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How America Can Afford to Grow Older: A Vision for the Future

Older workers can now continue receiving their full Social Security benefits if it becomes necessary for them to collect unemployment insurance for a while.

And unlike health care, Social Security does not need a radical overhaul. We don't have to dismantle this successful program in order to save it. There are reasonable, moderate changes we can make to achieve solvency and fiscal soundness, just as has been done before.

The President has said that all ideas are welcome. Here are a couple of examples that, combined, would get us well over half way toward solvency, and there are other possible options to consider:

Restore the total wages taxed by Social Security to 90 percent of nationwide earnings.

This would move the cap from $90,000 in 2005 to $140,000-perhaps phased in over a decade. It would lower the projected shortfall by some 43 percent.

Diversify Trust Fund investments in a total market index fund, like most pension funds, to get a higher return, which could fix about 15% of the problem.

Reasonable steps such as these, including possibly adjusting benefits, are enough to strengthen Social Security for the long term.

But taking money out of Social Security payroll taxes for private investment accounts would worsen the solvency outlook rather than improve it, and could lead to large benefit cuts. This approach is risky, hugely expensive and unnecessary.

Strengthening Social Security is the cornerstone of providing economic security for future generations, but creating and protecting pensions and savings are also essential.

Defined-benefit pensions are being replaced by defined-contribution plans like 401(k)s and IRAs. This shifts the investment risk to the individual. We have long championed improvements in these private accounts. But for a secure retirement, we need these savings in addition to Social Security, and definitely not at the program's expense.

The federal government's retirement system-the Thrift Savings Plan-does this now. Ironically, some of the supporters of private accounts at the expense of Social Security cite this program. Well, it's precisely the model we would like to see: Social Security as the foundation, supplemented by a private pension and savings.

As Henry Aaron at the Brookings Institution has shown, increasing national savings is a proven way to grow the economy while lessening the burden on future generations. But the savings rate in America is abysmally low.

People need to save more, and there are two steps we can take that are relatively simple. First, new employees joining companies with a 401(k) usually have to decide whether to join the plan. But if they were automatically enrolled and had to make a conscious decision to opt out, savings would increase dramatically.

The second way to increase savings is to provide an option for those receiving tax refunds to have all, or a portion of it, automatically deposited into the individual's savings.

According to the experts, these two steps alone could double the nation's savings rate and provide people with a much greater retirement income.

About half our working population does not have a pension plan. For these people, there are few options currently available to save for retirement. One choice is the saver's credit- an income tax credit that's available for eligible taxpayers who contribute to a retirement plan or IRA.

But the saver's credit is small, it expires in 2006, and it is not refundable. It should be enhanced and made permanent.

We also need to explore bigger ideas, such as a universal plan that would require employers to make available to each worker the option of a 401(k)-type retirement account.

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