Hot Topic (11/29) Should Social Security be privatized?

[Cafe GroupAdmin]

 

Should Social Security be privatized?

 

 

PRO Privatized Social Security When Social Security began in 1935, the contributions of 17 workers paid for the benefits of one retiree. In 2035 the estimated ratio will be 2.1 workers per beneficiary. Allowing individuals to contribute to their own private accounts may reduce future loss of money from fewer worker contributions. [8] Using the existing system to avert the pending collapse of Social Security will require deep cuts in benefits, heavy borrowing, or substantial tax hikes. A better solution is to switch to private investment accounts that will be funded with existing payroll tax thereby avoiding any benefit cuts or tax hikes. A medium income worker born after 1965 can expect less than a 2% rate of return with the existing Social Security system. Privatizing Social Security will put more money in the pockets of retirees. Over the last 80 years, private investment in the US has earned an average return of nearly 8%. [9] Private retirement accounts will give a worker contractual rights to retirement benefits, a right missing from the current Social Security system. In the 1960 US Supreme Court case Flemming v. Nestor, a retiring legal immigrant eligible for Social Security benefits, who paid into the system for 19 years, was denied his Social Security retirement money after being deported as a member of the Communist Party. Putting Social Security into private accounts does not expose retirement money to risk. These federally regulated personal accounts would allow individuals to invest only in diversified, approved mutual funds and not in single stocks or highly volatile stocks. Switching to personal retirement accounts would not result in burdensome transaction costs since the year-over-year growth rate over time of these investments will offset any extra costs the accounts incur. In the past, budget surpluses in Social Security were used by the federal government to fund other government spending. Keeping retirement money in private accounts will prevent it from being diverted for non-Social Security purposes. [10] Privatizing Social Security into individual investment accounts would boost economic growth by injecting money back into America's failing financial system. Removing the requirement of the federal government to provide retirement benefits reduces the bloated bureaucracy of the US government. The maximum Social Security tax in 1935 was $60; as of 2009 it is $11,000. Privatizing Social Security will alleviate this excessive taxation since private accounts will be taxed through the normal process of income taxation. Given the pending crisis, many young workers assume they will never see the money they are putting into the current Social Security program. Private accounts will be a transparent system that is more accurate an account of the relationship between today's earnings and future benefits. Privatizing Social Security would empower individuals to have control over their own retirement investment decisions, taking the US government out of citizens' financial retirement decisions. Social Security was established at a time when people had a shorter life expectancy. The only viable option for a population that is living longer is to put Social Security into personal investment accounts. The present Social Security system fails workers who have a disproportionately shorter life expectancy rate since they cannot collect on benefits paid. Personal accounts will provide the option to bequeath assets to heirs upon death, an option currently missing from Social Security.

CON Privatized Social Security Moving Social Security into private accounts would cause substantial reductions in traditional Social Security benefits. Privatization would, over the next 47 years, reduce benefit levels by as much as 44% below 2005 levels. [11] Getting a privatization system started is too costly. The transition costs of setting up new personal accounts while continuing to provide benefits to Social Security's current beneficiaries would require an extra $1 trillion to $2 trillion. [12] Private accounts would reduce special insurance protections, such as disability and survivor's insurance, that are also provided by Social Security. Cuts will have to be made to these programs in order to fund private retirement accounts. Privatizing Social Security, which essentially is putting peoples' retirement money at the whim of the stock market, will weaken the federal retirement system through potentially risky investments. Putting their Social Security funds into private investing accounts exposes US workers to be victims of unscrupulous stock brokers and of their own investment choices. Many people either do not know, or do not want to know, how to make the sound decisions about their own long-term investments that private accounts require. The upfront costs of setting up the individual accounts and of advising individuals of the system would take away any fiscal benefits that moving toward privatization could bring. Social Security is a program that provides benefits through one, centralized process dictated by the US government. Moving benefits into individual private accounts creates a decentralized system that will have to take into account the millions of diverse opinions, preferences, and expectations of individual investors, making the program too bureaucratic and unwieldy. Privatization of federal retirement benefits has proved disappointing in other countries. Private retirement accounts in the UK that started in 1988 have had management fees and marketing costs eat up an average of 43% of the return on their investments. [12] Putting money from Social Security into private accounts means moving retirement savings from a simple, easy to comprehend system into a complex structure of investment portfolios and stock market shares that is more difficult to understand. Invested private Social Security accounts will not benefit the US economy but will put billions of dollars in brokerage and management fees into the pockets of Wall Street financial services corporations. Instead of upsetting the system through a new plan like privatization, future budget shortfalls can be fixed within the system. The current system will work by reducing benefits, increasing taxes, and/or raising the retirement age. Social Security paid benefits to over 30 million retired workers in 2008. Creating and managing this many individual private retirement accounts would generate more, not less, bureaucracy. This enterprise would require costly hiring and training tens of thousands of new government employees. [13] [14] Because private accounts would be financed by taking money out of Social Security, privatization would increase Social Security's funding gap and move forward the date of the system's insolvency up from 2037 up to 2030. Social Security taxes are weighted to balance the system for all levels of wage earners. Private accounts will create disproportionate returns since higher-wage will have more money to take bigger risks for higher yield investments than can low- and moderate-income workers.

Did you know?

The US Social Security program is the largest government program in the world and the single greatest expenditure, at $612 billion (20.8%), of the 2008 $2.9 trillion federal budget. When Social Security began in 1935 the contributions of 17 workers paid for the benefits of one retiree. In 2035 the estimated ratio will be 2.1 workers per beneficiary. Over 40 million post-World-War II baby boomers will reach the retirement age of 65 between 2010 and 2040, an average of 1,000 per day. In Flemming v. Nestor (1960), the US Supreme Court upheld that Nestor, a retiring, legal immigrant who had paid into the system for 19 years, could be denied Social Security benefits for being deported as a member of the Communist Party. Workers paying into the Social Security system do not have any legal right to Social Security benefits.

Sources: click here

What are your thoughts?

[tericared]

 Workers paying into the Social Security system do not have any legal right to Social Security benefits.

I was not aware of this....

[Nummymommy]

I do not think that Social Security benefits should be privatized.  Main reason?  As with our current health care industry, privatizing the Social Security industry will then make it a for-profit organization.  The minute you place something like Social Security in the hands of Wall Street, it will become nothing but a corrupt company looking to gain off of the elderly.  Look how bad our health care system is now.  It doesn't matter how sick a person is, profit is the bottom line.  If your treatment costs too much money, you are likely going to be denied that treatment.    Healthcare as we know it today is NOT about saving people's lives, it's about making money for the companies that insure the public.  I have no intention of giving more money to a private company so that some CEO can fly his private jet to his luxery summer home on my dime.  Sorry, but no. 

I think that the government needs to get control of the Social Security benefits program on its own and figure out how to save it.  The whole reason it was put into place was because the elderly, disabled and unemployed in this country were not being taken care of.  Something had to be done.  Ironically, the same people that talk about rights for the unborn are usually the same people that want to abolish this type of program.  Make sure that the fetuses are born, yet once they are, they have to accept the "personal responsibility" of taking care of themselves.  It's really a crock of crap.  I find it also amazing that 80% of this country is supposed to be "Christian", yet our country is the one that is least likely to take care of its citizens.  People fight health care, social security benefits, welfare, etc.  (I am not stating these programs don't need to be re-vamped, but I am against removing them all together).  I actually look forward to the day when people open their eyes are realize that we as a country are stronger when we are responsible for each other.  If you take the "survival of the fittest" attitude, most of us wouldn 't make it.  We don't have the money to, and I really don't want America to be populated with a bunch of Paris Hiltons and Lindsay Lohans because they were the only ones with the funds to survive.    I will step off my soap box now *giggle*

[bakebiscotti]

Absolutely not.  Social Security should not be held up  against the winds of the market.  It should not be put in jeopardy, just look what happened to the ENRON people's retirements.  When private entities get their hands on it, it will go POOF 

[sillyone2]

Yes, I do think it should be privatized. Everytime the gov gets a hold of any program they screw it up. ITs cost us billions more money then what it actually is so they can put in their own pockets and waste our money.

[Nummymommy]

Quoting sillyone2:

Yes, I do think it should be privatized. Everytime the gov gets a hold of any program they screw it up. ITs cost us billions more money then what it actually is so they can put in their own pockets and waste our money.

I find it ironic you would state that "every time the government gets a hold of any program they screw it up" when its the government that has to step in with these kinds of programs to begin with.  Private companies are forcing retirement on individuals capable and willing to work.  These people then do not have an income, their pensions are not enough to make it, for the next 20-30 years of life they have left, and Social Security has to kick in.  We are going to trust the private sector that is contributing to the problem as it is?

[mmtosam06]

Quoting bakebiscotti:

Absolutely not.  Social Security should not be held up  against the winds of the market.  It should not be put in jeopardy, just look what happened to the ENRON people's retirements.  When private entities get their hands on it, it will go POOF 

Ditto

[stormcris]

I think that it should be made into individual interest drawing savings accounts.

For example:

Lets say I start working at 20 and each year they take $1000.00 out of my check for SS.

That would be a total of 45 years if retirement is at 65.

The account at 65 would be a total of 99,283.05 if the interest is compounded annually at 3%.

Now understand that the witholding is 6.2% for 2009, many people could be well above the $1000.00 per year with the max being $6621.60. So that would make the end balance even larger.

This would result in a balance of $657,412.66.

[MontclairMama]

No, not at all. We all already have the option of putting pre-tax money into other accounts for retirement.