St. Petersburg Times

October 07, 2001, Sunday, 0 South Pinellas Edition

SECTION: BUSINESS; ROAD TO RETIREMENT: A SPECIAL REPORT; Pg. 11H

Assessing how secure Social Security is

by HELEN HUNTLEY

Remember the old three-legged stool? Financial advisers used to emphasize that it took three legs to support a secure retirement: a company pension, Social Security and savings. Then the first leg got whacked off for most workers; only 20 percent are still covered by a traditional pension plan that pays a fixed income at retirement.

Now the second leg is being whittled away, leaving workers more dependent than ever on their own savings and investment performance. Congress already has delayed the normal retirement age to 66 or 67 for most workers, and that is not likely to be the end of the changes. Otherwise, retiring waves of baby boomers will bankrupt the system. The underlying problem: Instead of 3.4 workers for every retiree, as there are now, there will be just two workers paying taxes for every retiree collecting benefits.

How the system will change is a long way from being determined. But publicity about the problems has made many workers doubt Social Security will be around when it is their turn to collect.

"I don't think Social Security will make it that long," said 27-year-old Bryan Marks of St. Petersburg, a marketing specialist and commercial artist. "To be forced to pay and then at the point when you're supposed to get something back to not have that as an option is almost like stealing."

Marks said doubts about the future of Social Security have motivated him to invest more for his own retirement. "I want to be able to know that I can take care of myself and not rely on the government," he said.

That type of self-reliant approach makes a lot of sense, particularly for younger workers, said Greg Rosica, a certified public accountant and partner with Arthur Andersen in Tampa. "For a person retiring in the near future, maybe 55 or older, you have some reasonable basis to rely on it," he said. "But further out, for a lot of the planning we're doing, we're assuming it doesn't exist."

The better-safe-than-sorry approach is probably smart for high-income workers. But saving enough to make up for the loss of Social Security would be a daunting task for most others. For nearly two-thirds of Americans 65 and older, Social Security accounts for half or more of their total income.

An average earner retiring this year was eligible for $ 12,612 in yearly benefits, adjusted each year for inflation. To replace that kind of inflation-protected income would take a nest egg of a little more than $ 250,000.

But some financial planners think predictions about the demise of the system have been overdone. "I tell people not to get panicky about Social Security," said Philip Price, a certified public accountant in Crystal River. "I'm more encouraged about Social Security than I have been in years. I don't think the government has a prayer of reducing Social Security. They might try to stretch out the retirement age, but it will be so far out that it will only affect the young."

Currently Social Security taxes generate a surplus that Congress has tapped for years to help finance the rest of the federal budget. Campaign rhetoric about keeping the money in a "lock box" focused attention on the issue, but after last month's terrorist attacks, protecting Social Security has taken a back seat to building up the military and saving the airlines.

But down the road, about 2016, there will not be anything left for the government to borrow as the benefits being paid out begin to exceed the taxes collected. At that point, the Social Security Trust Fund will need to start cashing in the more than $ 1-trillion in government bonds it holds in reserve, representing the money it has lent to the rest of the government.

Then about 2038, there will be no more bonds left to cash.

How will Congress respond to the dilemma? It might cut benefits or increase the retirement age again. It might make Social Security a welfare program, available only to low-income retirees. It might raise payroll taxes or make up the Social Security deficit with general tax revenues. It might revamp the system for younger workers, allowing them to divert part of their taxes to private accounts, though perhaps requiring them to give up all or part of their regular benefits in exchange.

A presidential commission has been created to come up with a comprehensive reform proposal and President Bush has laid out his agenda: He does not want to change benefits for those who are retired or near retirement or to increase the payroll tax. He also has been a strong proponent of private accounts.

But any solution is bound to be complicated. Private accounts, for example, might provide workers a better return on their investment, but stock market reversals could cost them that advantage. And any movement to private accounts would require some transitional funding to pay the benefits to older workers. In the meantime, workers will just have to stay tuned - and work on their contingency plans if they can.

When you can retire

Normal retirement age is no longer 65 if you were born after 1937. Many workers will have to wait until 66 or 67 before they can collect full Social Security benefits - if Congress doesn't change the law again before they reach those age milestones. The delayed age for full retirement means a greater reduction in benefits for those who start collecting at age 62 and an increased credit for those who delay retirement.

Year of birth/ Normal Retirement Age/ % benefit increases for each year of delayed retirement/Reduced benefit collectible at age 62

1937 or earlier 65 6.5% 80%

1938 65 years and 2 months 6.5% 79.2%

1939 65 years and 4 months 7% 78.3%

1940 65 years and 6 months 7% 77.5%

1941 65 and 8 months 7.5% 76.7%

1942 65 and 10 months 7.5% 75.8%

1943-54 66 8% 75%

1955 66 and 2 months 8% 74.2%

1956 66 and 4 months 8% 73.3%

1957 66 and 6 months 8% 72.5%

1958 66 and 8 months 8% 71.7%

1959 66 and 10 months 8% 70.8%

1960 and later 67 8% 70%

Source: Social Security Administration