Social Insecurity

Bill Stephens is willing to talk about Social Security, but not first thing in the morning. He has to wait until the nurse, who has come over to check his glucose, heads off to another house. In the wake of a stroke, a cancer scare, and a double hip replacement, medical worries are never far from his mind. And with medical worries come financial ones-bills that stretch Mr. Stephens's $602 monthly Social Security check to the limit.

"I tell you it's not much with all these bills and insurance expenses," he says, taking his accustomed seat in a brown vinyl recliner. "A lot of people get a whole lot more than we do because we always had small churches and small salaries," adds his wife, Mildred, from her blue vinyl recliner on the other side of the fireplace. It's not a complaint, just a fact offered with the same cheerful tone she uses when she reveals their ages: 79 for him, a year older for her.

Mr. Stephens pastored his first little church outside Birmingham, Ala., in 1942, the year after he and Mildred were married. With the church too small to support him, he made ends meet by working a shift in one of the city's steel mills during the wartime boom. Thanks to an act of Congress passed just seven years before, in the darkest days of the Depression, Mr. Stephens was forced to pay into a new system known as Social Security. It was massive. It was untried. It was socialistic. But for the Stephenses, it was a lifesaver.

"Without Social Security, we still would be having to work in some way, or go on welfare," he says. "We're supposed to go live with our kids here in town one day, when we physically have to. Without Social Security, it would just hasten that."

Not that life is easy, even with their monthly government check. The nurse who has just left the house is a neighbor, not someone sent over from the hospital. When Mr. Stephens officially retired 17 years ago, he still had to work part-time as seniors pastor at Greenville's Southside Baptist Church to make ends meet. Only prostate cancer and generally failing health finally precipitated his full retirement from the ministry.

There were a few investments in their younger years, but small congregations and four daughters made it impossible to accumulate a significant nest egg. Thus, their Social Security income helps the couple meet the expenses of old age, such as the $320 they pay monthly for health insurance to supplement Medicare.

And if tomorrow they got a letter saying that the system they depend on had gone bankrupt? "We'd just have to cash in our savings," Mrs. Stephens says.

"Well, that wouldn't go very far," her husband counters, rubbing the top of his head.

"I guess it would be pretty devastating in our case," she finally admits in her slow southern drawl.

But that "devastating" scenario is exactly where the system is headed. Government planners claim that monthly checks will flow until 2030, but experts in the private sector predict the crisis will hit just 15 years from now.

And some crisis it will be. Of the $1.53 trillion the federal government spent last year, nearly one quarter-$334 billion-went to Social Security. The Congressional Budget Office predicts that by 2005, that figure will grow to $556 billion-and that's before most members of the Baby Boom generation start to collect their gold watches.

Then things really get interesting. The problem is that from the beginning, Social Security was designed as a pay-as-you-go system, not a true funded pension plan. In other words, today's workers are writing the checks for people like the Stephenses, rather than saving for their own retirement. That wasn't a problem in the past, because workers outnumbered retirees by healthy margins. In 1950, there were 16 wage earners for every recipient of Social Security. Today, just 3.3 workers underwrite the retirement of each recipient. By 2030, when the last of the baby boomers hit today's retirement age, the ratio will be less than 2 to 1.

The last major effort at reform, which passed Congress in 1983, anticipated the problem of retiring boomers by increasing payroll taxes on that generation (and all generations following). The plan was to beef up the so-called trust fund so that boomers wouldn't bust the system. According to the actuaries, millions of middle-aged workers annually paying thousands of dollars each into the system would result in a surplus of more than $20 trillion by 2045.

But as the new money started to flow in, Uncle Sam decided it would be a shame for billions of dollars to be "wasted" until the boomers retired. Instead, the surplus in the trust fund was diverted to meet the government's current operating expenses-highway repairs, missile silos, food stamps, and the like. Such creative accounting reduced the national debt, on paper, from $17 billion to $5 billion, but it also reduced the real assets of the Social Security trust fund to somewhere around $0.

Thus, instead of the money they've paid in over the years, retiring baby boomers will find the trust fund filled with government bonds. Basically that amounts to nothing more than IOUs printed on fancy paper because, unlike private-sector securities, those bonds are not backed by assets such as equipment, inventory, or copyrights. The only thing that makes a government bond worth the paper it's printed on is the government's ability to tax its citizens enough to recover the value of the bond. But for the relatively few members of Generation X to keep their parents' Social Security checks coming, payroll taxes would have to be in the 40 percent range, clearly more than the market can bear. At that point, in theory, the system comes crashing down.

Most of today's middle-aged workers don't understand all the numbers, but they do know their lifelong "investment" in the system is at stake. According to one recent poll, young Americans who believe they will receive Social Security benefits are outnumbered by those who believe in UFOs.

Rebecca Moore, the Stephenses' 47-year-old daughter, doesn't believe in extraterrestrials, but she's not expecting a close encounter with her Social Security donations, either. "Let's just say, we're not counting on [the system]," Mrs. Moore says. "I don't think it will be what it is now, if it's there at all. I don't think we'll be able to live off it. We are trying to invest, and we have an IRA. It's not very big, but we do have it."

Because Mrs. Moore lives in the same town as her parents, she knows firsthand how much they depend on the system that she expects to collapse by the time she retires. Although she resents the bleak future of Social Security, she understands that it's benefiting both her and her parents in the future.

"Frankly, the reason we bought the house we're in now is so they could live with us one day. Without Social Security, they'd probably be here now, so I'm glad they have it. As long as they're physically able to be independent, I want them to be." Furthermore, as long as her parents are independent, Mrs. Moore is able to continue her own career as an editor of Christian school textbooks. Without the safety net Social Security provides, she would be caught between the full-time needs of her aging parents and her three children.

Other working Americans are less ambivalent about the Social Security crisis. Those who haven't seen the benefits at close range are understandably angry about being forced to pay into a system that may well be bankrupt by the time they need it. Their mood does not improve when they compare what is likely to be a very poor return from their Social Security payments with the much more efficient private annuity and insurance systems.Their parents, meanwhile, are understandably apprehensive about the younger generation's angry mood.

"I can understand why they'd be upset," Mr. Stephens admits. "If they never expect to get anything out, that would affect their outlook."

"Well, didn't we pay in too?" counters his wife, voicing the common defense of Social Security recipients (although current recipients are receiving far more than they paid in).

"Well we're expecting it to continue on, but the younger generation is rather doubtful, I guess," Mr. Stephens tries to explain. "We're getting our money back, but they might not."

But in fact, the Stephenses aren't really "getting back" what they paid into the system at all. Their contributions immediately went to support retirees in their parents' generation-along with orphans and disabled persons, two other frequently overlooked categories of Social Security beneficiaries. The system has always been based not on investment, but on one generation's willingness to let members of the previous generation receive more than they paid in. But such an intergenerational transfer will not be likely for the next generation of recipients.

With the whole financial house of cards about to come tumbling down, some in Washington are finally ready to seriously renegotiate that contract. After more than two years of study and debate, the Social Security Advisory Council has released its report, recommending unanimously that a certain percentage of Social Security funds be invested in the stock market rather than government securities. Such a move would immediately put the system on firmer financial footing, since funds would be backed by real assets of private companies, not just the promises of the U.S. government.

But beyond their basic agreement that stocks are a good idea, the 13-member panel is hopelessly split over the exact details of implementation. In fact, members have simply agreed to disagree, issuing three different reform plans and leaving it up to Congress to decide among them. That means that sometime this year, lawmakers will have to start tossing around the following political hot potatoes:

**red_square** One plan calls for 40 percent of Social Security's surplus to be invested in a stock index fund similar to the Dow Jones Industrials or the Standard & Poor's 500. Under this plan, the government would invest the money itself, leaving individual workers with no choice in picking their own stocks. Payroll taxes would remain at current levels (12.4 percent), but benefits paid to Social Security recipients would be cut by 3 percent.

**red_square** The second plan requires workers to personally invest 5 percent of their income in a retirement account similar to an IRA. Monthly Social Security benefits would be standardized at $410 a month (down from the current monthly average of $745), but retirees would also have their own accounts to draw from as they saw fit. Because this plan transforms Social Security from a pay-as-you-go system to a funded pension plan, payroll taxes would increase to 13.9 percent to cover the transition.

**red_square** The final plan would require workers to invest 1.6 percent of their paychecks in a choice of stock and bond index funds set up by the government. Payroll taxes would increase to 14 percent, but retirees would continue to receive benefits based on their lifetime earnings from work, plus an annuity from their personal accounts that would vary according to the success of their investments.

Other proposals go further, toward full privatization. But whichever reform plan is eventually implemented, tomorrow's retirees will likely find themselves walking a financial tightrope. The challenge raises questions for Christians of all ages: Is the biblical injunction to "honor your father and mother" fulfilled by the Social Security system? How should children care for aged parents? Is the church absolved of its responsibility to care for the helpless simply because the government claims to be doing so? If the government should change directions, how could churches take up the slack, given their multi-million dollar building programs and worldwide missions commitments? Finally, even if the churches found a way to care for the widows and orphans among their own number, what is their responsibility to those outside the body of Christ?

Christians need to develop satisfactory answers to such questions. Indeed, the moral and spiritual problems of the Social Security crisis may be even more difficult than the political ones. An uncertain financial future may remind many Christians that Washington is not the solver of all problems and that God instituted the family long before he instituted government.

Planning for the day that her parents move in with her, Rebecca Moore believes she has learned that lesson-and she hopes her own children have as well. "I do think about being financially dependent on my kids, and what I think is, 'I hope I'm showing them the right way.' If they see us caring for our parents, hopefully they'll do the same, should that day come."