03:07 PM EST on Tuesday, March 29, 2005

Frank the Moderator: Greeting everyone. Thanks for joining us today for our second business chat. Journal business writer David McPherson is logged on to answer questions about Social Security issues. Please submit your questions.

Frank the Moderator: At what age should I start to worry about Social Security benefits, really. Take, for instance, a 35 year old with a steady job and steady contributions to a 401k, who is not really relying on SS benefits anyway, should he/she be paying attention to this situation?
David McPherson: The short answer is yes, every worker regardless of age should be paying attention to the current debate on Social Security. In fact, it is the younger workers who have the most at stake. Under President Bush's proposal, anyone 55 or over would see no changes at all. Today's 35-year-old, however, would be in the midst of retirement in 2041, just when the Social Security system is projected to be running short of money to pay promised benefits.

Frank the Moderator: What role will the AARP play in this situation. Can the president afford to upset these people?
David McPherson: The AARP is a powerful political force and some observers believe it has done a better job than the president in getting its message out. The president's allies have been counting on younger workers to support the idea of individual accounts, but so far they seem to be less engaged than the AARP.

oscar: Can you talk a little about how these private accounts would work. Would one have control over how the funds were distrubuted, and what percentage would go where. Thanks.
David McPherson: The president has yet to unveil a detailed proposal on individual Social Security accounts so knowing exactly how they would work is tough to say. But it appears they would work somewhat like 401(k) accounts. Workers would have an array of investment choices to pick from and they would decide for themselves how much to invest in each option. Some would invest conservatively; others would be more aggressive.The most frequently cited model for individual accounts is the thrift savings plan now in place for federal workers.

zoldano: Given that Social Security won't amount to much even if we keep working like crazy into our 60s, which do experts say is a better option for saving: 401K plans or fixed pensions?
David McPherson: I wouldn't look too harshly on Social Security. Even though it won't make you rich, it can still add up to a decent sum. A worker who has access to all three -- Social Security, 401k and a traditional pension -- is probably in very good shape. As for traditional pensions, fewer and fewer companies are offering them to new employees. But there are those who have both a 401k and a traditional pension, and they should take advantage of both.

susie: My 401k is sinking. My parents earned their retirement bounty in the days of high ingflation -- 18-20% interest on long-term CDs and a Treasury note. If SS is going to depend on the choices in my 401 k -- no Google, for instance, just a blend of defense, pharmaceuticals, etc. I don't see how I can retire at the same standard they did.
David McPherson: The uncertainty surrounding investing Social Security funds may be one reason the idea has not caught on like President Bush's people had hoped. Some folks figure they've taken on enough risk in 401k plans, and they like the certainty of a monthly Social Security check. Investors have not forgotten the dot-com crash. At least not yet.

susie: How come there are supposed to be fewer workers later. Didn't baby boomers have kids? The population is still rising. (Yes, I suspect that our money would be put to use to artificially boost Wall Street rather than languishing in safe place.)
David McPherson : The baby boomers had children, just not as many as their parents. Also, Americans are living longer in retirement. Together those factors mean down the road there will be just two Americans working for every one collecting Social Security benefits. That makes it tougher to support the system and is leading to the calls to fix it.

susie: Companies have been ominously quiet about the proposal that we retire later, but every workplace I know tries to get rid of older workers, with their higher healthcare costs and accrued pensions, for younger, cheaper workers. Is this a case of something that looks good on paper, but if it ever takes hold, companies will say they meant older workers would retire from their company and go work at Home Depot?
David McPherson: It is true older workers are more expensive, but in a few years they may have no choice but to recruit older workers. And that won't be restricted to just Home Depot. Also, 401k plans and other defined-contribution plans are less expensive with regard to older workers than traditional defined benefit plans. That should make companies more willing to employ older workers.

Frank the Moderator: Talk a little on what you and The Journal are planning on to follow this story. And what is next on the govt's agenda?
David McPherson: We will be following the debate in Washington closely, and, in particular, we will be interested in seeing how Sen. Lincoln Chafee of Rhode Island votes on the Social Security issue. He could be a key swing vote on any Social Security bill and has been part of a group of Senate moderates meeting on the issue. Also, when the president puts forth a firm proposal we will look at how it would affect local people. I would say the next step is to look for the president's proposal and keep an eye out for proposals to close the projected funding shortfall either through higher taxes or lower benefits.

susie: You said, "It is true older workers are more expensive, but in a few years they may have no choice but to recruit older workers. " I don't get it. They're outsourcing jobs everywhere -- why do they need more of us at all?
David McPherson: Though it may seem that way sometimes, not every job can be shipped overseas. Also, demographers predict that as baby boomers retire, there will be a shortage of workers and employers will be crying out for help.

Frank the Moderator: Thanks to David McPherson for answering some questions this afternoon. And thanks to the visitors who joined in. We'll have another business chat next Tuesday at 2 pm. Stay tuned for more details.