Social Security IRAs: A Partial Fix to the Reform Problem?

While Congress and President Obama battle over ways to "fix" Social Security, the Association of Mature American Citizens sees a possible solution to part of the reform brouhaha -- a Social Security IRA.

In a recent poll, 80% of the members of the small group that bills itself as "the conservative alternative to AARP," said they support the idea of a Social Security IRA being part of a comprehensive Social Security reform package.

Those AMAC members surveyed backed the notion of younger people being able to have a tax deductible Social Security retirement account that they could start drawing upon between the ages of 62 and 65.

In a prepared statement, Dan Weber, AMAC's president, suggested that such Social Security IRAs could be sold by current providers and that ideally, employers would be encouraged to offer payroll deductions for such accounts, allowing them to voluntarily match a portion of what their employees put in. As described on the organization's website, the Social Security IRA would be tax deductible, payroll deducted and put into an individual IRA owned by the wage earner. The funds invested would not be accessible until either age 62 or 65. It could be started with as little as $5 per week and be put into a plan offered by the same companies that presently offer IRAs and 401(k)s.

The Downside of IRAs: Risk

However, Social Security IRAs are not issue-free. "The biggest risk would be that people that depend on Social Security the most would not be able to handle the ups and downs of the markets and would make poor investment decisions if left to their own devices," says Benjamin Stacy, senior vice president, investments at Hager Dennerll & Stacy Wealth Solutions of Raymond James & Associates. "Now, if the proposal would be to have a professional invest a portion of that over time, this would be a boon for our country and the overall soundness of the system."

Then too, "The big problem is how to convince Congress and the White House that SS IRAs are economically efficient and politically feasible," says professor Zvi Bodie of the Boston University School of Management. "I believe a private retirement annuity solution, a partnership between employers and employees, would be much easier to sell in Washington." The AMAC's lobbying power in D.C. would certainly be dwarfed by that of the AARP, whose membership of more than 40 million is at least 250 times as large as that of the conservative group.

Also, in AMAC's poll, 10% said they would favor simply changing the maximum benefits package from 66 to 69 without a Social Security IRA option. Fully 90% said they would opt for an increase in the age of eligibility to 69.

AMAC members however, pretty much gave a thumbs down to the idea of raising payroll taxes. Only 7% favored a hike in payroll taxes as a means of keeping Social Security solvent.

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Weber says his 160,000 member organization is revved up about offering solutions, particularly after President Obama's pronouncement that Social Security checks might not be mailed on Aug. 3 if Congress doesn't take action on the debt ceiling issue.

Said Weber, "The numbers clearly speak for themselves and they show older Americans want meaningful reforms of Social Security. They want real reforms that not only help maintain the solvency of the fund, but give future retirees an opportunity to enhance retirement benefits through such means as tax deductible IRAs."