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Bush Urges Younger Workers to Open Individual Retirement Accounts

One of President Bush's biggest domestic goals for a second term is changing the way Americans pay for their government retirement plan. That program, known as Social Security, will ultimately run out of money, as fewer workers are supporting more and more retirees. White House Correspondent Scott Stearns reports, opposition Democrats say the president's plan will ultimately reduce benefits.

President Bush wants younger workers to use some of the money they pay in taxes to open individual retirement accounts to invest in the stock market.

He says that will give them a higher rate of return than the two percent average earned on Social Security, ensuring they have enough savings to retire on after the current system starts running out of money in less than 15 years.

During this election, Democrats sought to appeal to older Americans by saying President Bush wants to raid Social Security and cut their benefits. But unlike the vote four years ago, President Bush won the support of 54 percent of people over the age of 60.

He responded to Democratic Party attacks by seeking to balance the need to reform a financially unsustainable program with a personal promise, not to touch money already guaranteed those who have spent a lifetime paying into the system. Mr. Bush noted that he is part of the so-called Baby Boom generation, born in the 15 years after World War Two.

"Our seniors will continue to get their checks. Baby Boomers like me, and a couple of others out there I see, we're in pretty good shape when it comes to the Social Security trust," Mr. Bush says. "But we need to worry about our children and our grandchildren. We need to worry about whether or not Social Security will be available for them when they retire. I believe younger workers ought to be able to take some of their payroll taxes and set up a personal savings account, a personal savings account that earns a better rate of return than the Social Security trust, an account they call their own, an account the government cannot take away."

President Bush says his re-election earns him political capital that he intends to spend.

"We'll start on Social Security now. We'll start bringing together those in Congress who agree with my assessment that we need to work together," Mr. Bush says.

Democrats say shifting resources from Social Security means less money will be available in the overall account to help seniors and the disabled. The federal government would then have to spend more money to keep the program going, while younger workers invest in stocks. Some estimates put those so-called transition costs as high as two-trillion-dollars.

But proponents of the president's plan say doing nothing will be even more expensive in the long-run, as the program is already under-funded by 26-trillion dollars over the next 75 years.

Recent drops in the stock market following the collapse of Internet-related stocks that soared in the 1990s and the terrorist attacks of 2001 have also raised concerns that American workers could lose their whole retirement savings in the volatility of the market under Mr. Bush's plan.

Michael Tanner heads the Project on Social Security Choice at the Washington research group, the CATO Institute. He says those risks can be minimized by limiting investments to mutual funds.

"Nobody is suggesting that workers are going to sit down and take the Wall Street Journal every night, and pick between General Electric and General Motors," Mr. Tanner says. "We are talking about people investing in broadly-diversified index-style funds that cross classes and are diversified across the entire market, and over time, are remarkably safe."

President Bush says he realizes such sweeping changes to a program that is so politically-charged will be difficult to get through Congress, without at least some opposition support.

"It's not easy. I readily concede I have laid out some very difficult issues for people to deal with," Mr. Bush says. "Reforming the Social Security system for generations to come is a difficult issue, otherwise it would have already been done. But it is necessary to confront it. And I would hope to be able to work with Democrats to get this done. I'm not sure we can get it done without Democrat participation."

In a post-election address vowing to work with the president on issues from reforming intelligence to changing the tax code, House Minority Leader Nancy Pelosi made clear that Social Security is an issue on which Democrats are prepared to stand their ground.

"The president has proposed privatizing Social Security, which would cut the benefits that provide financial security for millions of seniors and the disabled," Ms. Pelosi says. "Democrats have always protected Social Security, and we will continue to do so."

President Bush has not endorsed any specific legislation on Social Security, nor has he released any estimates of expected transition costs, or whether there would be a need to ultimately raise the retirement age to keep more workers paying into the system longer.

While Democrats oppose what they call the president's plan to privatize Social Security, the financial reality of an aging population means something has to change sometime.

Analyst Michael Tanner believes that means joining much of the rest of the world in privately-invested retirement accounts.

"People all over the world are investing privately. Virtually all of Latin America uses individual accounts," Mr. Tanner says. "Eastern Europe uses individual accounts, Southeast Asia, even in the People's Republic of China, workers in urban areas are able to invest privately. So, I think the American worker can do about as well as the rest of the world."

If nothing is done, Social Security will start running a deficit by 2018, which, by law, means the government will have to raise taxes or cut benefits. Neither is politically appealing. The question is whether politicians want to tackle the problem now, or wait until its costs rise higher.