Explore the Origins of Social Security

President Bush has been barnstormingfrom coast to coast tryingto drum up support for hisSocial Security proposals. But as the presidentpaints the Social Security problemas a crisis, others see it differently. Forexample, when asked if he agreed, FederalReserve Chairman Alan Greenspanrefused to describe the Social Security situationas a crisis.

More Equals Less

When the Social Security system wasestablished in the late 1930s, on average,most people worked between 40 and 45years and lived only into their 60s. Forexample, the average woman lived to age66 and the average man lived to age 62.So, most people contributed to SocialSecurity for years, but collected benefitsfor only a year or two.

Today, however, the average man livesto age 75 and the average woman lives toage 80. Therefore, assuming a normallifespan, if you go to college and enter thework force in your mid-20s, you'll work for40 years and collect benefits for 10 or 15years. Clearly, that was not the originalexpectation when the Social Security programwas established.

Many factors have helped to extendlife expectancy over the last century.Infant mortality declined dramatically andthe population became vaccinated againstseveral deadly diseases. Today, when peoplereach age 65, they expect to live to aripe old age thanks to advances in medicine.Progress in treating cancer is alsohelping to extend lives.

Realistic Expectations

When you hear the discussion turn toreduction in benefits, this is the most obviouschange that should be enacted. It'sactually the direction that Congress pursueda decade ago, when it set out toestablish new ground rules for SocialSecurity and ensure its solvency. Theretirement age is already inching towardage 67, and it should be raised to 70 forregular benefits. Thus, early retirement atage 62 no longer seems appropriate.

It's interesting to note that the numberof retired folks has grown by only 10.2%since 1992, while the population of thoseunder age 65 has grown by 13.5%.However, the number of citizens who fallin the 45 to 64 age group who will turn 65in the next 20 years is now 38% larger. Thedanger is not now; the danger lurks in2025 and beyond.

In my decades on the investment scene,I have observed that the average person istoo emotional about investing to makewise choices over long periods. Peopletend to rush to stocks when they're risingand rush to bonds when interest rates areabout to change. Also, the cumbersomenature of making small annual investmentsisn't practical.

Although IRAs and 401(k) plans havebeen effective vehicles for people whomake regular deposits, the people whoare most likely to need Social Security benefitsoften barely earn enough to make itthrough the year, never mind save.Altering age eligibility and reducing somebenefits seems the best alternative thusfar presented in the hot debate.

Joan E. Lappin, CFA,

is the

chairman and chief investment

officer of Gramercy

Capital Management Corp, a

NYC-based registered investment

advisor. Gramercy develops

personally managed

portfolios tailored to your investment goals. Ms.

Lappin has been featured in several prominent

publications, including BusinessWeek. She welcomes

questions or comments at 212-935-6909.