Social Security enjoys unparalleled popular support among Americans of all ages, and the public believes in a continuing strong role for the program in the future. The question before the White House Conference on Social Security, and ultimately our nation's leaders, is how to preserve Social Security's fundamental protections and strengthen the program for generations to come and how to expand employer based pensions to the half of all Americans who do not now have them and increase retirement savings.

Fortunately, there is no immediate crisis. Social Security is on solid financial footing for the foreseeable future. According to the recently released report from the Social Security trustees, without any change in current law the program can pay all the benefits currently promised until 2034 and over 70 percent for decades thereafter. Just as we have done before, we will need to make some prudent changes to Social Security. Acting sooner rather than later means the changes can be more moderate and those affected will have more time to adapt their retirement plans.

As we consider the options, we should recognize Social Security's value and uniqueness. It provides lifetime income protection for workers and their families against financial hardship resulting from the retirement, disability, or death of a wage earner. Social Security is the primary and only assured source of retirement income for most older Americans. Social Security provides a guaranteed income stream, adjusted annually for inflation, that you can't outlive. In fact, without Social Security, almost half of older beneficiaries would be in poverty. Social Security's current benefit levels are particularly essential for low-income and long-lived retirees. The benefits guarantee a base of income for those who are least able to save or who have no pension benefits. Social Security also provides the only long-term disability coverage for 3 out of 4 workers, as well as life insurance protection for 98 percent of the nation's children. The combined value of Social Security's survivor and disability components for a worker, a spouse, and two children is estimated at a half million dollars.

Social Security functions as the foundation for lifetime family income protection on top of which workers can add pensions and individual savings in order to build a secure retirement. This approach to retirement spreads the risk and responsibility among the government (Social Security), employers (pensions) and individuals (savings and investments). Despite this goal, two out of three older beneficiaries today count on Social Security for at least half of their income, and nearly one third rely on it for at least ninety percent of their income. Social Security's predominant role reflects shortcomings in the pension and savings components. Our elected officials should consider the entire retirement income framework as they examine the options and tradeoffs for modifying Social Security. While we need to expand pensions and improve retirement savings, these changes must be in addition to the guaranteed benefits provided by Social Security. Simply replacing Social Security benefits with benefits from individual accounts is inadequate in this large context.

While most experts agree that some modifications will be needed to strengthen Social Security over the long-term, there is considerable disagreement about what is the best approach. Historically, solvency packages have included a balance of benefit reductions and revenue increases. The report of the 1994-1996 Social Security Advisory Council added a new element into the picture: private market investment (sometimes referred to as privatization). It is tempting to view the private markets as the "free lunch" that helps avoid the tough choices, but as we all know, there is no free lunch.

If market investment is part of the solution – either by individuals investing a portion of their payroll taxes or through diversified investment of the trust funds themselves – it is important to understand that other changes will still be necessary. For example, under a so-called "carve-out" approach, if a portion of existing payroll taxes is used for private accounts, the underlying program will have less revenue to fund the benefits of those currently or soon to be receiving them. This would require dramatic cuts in benefits well beyond what is currently needed in order to restore long-term solvency. After a long transition period from the current system to a restructured system that includes individual accounts, some investors may be able to amass a sufficiently large portfolio to offset the benefit cuts. However, many others would not, particularly when one factors in higher administrative costs and uncertain investment returns. While individual savings for retirement are essential, retirement savings accounts should be an addition to, not a replacement for, Social Security's lifetime benefits.

AARP has a number of principles and policies that will guide us as the Social Security issue moves forward. We believe the program should continue to provide a guaranteed income foundation for workers who retire (including those who retire early), for wage earners who become disabled, and for the families of deceased workers; and believe the system should include everyone. We support linking benefits to a worker's time and earnings in the labor force and providing benefits to all who earned them. And, once benefits begin, they should be adjusted for inflation so that workers do not become poorer in real terms as they become older. We believe everyone who is financially able should make some contribution to strengthening Social Security. Those who are low income or who are already receiving benefits should be appreciated, protected, and we should ask those who can afford it to sacrifice a little more.

Social Security is the solid foundation on which income security is built, and all of us have a role to play in ensuring that we strengthen the program. As we look at ways to reform Social Security, we must not jeopardize the guaranteed benefit base that Social Security provides. In addition, each of us has a responsibility to plan for the future through pensions and individual savings. We must also remember that health insurance has become an increasingly critical part of retirement security. While Social Security should continue as the foundation, a secure retirement also requires sound coordinated public policy on Medicare, private pensions, and individual savings.