Retire later so as to help Social Security?


WASHINGTON -- Al Gore thinks it is risky. The antecedent of the pronoun "it" could be anything (school choice, tax cuts, entitlement reforms, the internal combustion engine, repeal of the designated hitter rule) that George W. Bush favors. But the risky thing currently alarming Mr. Gore, a professional hysteric, is Governor Bush's proposal to allow Americans to invest a small portion of their payroll taxes in personal retirement accounts.

The biggest risk is in doing nothing -- neither raising Social Security taxes nor cutting benefits nor causing, as Governor Bush proposes, retirement funds to grow faster. The Social Security Administration says doing nothing will force a 25 percent to 33 percent reduction of benefits for 150 million people currently under 40.

Some critics of Governor Bush's plan worry that individuals might invest retirement funds recklessly, assuming that government would be the insurer of last resort -- that if there were a long cycle of declining share prices, government would at least cover their losses. But under Governor Bush's plan, investors would choose not individual stocks but a few "steady, reliable funds."

The most risk-free way (free of economic risk; political risk is another matter) to start fixing Social Security would be to raise the retirement age. If in 1935, when Social Security was enacted, the retirement age had been indexed to life expectancy, the retirement age today would be about 73.

Governor Bush's basic approach is supported by many Democrats.

He notes that liberals should know by now that inheritance taxes are ineffective at doing what something like the Bush approach to retirement security would do -- help narrow the gap between rich and poor. Allowing people with modest resources to attempt to multiply those resources in the stock market is the best way to open broader access to affluence.

However, although about half of American households now own stock, Mr. Gore portrays the stock market as irrational, like gambling (last week he referred to "stock market roulette" and "rolling the dice"), and riddled with fraud. Pandering to students at the Fordham Business School in Manhattan, he said:

"Tens of millions of investors who have not gone through the Fordham Business School, who have not had an opportunity to gain some basic knowledge to protect themselves against fraud, would be placed in a situation where a lot of financial shenanigans could take place, where they are losing their investments because they are not equipped in the way that sophisticated investors are."

Is Mr. Gore saying tens of millions of Americans are invincibly ignorant when making choices about their financial security? Or that they should be shut out of today's wealth-creation because the government cannot police economic fraud in the stock market?

Is it market volatility that supposedly makes Governor Bush's proposal unacceptably risky?

Daniel Mitchell of the Heritage Foundation answers that personal retirement accounts are long-term investments that can withstand periodic volatility: "Over the past 70 years -- a period that includes both the Great Depression of the 1930s and the one-day decline of 20 percent in 1987 -- annual returns in the stock market have averaged more than 10 percent (more than 7 percent after adjusting for inflation)." This is far better than you do under Social Security in terms of taxes paid and benefits received.

Mr. Gore warns that Governor Bush's proposed personal retirement accounts would divide Americans into winners and losers. Actually, the basic division would be between winners and even bigger winners. Mr. Mitchell says that looking at the best and worst 46-year periods (the span of an average person's working life) in market history, workers' personal retirement accounts in the best period would have done almost twice as well as those in the worst, but those in the worst would have done much better than by relying on Social Security alone.

Congress does not rely on it. Under the Thrift Savings Plan, members of Congress, and other federal workers, can invest up to 10 percent of their salary annually in one of three retirement funds -- one stock-based, one based on corporate bonds, one based on government bonds. Over the past 10 years the average return has been 18 percent. Last year's return was 20.95 percent.

The 1988 legislation creating this plan was co-sponsored by Mr. Gore.

Today, in his infinite condescension toward the American public, he thinks that plans of the sort Congress created for itself and other federal workers, and that Governor Bush proposes for all Americans, are just too complex ("risky") for "tens of millions" of Americans.

George F. Will is a syndicated columnist.

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