COMMENT The challenge posed by the impending retirement of the baby boomers and the potential financial problems facing Social Security in the US are widely acknowledged. While George W. Bush has not provided the details of his reforms, it is clear that the president intends to take both "security" and "social" out of Social Security. The programme that has done so much to eliminate poverty among the aged will no longer be up to the task, as individuals are left more vulnerable to the vagaries of inflation and markets. Depending on the exact details of the reform, the "guaranteed" annual income for future retirees may be as low as $5,000 to $10,000 at today's value. Changing from wage to price indexing of benefits, as is proposed, seems innocuous but if productivity continues to grow, and wages grow commensurately, there will be an increasing gap in living standards between the elderly and the rest.
This is a high price to pay. But will the reforms prepare America better for the problems of the baby boomers? The answer is no. There are three key issues. What will happen to the deficit? What will happen to national savings? What will happen to the financial solvency of the remnants of the Social Security system? Individual accounts do little in any of these three areas, and may make matters worse.
