- Published on Tuesday, 15 December 1998 19:18
- Written by Rick Glaze
Nobody was getting in the car. Each member of the family had one last thing to do. Meanwhile we were going to be late to the holiday Nutcracker performance. As the phone rang, I was the only one available to answer.
Me: Hi Uncle Art. I am going to have to call you back. We are on our way out the door.
Uncle Art: This can't wait Buddy-Boy. It is a matter of Social Security.
Me: You mean National Security, don't you?
Uncle Art: Well in the big picture it's National Security. But we are talking about the state of Social Security reform.
Me: That's a big topic. Can I call you back later?
Uncle Art: Sure Buddy-Boy. Call me from your car when you get rolling.
Me: I was thinking about tomorrow!
Uncle Art: I think this should be today. Did I tell you that Aunt Beatrice is circling the house in a Ford Bronco with a gun to her head because of this?
Me: Uncle Art, if you're pulling my leg on this you're getting no Christmas present from me this year.
Uncle Art: What were you going to give me? Oh never mind. I was just kidding. But call me from the car.
Me: OK, Uncle Art, we are on the road. What is the big brouhaha about?
Uncle Art: Your cousin Roger is on a tear about future social security benefits. He got up on a chair last Sunday at the family dinner and proclaimed that he wanted his social security payments to go into Internet stocks or Russian bonds, something with potential.
He was shouting that if something wasn't done soon the whole program will be bankrupt before the middle of the next century.
Me: Wow! Did Roger have too much of the holiday spirits?
Uncle Art: Heck no, Roger doesn't partake. He doesn't need it. I don't think he could get much looser. But anyway, when he said Russian bonds and social security in the same breath, Aunt Beatrice fainted.
Me: When did she get in the Bronco?
Uncle Art: OK, I said I was kidding about that. When Beatrice woke up, she said she didn't want her social security in the risky stock market either because it might go down.
Me: Was Beatrice up in time for dessert?
Uncle Art: Don't get cute. The discussion was getting serious. Uncle Buford said what could be more risky than going broke? Buford said for long term investing treasury bonds are inferior investments. He said that government officials have bungled the job and that we should take over our own investing.
Me: What happened next?
Uncle Art: Beatrice gasped that she didn't know enough about investing to have a chance at doing it right. Then I popped up and asked Buford if someone did everything wrong and had no money would they just be out of luck. When Roger yelled "survival of the fittest," Beatrice passed out again.
Me: I hope you have a video tape you can send me. This sounds better than the X-Files.
Uncle Art: OK Mr. Yuppie! The only way I could break it up was to invoke your name. I said I would call you for the inside word. Then everybody calmed down. So what should I tell them?
Me: Social Security is like a number of programs that came out of Washington a half century ago that are in sore need of revising.
You recall that Congress and the President got together on a welfare reform bill in the last few years that radically updated that system. Social Security affects practically everyone and has a much higher profile than many programs.
Uncle Art: Roger says he will be working until the day he dies, if something isn't done.
Me: I didn't know Roger was working now.
Uncle Art: Well, he is in sort of semi-retirement now, at age 47.
Me: Actually Roger is at the age when it is thought the social security system will crash and burn. But anyway, there are about three proposals floating around to fix the problem. One would divert a portion, about 10 percent, of the current payroll tax to an individual retirement account. This account would be directed by you, or Beatrice in her case. This would give you the opportunity to invest in longer-term assets with higher returns, like stocks, mutual funds, and corporate bonds.
Uncle Art: Sounds good to me and Buford would be thrilled.
Me: One problem is that the reduced revenue may impact the current system. You see, most of the current benefits are paid by today's workers. Also, returns could vary widely.
Uncle Art: Wait, you mean my payroll tax is not in some type of savings plan for the future? It just goes out in payments to retirees?
Me: That's mostly right. Another proposal is to have government trustees invest in assets other than treasury bonds for higher returns.
A third plan would raise the tax rate. But this is seen as hurting lower wage and younger workers.
Uncle Art: Your cousin Buford asked why should we give government bureaucrats more money when they can't handle what they have?
Me: It's a good question. But to be fair, the Congress dictates most of the operation of the fund. The last proposal is to raise the age a person can retire and receive benefits.
Rick Glaze is owner of Glaze Capital Management in Los Altos. You may contact him at 947-9690. Messages can be left for Uncle Art.