Social Security can be changed to make it viable

Federal Reserve Chairman Alan Greenspan successfully touched the "third rail" last week and survived. But then he doesn't have to worry about being elected to his office.

Those who are elected immediately rejected his call to reduce Social Security benefits to deal with what Greenspan described as a pending funding crisis when baby boomers retire. The AARP, an organization representing seniors, also rejected the call for cuts as unfair to retiring baby boomers.

The Social Security program is called the "third rail" - referring to the electrified rail for trolley cars - because politicians who seek changes in the popular benefit often face angry voters and the possibility of getting kicked out of office.

Greenspan has no such fears because he is highly respected for the job he has done with the independent Federal Reserve to help keep the economy on an even keel. His proposal for Social Security was an attempt to head off a rise in interest rates that could result from pension program deficits.

The Fed chairman specifically proposed changing the way cost of living increases for inflation are figured so that it relies on a cost index that provides lower increases. Even a small reduction in such adjustments can result in many millions of dollars in savings each year.

Greenspan also suggested increasing the age at which people can retire since the average lifespan has increased. When the Social Security retirement age was set at 65 (now gradually being increased to 67), the average lifespan was 64. Now it is in the 70s.

In many ways the Social Security program is deceptive. A lot people view it as something like a savings account in which you pay in during the working years and draw the money out when you retire. In reality, benefits are paid from the contributions of current workers.

And there lies the problem. There are more and more retirees and fewer workers to pay their benefits. It is predicted the program will go into a deficit in the not-too-distant future, forcing higher Social Security taxes, general taxpayer subsidies or cuts in benefits.

Greenspan is right that Social Security needs to be addressed. Putting it off to the future simply limits the available options. The answer lies not in breaking promises to retirees, however, but in restructuring the program so that it is truly like a savings plan for younger workers.

Contributions should actually be earmarked to individual workers and receive an established rate of return, much like a savings account or the popular 401(k) plans. Workers should be given the option to invest some of their contributions as they see fit to try to get a higher rate of return and the benefits should be fully transferable to a beneficiary of choice, something that is not possible with Social Security.

These changes will not benefit workers nearing retirement. They will have to rely on the government's promise to provide a certain level of benefits. But the changes will be the salvation of Social Security for younger workers who have many years left until retirement.