NEWSLETTER # 28 WINTER 2002 - 2003
NEWSLETTER # 28 WINTER 2002 - 2003
Main Topics
MEMBERSHIP
Thanks to everyone who has rejoined for 2003, and special thanks to those who have rejoined for 2004 or beyond. A red mark here indicates you haven’t yet rejoined for 2003. In that case an envelope is enclosed for your convenience.
We have an important mission, and the larger our membership, the more effective we’ll be. So, please rejoin now and get us some new members. Even one or two will be a big help – it all adds up.
In early February, we’ll send an editorial article (“Op-Ed Piece”) to 125 major newspapers, covering all 50 states, attacking “AARP-DC”. We hope that many will publish it because of the news value of such an attack.
Our objects are to dilute the harmful effects of AARP policies, and to boost SAFE membership. We consider this a major effort; considerable effort was spent in composing and editing the article.
To get an idea of how many papers publish the article, we will ask 80 of our members outside of Delaware to monitor a nearby newspaper. Even if you are not one of the 80 and see the article, please clip it for us anyway.
Also, please feel free to use the article “as is” or edited as you choose. If you want to do this, please call to check to make sure you don’t send it to one of the 125 newspapers (no need to check if it’s a small paper).
Or, use the article as the basis for a smaller “letter to the editor”. In any case, if you are published we’d like a clipping. See pages 2-3 for the article.
We’re leaving a huge federal debt and a Social Security problem to the next generations, and AARP is part of the problem.
The problem is not AARP members. In fact, many provide valuable volunteer services such as income tax help and driver training. The problem lies with AARP’s Washington, D.C. office and its lobbyists. For brevity, let’s call this combination “AARP-DC”. AARP-DC works against the interest of most AARP members.
Most AARP members favor smaller government, but AARP-DC pushes for bigger government. If AARP-DC’s complete legislative agenda were enacted, federal government spending would increase by a whopping $944 billion per year, according to the National Taxpayers Union Foundation.
The AARP-DC support of big government works against paydown of federal debt. If debt paydown is not resumed soon, the next generations will have to cope with interest on the debt that could outpace military spending.
The future of Social Security is at risk. There will be only two workers per retiree after the baby boomers have retired. Down the road, payroll taxes will have to be increased about 50% to pay full Social Security benefits, according to the Social Security trustees. An alternative would be a one-third cut in benefits – highly unlikely, considering the political clout of retirees.
AARP-DC sidesteps the problem by pretending there is money in the Social Security trust fund. For example, at a November 19, 2002 talk before the National Press Club, Bill Novelli, Executive Director of AARP said: “Social Security can pay full benefits until 2042 - -”. (He refers to use of the Social Security trust fund). This implies that there is money in the Trust Fund, and that the Social Security problem will not hit before 2042. Actually, the problem will hit about 2017 when benefits begin to exceed payroll taxes. The Trust Fund consists of nothing more than IOU’s, and in order to redeem the IOU’s after 2017, the government will have to increase taxes or borrow money.
A solution to the Social Security problem has already been implemented in over 20 countries, including Great Britain, Germany, Ireland, New Zealand, and now Sweden. This solution involves allowing workers the choice of using part of their payroll taxes for Personal Retirement Accounts. The advantage is that long term returns after correcting for inflation are about 7% for stocks and 3% for bonds. With standard Social Security, returns on payroll taxes for future retirees will average about 1%.
An argument made by AARP-DC and others against this solution is that it is too risky. However, the current proposal is that only 2% of income be used and that workers must choose among investment professionals who would be required to make broad-based investments. In fact, in spite of the recent market drop, if this proposal had been in effect for his or her entire career, a worker retiring today would be well ahead of standard Social Security.
The standard Social Security system is risky for today’s young workers. The political clout of future retirees may not be sufficient to maintain the present level of benefits when there will be only two workers per retiree. Future retires may have to accept a cut in benefits to help fill the future gap between payroll taxes and Social Security benefits.
While institution of Personal Retirement Accounts will decrease the amount of payroll taxes available for current benefits, it will decrease the need for future benefits. Future benefits will of course be decreased in proportion to the amount of payroll tax used for Personal Retirement Accounts. It is prudent to face the Social Security problem now, while payroll taxes exceed benefits. Otherwise, a huge problem will be left behind to bedevil our children and grandchildren.
In fairness to the next generations, both the debt problem and the Social Security problem need to be addressed now. However, AARP-DC pushes for more spending and opposes Personal Retirement Accounts. AARP-DC is no friend of the next generations.
Bill Novelli took over as Executive Director of AARP in 2001, and immediately our mission to protect the future of the next generations became more difficult.
He seems more fervent and clearly is more capable in pushing the AARP’s agenda which is so harmful to the next generations. As we reported in our Fall 2001 Newsletter, with his successful public relations background, Novelli could be even more successful then his predecessor in pushing AARP big government ideas.
Novelli was chosen for his “unwavering faith in the association’s social mission”. In the July-August 2001 AARP Bulletin, Novelli wrote: “I think of AARP as an organization that’s really set up for social change.”
In our Spring 2002 Newsletter we reported that Novelli wrote: “No one in congress is proposing anything that would actually hurt Trust Fund balances”. We know (and surely Novelli knows) the Social Security Trust Fund is nothing but IOU’s and there is no trust fund balance.
In the transcript of his November 19, 2002 appearance before the National Press Club, we learn that Novelli made millions of dollars as co-founder of one of the world’s largest public relations (PR) firms. In 1999, he was named one of the hundred most influential PR professionals of the 20th century.
After college graduation, he worked for Lever Brothers, for a major ad agency and for the Peace Corps before founding his PR firm. He retired and became Executive Director of CARE before joining AARP January 2000.
Novelli gave an excellent speech – the single space typed transcript covers eight pages. In the speech, he said: “Social Security can pay full benefits until 2042”, which we take issue with in the Op-Ed piece we are sending to 125 newspapers.
The reach of Novelli and AARP is huge. They have separate efforts for Hispanics and African-Americans. They are engaging globally. They are considering marketing products and services. Their for-profit subsidiary AARP Services Inc. is considering a whole financial program for older people.
It appears that, with Bill Novelli, AARP is even more formidable than before. Our work is cut out for us, but if we can make a dent in the harmful effects of AARP policies in the next generation, our efforts will be very worthwhile.
President-Elect Barry Dorsch is taking over as President as of January 1, 2003. Jerry Martin whose term expired the end of 2002, was elected Director for 2003-2005. Dick Reese whose term expired the end of 2002 was elected Director for 2003.
A vacancy left for the 2003-2005 directorship was filled later by the Directors in accordance with our constitution. The new Director is Bill Whipple of Middletown, DE. Bill is an attorney, financial consultant and author. He is retired from the DuPont Company where his assignments included international finance, taxes, and financial planning. Bill is on a Pennsylvania federal court prisoner Civil Rights panel.
Bill Morris, our founder, now has the title “Immediate Past President” and is head of the Nominating Committee.
The suggestion that we attack Bill Novelli, the new Executive Director of AARP was approved with the proviso that we make clear we are not attacking the general members of AARP.
Activities for 2002 included an interview for “Better Days”, a seniors publication and several “letters for the editor.” Three major efforts are mentioned below.
Opposition to a legislative proposal to guarantee Social Security benefits. We opposed this, on the grounds that if Social Security is not reformed in time there will be a huge gap between taxes and benefits. If benefits are frozen, future taxpayers will take a huge hit. A letter stating our objection was sent to the District Directors in the home offices of members of the House and Senate Social Security subcommittees. Letters were sent to arrive during the summer 2002 legislative recess.
Advertisement in Community Newspapers, featuring 9 year old Jason Dempsey. The advertisement, discussed in Newsletter 25, was not effective.
Newark DE Community Day activities, described in Newsletter 27.
Economist Magazine, 12/14/2002: "Get rid of fixed retirement ages and the costs of population aging become manageable rather than insuperable
President
Barry Dorsch, Wilmington, DE
(302) 478-0676
Treasurer
Ed Fasig, Wilmington, DE
(302) 999-0611
Director 2003-2005
Jerry Martin, Wilmington, DE
(302) 478-5064
Bill Whipple, Middletown, DE
(302) 376-7036
Director, 2003-2004
John Boughton, Wilmington, DE
(302) 475-6718
Ed Fasig, Wilmington, DE
(302) 999-0611
Director 2003
Orville Wetmore,
Wilmington, DE
(302) 652-0107
Dick Reese
(302) 478-4970
Bill Whipple
“AARP-DC” has published a September 2002 Research Paper questioning the feasibility of “Social Security Individual Accounts.” It concludes that the administration of Social Security Individual Accounts (which we have called Private Retirement Accounts or PRAs) would cost about $300 per year or more than half of 2% of the average annual salary of workers in the system (about $520). If said costs were absorbed by the government or employers, say the authors, a potential cost of more than $46 billion a year “would be a subsidy to the 401(k) industry for performing an uneconomic function.”
These findings sound realistic if, as the AARP study assumes, the individual accounts would resemble 401(k) accounts. Thus employers would be designated as plan fiduciaries and be required to comply with the record-keeping, reporting and advisory requirements of the Employee Retirement Income Security Act (ERISA) or something similar. Many people work for small employers, which don’t offer 401(k) plans because it would be impracticable for them to meet said requirements.
Another possibility exists, which would be to model the individual accounts (PRAs in our terminology) after IRAs instead of 401(k)s. A recent Cato Institute study (SSP No. 25) envisions that PRAs would be owned and controlled by employees, subject only to the rules as to what investment choices could be made, when funds could be accessed, etc. Because such an approach would avoid the bells and whistles of ERISA and make individuals responsible for the administration of their own accounts, the administrative costs should be greatly reduced.
On close examination, the opposition of AARP et al. to the PRA proposal seems to be based primarily on a desire to maintain the status quo rather than on real drawbacks in the proposal.
DICK REESE
Do you think . . . at my age I could learn to play bridge, or maybe chess?
Cheating . . . that’s how I feel when driving with my seatbelt not in use.
In my youth I don’t recall . . . me breaking up with any girl . . they broke up with me.
An early Christmas shopper . . . “I’m going to spend less. I’m unemployed.”
How did I get . . . to this age?
At our recent Thanksgiving dinners . . . how many of us gave thanks?
This an affluent neighborhood . . . then how come there is a garage sale down the road?
Winter Hint
Has your car ever been stuck on a slick spot?
Sand, broadcast thinly by hand provides a surprising amount of traction improvement. Add dry sand to a used cardboard milk carton, tape the spout and keep it in your trunk. Cheap traction insurance.