to spend or save their hard-earned money, they pay Uncle Sam first.

This payment goes towards a system that, in their lifetime, will not be able to deliver its promised benefits. Both Republicans and Democrats can attest to these facts – promised benefits will have to be cut by approximately 30 percent if nothing is done to strengthen Social Security. That, or billions of dollars in taxes will have to be raised for each year of inaction.

Hard-working young Americans deserve a better future, one where retirement marks a period of true financial security.

Currently, 41 percent of elderly Hispanics depend on Social Security as their sole source of retirement income. These and many more Hispanics depend on Social Security to keep them out of poverty, mainly because less than one-third of Hispanics participate in any kind of retirement plan. As a result, the price of doing nothing to strengthen Social Security would be to allow millions of Hispanics to slip deeper into poverty.

But it is precisely because so many Hispanics rely on Social Security to survive in their old age, that we must act today to strengthen the system and enable future generations to thrive in retirement.

Optional personal retirement accounts are the means to this more secure future, allowing younger workers to build a nest egg that can be passed on to their families. By taking greater ownership of their retirement and having the option of market-based investments, future retirees would have the opportunity to improve their retirement experience from one where they just try to get by from Social Security paycheck to paycheck to a more financially secure retirement - one truly worth living.

Personal retirement accounts will give younger workers the option of paying themselves first – before paying taxes to the government, rent to the landlord, mortgage payments to the bank, or bills to utility companies – by diverting a portion of their pre-tax earnings to these government-run accounts.

Naysayers would like to have the public believe that personal retirement accounts are reckless risks, yet thousands of federal government workers and Members of Congress already benefit from a similar system through the Thrift Savings Plan.

In fact, a recent study showed that $10,000 invested in the Social Security Trust Fund in 1988 would be worth only $11,700 today. That same $10,000 invested in the Thrift Savings Plan would now be worth approximately $42,000.

Because the government oversees these personal accounts and ensures that contributions are properly diversified, workers still fared far better than they would have through Social Security even after weathering two recessions during this same period.

It’s hard to make the case that this idea represents little more than a gamble, when the evidence paints a picture of a sound investment option for younger workers aided by the government.

Strengthening Social Security requires an honest debate and a willingness to consider options that will empower individuals and families and make the program a means to a truly secure and more enjoyable retirement.

President Bush and Republican leaders are leading this effort to give young Americans greater choice and the opportunity to thrive in retirement through Social Security personal retirement accounts. All that’s left is for Democrat leaders to come to the negotiating table.

Mario Rodriguez served on the President’s Commission to Strengthen Social Security in 2001.

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