MONEY GROWS:

President Discusses Social Security at Latino Coalition Conference (George W. Bush, J.W. Marriott Hotel, Washington, D.C., 5/04/05)

Franklin Roosevelt did a wise thing when he set up the Social Security system. A lot of people throughout the last decades have counted on a Social Security check to help them in retirement. As a matter of fact, I'm sure you know people in your communities that rely upon their Social Security check completely to make sure they have dignity in their retirement. It was a wise idea to set up the system, and I am mindful that when anybody in Washington talks about Social Security, a wave of fear ripples through the senior community because they think somebody is about to take their check away.

So I want to open my comments to you all to assure you that your loved ones who count on Social Security will get their check. Nothing will change for today's seniors who are getting a Social Security check. If you -- as a matter of fact, if you were born prior to 1950, nothing will change. The system is solvent enough to keep its promises. And that's very important for people to hear. So when you hear all these ads and propaganda saying, well, you know, talk about making sure the Social Security system is modern and seniors are not going to get your check, just know it's not true and please assure seniors it's not true, because it's not.

The safety net will work for them, but there is a hole in the safety net for a younger generation of Americans coming up. And here's why -- first, let me just describe the nature of the system, and that is it's a pay-as-you-go system. You pay in payroll taxes and the government takes care of retirees, and with money left over, spends it on other programs. And all that is left is a file cabinet with IOUs. See, some in our country believe that the system works this way: you pay in the system, we hold your money for you, and when you retire, we give it back to you. That's not the way it works. It's a pay-as-you-go system.

Now, the reason there's a hole in the safety net for people who are going to be paying into the pay-as-you-go system is because there are a lot of people getting ready to retire. We are called "baby boomers." I happen to be one. I'm retiring in four years. At least I'm eligible for my retirement. (Laughter.) I turn 62 in four years. There are about 75 million baby boomers who will be retired when it's all said and done. There are 40 million baby boomers -- I mean, retirees today. So think about that. We have 40 million retirees today, and in relatively quick order, there's going to be over 70 million retirees. We've got a lot more people that younger workers are going to have to pay for.

Secondly, we are living longer. I plan to live a long time. (Laughter.) It's why I'm exercising a lot. (Laughter.) It's why I'm making right choices about what I put in my body, and I suggest all Americans exercise more and be wise about what you eat and what you drink. It'll help you live longer, they tell me.

But a lot of us are going to live longer. And we've been promised greater benefits than the previous generation. So if you're a younger worker out there, you're now looking at more people retiring, who will be living longer -- in other words, you have to keep paying more monthly benefits over time, who've been promised greater monthly benefits. And there's going to be fewer of you paying into the system. In 1950, there were 16 workers for every beneficiary. Today, there is 3.3 workers for every beneficiary. In short order there will be two workers for every beneficiary. So young workers are going to be paying for more people, living longer, getting greater benefits. And the pay-as-you-go system goes negative in 2017. In other words, there's more money going out than coming in. And in -- and every year it gets worse. That's just the way it's going to work.

And so in 2027, you're going to be $200 billion in the hole, for example, it will be $300 billion in the 2030s, and the system is going to be broke in 2041. So you've got people who are starting to pay into the system now, who are paying into a system that's not going to be around. And I don't want to make younger workers a lot of -- nervous in America. The people who ought not to be nervous are the older Americans. You're going to get your check. It's the people paying for baby boomers like me who are going to retire who ought to be paying attention to this issue, because the system is insolvent.

So I have an obligation to encourage Congress to act. And Chairman Thomas knows what I'm about to say: the longer we wait, the more expensive it's going to be. If Congress chooses to do nothing on this problem, you're either going to have to raise your payroll tax to, some estimate, 18 percent, or cut benefits dramatically by 30 percent. So now is the time to get after it, in my judgment.

Obviously felt that way because in the State of the Union I spent a lot of time talking about it, and subsequently have spent a lot of time talking about it. I'm going to continue traveling our country making it clear to people we've got a problem, because, see, once they figure out we've got a problem, the next course of action is going to be to say to Congress, how come you're not doing anything about it? How come you're allowing partisan politics to prevent good people from coming together to solve the problem?

I have an obligation to put some things on the table, and I've been doing that. First, I believe that future generations must receive benefits equal to or greater than the benefits of today's seniors. Secondly, I believe this country needs to set a goal that says if you've worked all your life and if you paid into the retirement system to Social Security, you should not retire in poverty. To me, that's a noble goal. Frankly, it's the kind of goal that Franklin Delano Roosevelt would strongly support.

And so in my press conference the other night, I proposed a way of calculating future benefits for future retirees that says, if you're a low-income worker, your benefits ought to raise -- rise with wage increases, and if you're an upper-income worker, your benefits ought to rise with inflation. Seems fair to me. Seems like a noble calling for the United States of America, to recognize a lot of people work really hard and don't make a lot of money, but when it comes time to retire, there ought to be dignity in retirement. I also believe that younger workers -- and by the way, what -- that plan alone, that part of a plan, solves the majority of the solvency issue for a generation of Americans coming up.

In other words, what I'm talking about, making sure that we permanently solve the Social Security problem can be done. And I have an obligation to advance the process by putting out some ideas that I think are important. And I want to thank Chairman Thomas for his willingness to work with us on this issue, and I'll work with him on this issue.

Now I want to talk about something else that I think the country ought to consider, and this pertains to younger workers. I think younger workers -- first of all, younger workers have been promised benefits the government -- promises that have been promised, benefits that we can't keep. That's just the way it is. And I believe I have the duty as the President to be willing to confront that fact, to tell people the truth. The younger people in America got to understand that. We've given you promises we just can't keep.

But one way to make a permanent solution to Social Security system a better deal is to allow younger workers to take some of your own money and set it aside in a personal savings account that you can call your own. And the reason why that's important is because if you watch your money grow at a reasonable rate of interest, you know it compounds over time. There's a compound rate of interest, which means money grows and grows, bigger and bigger and bigger. For example, if you're making a $35,000 all your life, and you're allowed to take a third of your payroll taxes and set it aside in a conservative mix of bonds and stocks that have a reasonable rate of return, then when you get ready to retire, you'll have $250,000 as part of a retirement plan. You'll get your Social Security check, whatever the government can afford, plus money off of your nest egg.

Money grows. And the current system doesn't encourage, doesn't take advantage of compound interest. And so step one is, letting a younger person own their own -- manage their own money in a conservative mix of bonds and stocks will mean you get a better deal on your own money. This payroll tax is your money. And the government ought to say you get a better deal on your money, and you can watch it grow.

Secondly, I like people owning something. The more people own assets, the better off America is. I reject this notion that the investor class is limited to only a certain kind of person. The more moms and dads accumulate assets, the better off it is for American families. I want more people being able to say, this is mine, the government can't take it away, the government can't spend it, it's not a part of a pay-as-you-go system. And when you pass away, you can leave it to whomever you choose. That's a part of America. And more people that have that -- (applause.)

This idea, I think, is fair. It means you get a better deal on your own money. It's fair; it encourages ownership. Listen, the system today is a lousy deal for widows. The way it works today is if you and your spouse are working and one of you dies early, then the spouse upon retiring gets to choose the survivor benefits that your spouse has paid into the system, or you own benefits, which is ever higher, but not both. So think about that. Somebody may have died at age 52, started working at age 22, worked 30 years and put all that money in the system, and his or her spouse ends up having to choose, to decide what retirement account he or she wants -- the one she contributed to or the one he contributed to, but not both. In other words, the money goes away.

In a personal savings account, as you watch your money grow, a worker sets aside money in an asset base. That asset can go to help the widow or the surviving spouse. The system isn't fair today. And we need to make it fair. And we can make it more fair for people at the lower end of the income scale.

Now, I want to -- and during this conversation some things will come out that I think probably -- hopefully some questions will come out that are on your mind.

I want to address a couple of things. One, I understand there is a need for more financial literacy in America, and so I've instructed the FDIC and the SBA and the Treasury Department to work with the Latino Coalition and the Hispanic Chamber and other groups to help make sure that financial literacy is more widespread in all neighborhoods and all communities. (Applause.) FDIC has got the money smart financial workshop program. They're going to work with the Latino Coalition. SBA has got a negocios.gov program on the web page. Treasury has got all kinds of financial learning materials that we can spread out, and we need your help.

Secondly, what I'm talking about, though, is happening in America already. In other words, I'm not inventing something new to say to somebody, you can invest your own money. When I was coming up, there wasn't a lot of talk about 401(k)s or IRAs. There wasn't any. And today -- yesterday I had an interesting experience. I went down to the Nissan plant in Canton, Mississippi, and it was a very diverse audience, a lot of assembly-line workers. And I said, how many of you all have got your own 401(k)? I mean, the number of hands that went up was astounding. You've got people from all walks of life managing their money already. People are getting used to it.

Matter of fact, this was such a good idea that the United States Congress a while ago decided in the Thrift Savings Plan, the Federal Thrift Savings Plan, to allow federal workers -- members of the United States Congress and members of the United States Senate -- to manage their own personal account. See, and the reason why is, I'm confident they took a look at the rate of return a government can get versus the rate of return that you can get in a conservative mix of bonds and stocks, and decided they want their money to grow -- they want to watch their money grow faster, than that available to the government, and so they said, they just decided we'll get to do this, too.

If it is good enough for a member of the United States Congress to set aside some of his or her own money in a personal savings account so they get a better rate of return, they can pass it on to whomever they want, it ought to be good enough for workers all across the United States of America. (Applause.)