Privatizing Social Security

Ask any Republican if we should privatize Social Security and you’ll get a resounding “YES!”. Meanwhile, ask any Democrat and you’ll get a resounding “NO!”. As usual, the reality is somewhere in between. Many reports have indicated that the current Social Security system will no longer be solvent in about 40 years (solvent means “profitable” – in other words we would be paying out more in Social Security than we took in). You can blame this on all the horney WWII vets.

It was after viewing this AARP “tutorial” on Social Security that I had what some might call a stroke of genius. I simply call it a stroke of common sense. Here are the pro’s and con’s of Privatizing Social Security as I see them currently.

Pros

  1. Depending on how you invest your Social Security you could realize strong gains by investing in the stock market.
  2. This would be a major victory for the stock market, in general, as a substantial sum of money would be infused into the market in a relatively short period of time. This, however, is a short term victory.
Cons

  1. Privatizing Social Security means you have absolutely NO guarantee that your money will be safe. Your money, once put into the stock market, will no longer be insured by the government.
  2. There is an enormous risk of corporate abuse. Companies could throw all the fees they wanted at transactions, etc. (ie. exactly what they do with your current IRA’s, etc.)

As you can see there are a couple of pro’s and con’s to each. I don’t think privatizing will fix the problem of us paying less in that we pay out. Here is how I think Social Security should be set up now.

  1. Make Social Security optional. If I want to be in total control of my retirement then let me be.
  2. Have two avenues for Social Security: a.) Government Bonds (pros: simple, insured; cons: very little/slow growth) b.) Privatized Account (pros: potential for high growth, flexibility in investment choices; cons: corporate fees, not insured, could lose your ass)
  3. Make sure all Social Security benefits paid for by employers cannot be invested in private accounts. This way if you do lose your ass in the stock market you still have something.

I think this structure could appeal to all sides (including Libertarians: see #1). The problem is that no one is willing to budge on this – each side wants all or nothing. Sad.

6 thoughts on “Privatizing Social Security

  1. I think that when it comes to social security you have to level things at the lowest. The great majority of the population has no idea of how to invest or manage money, so they need to be protected the most. These are the same people who would also fall for predatory tactics from banks. The rich and/or educated already invest in private funds. The solution to solvency is to realize that we live a whole lot longer than we used to and adjust the formulas accordingly. Later, lex. P.S. whatever happened to the STG site??????

  2. I had a couple of comments on the on this article. However I’m going to start with an observation about Lex’s comment. He starts off by saying most people have no idea how to invest, so they have to be protected from their own ignorance. This is where I take fundemental issue with the general anti-Social Security crowd. Most of us couldn’t get our VCR clocks programmed 10 years but no one stepped in and said, well people shouldn’t be allowed to spend $200 on a VCR if they are ignorant of how to use it. It’s really condecending to project this “they don’t know how, so they probably can’t know how” attitude towards the populace in general. BTW. the net result of VCR clocks is they are now “much” easier to program.

    Now back to the article. Point one of the editorial opinion states he wants anyone to opt out that so chooses. This is “much” more extreme than any of the serious proposals out there. Most limit your private investment to less then 25% of contributions. As a result of this much higher “private” investment: if you take the entire 7.5% (or so) that the individual contributes to social security, it’d be in financial difficulty immediatly. There needs to be a migration plan to make this work. Anyway, this is a much more radical plan then most people would tolerate.

  3. On the one hand:
    I like the idea of private investment accounts because:

    It encourages involvement and provides a sense of ownership.

    It promotes growth for the nation. The idea of investing into the stock market (a limited selection) would generate capital by which a company can make investments and create jobs. IN THEORY! Also, the monies are just as much at risk in the stock market as they are in the politicians grasp.
    Furthermore, it has been studied that the current investments of social security monies in US Bonds CANNOT sustain the monies promised to those retiring early as 2032.

    It removes social security from the political arena. It prevents the government from squandering the monies; treating the federally guaranteed monies as petty cash.

    On a finer note:
    I don’t think that working individuals are irresponsible as opponent paint them. In that rationale, the government has demonstrated that they are just as irresponsible, otherwise we all wouldnÂ’t have to post such notes. This would be a conscious emotional, physical and spiritual effort that every individual who puts in a 9 to 5 day must pay special attention to.

    On the other hand
    Well, not much to say here…
    If there is no change, the current state the social security benefits will be depleted by the time I retire.

    Raising taxes is like sticking a finger in a dike. The pressure will continue the build and blow.

    Cutting benefits…Well that more likely to occur.
    Perhaps a combination of higher taxes and reduced benefits is more realistic.

    Whatever the result, IT CAN’T STAY THE SAME!

  4. Bush is trying to get my money into the private sector, a sector that’s lost my trust. Social security won’t be in trouble until 2018 or so, while Bush’s medicaid bill will be in trouble next year–by many more billions, too. So why is he focussing on Social Security? To get more money into corporate America while he’s still President, not to give retirees help. Bush has left children behind with his bill for which he cut funding; now it looks as though he’s going to leave retirees behind. Sad, but I don’t trust my Presicent.

  5. I have comments on tim. It is true that most people didn’t know how to use VCR clocks programmed 10 years before but it seems it is inappropriate to compare that with not knowing about how to investing money on stock or privatizing social security. For say, is learning how to use VCR will take away my beneftis or risk my money? But investing money on stock is very unstable, always have to take 50:50 chance whether lose or win.

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