For Privatized Social Security, it May All Be in the Timing

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Washington is getting very interested in your retirement.

Wednesday, the House approved — for the sixth time — legislation that would, at a cost of $52 billion in tax revenues over 10 years, gradually raise tax-deferred contribution limits for IRAs from $2,000 to $5,000 by 2004 and for 401(k)s from $10,500 to $15,000 by 2006. People age 50 and over would get special "catch-up" provisions raising their contribution limits more quickly — but the legislation would leave in place some income limits that prevent some middle-to-upper-income people from participating.

And George W. Bush, saying "we can postpone action no longer," announced his 16-member Social Security panel charged with putting the nation's oldest entitlement on firmer financial footing. Democrats claimed that the panel, to be led by former New York senator Pat Moynihan and AOL Time Warner exec Richard Parsons (corporate overlord of this publication), is a pre-cooked group sure to recommend some version of the partial privatization plan that Bush pushed during his campaign. And they're probably right.

In a Q&A, TIME personal finance columnist Dan Kadlec takes a look at both initiatives and ponders the timing of a privatization push in a decidedly unsteady market landscape. Is now a good time to be talking about Social Security privatization?

Dan Kadlec: Well, here it is. Two weeks ago, Treasury Secretary Paul O'Neill said Social Security reform was "next up," and clearly it looks like a mistake to imagine that Bush's isn't going to follow through on the stuff he pushed during his campaign. So it's definitely coming.

Now, politicians certainly have to be aware of the climate when they float these ideas, and now, with the markets having fallen so far, is certainly not a great time to be floating a Social Security plan that depends even in part on investment in the stock market.

But so far, Bush has really benefited from great timing — just look at the tax cut, which was not popular at all when he first introduced the idea during the campaign. Then the economy slows down, everyone's worried about hard times, and suddenly Bush has a $1.35 trillion tax cut set to be passed by Congress.

So the timing will be important, but there's a good chance it could work out for him again. The panel isn't set to even report until fall, and by then we will probably have passed the bottom in the markets and we may be trending back up by then. And if it's still not a good time, Bush will be able to choose when he really starts pushing it. So while he's not going to be able to get this done while the economic and market picture is what it is, he can remain somewhat flexible.

And what about the hike in IRA and 401k contribution limits?

That's a great idea, and it should be a reality very soon. There are a few arguments to have about the income limits, and who's going to be allowed to benefit from the increased limits — I personally think wealthy people should have the same opportunities to save for retirement as everyone else — but on the overall principle, virtually no one is opposed to a greater incentive to save for retirement.

And what's your view on Social Security privatization?

I like it. It gives people direct control over a portion of the Social Security tax, and to me that's a good thing. There are a lot of issues surrounding it, a lot of details that have to be worked out. But to me it's a great concept, and historically the markets do give you an opportunity to make more money on the money you contribute than the government does now.