The Social Security system was to be a program that would not only allow citizens to invest in their future free of risk, but also pay for itself. Neither of these goals is being accomplished nor can be accomplished without privatization.
The system is not paying for itself. The most generous estimates, those from the Social Security Board of Trustees, state that the program’s cost will exceed its funding in 12 years and that the program will have completely exhausted its coffers in 36 years.
Why is it that the government’s plan cannot pay for itself but private accounts can and do? Simple. The money put into the Social Security system is not invested to make real wealth that pays for future benefits, as with private insurance and retirement accounts. Instead the “investments” of the current generation are simply used to pay the cost of those who entered the system before them.
Doesn’t the current system invest the money put into it in a trust fund that gains interest? No. The Social Security trust fund is made up entirely of government treasury bonds. Bonds are nothing more than IOUs. The bond issuer gets the money now and in return the bond buyer gets more money back when he cashes the bond later. The problem is that in the case of Social Security the bond issuer and the bond buyer are one in the same, the federal government. Cutting the benefits the current program gives out won’t fix the problem – just push it back a few years.
Many critics of privatization say that private accounts are risky. Risky?
Let’s take a look at what is really risky. The current Social Security program offers no guarantee of benefits at all. None. Your entire Social Security “account” with the federal government could be wiped clean at any moment with the stroke of a pen. The federal government has already raised the retirement age from 65 to 67.
Thomas Sowell, a senior fellow at the Hoover Institute in Stanford, Calif., puts it this way: “Would you sign a contract that enabled the other party to change the terms of that contract at will, while you could neither stop him nor make any changes of your own?”
A private account means a private contract that cannot be changed, especially not by the whim of whatever lawmaker happens to be in power at the time.
In addition to not guaranteeing any benefits, the system almost certainly guarantees you won’t be able to collect all of your investment. You can start collecting Social Security at age 67, the average life expectancy for a Black male is 68.
What happens to all that money you invested over the years but didn’t live long enough to get back? Does it go to your wife, your kids?
If you had invested in a private account it would have, but under the current system your money is simply confiscated by the government.
The most aggressive plan even under discussion would have the private accounts made up of the stocks that are used to formulate the Dow Jones Industrial. The Dow has never fallen over a 20 year period must less a 40 year one.
Meanwhile, the average current rate of return of Social Security is -.83%.
In addition to having a crappy rate of return, the current program offers no guarantee of benefits at all.
However, some oppose the privatization of this program.
The latest argument against private accounts is that implementing them would be expensive. The government would have to cover the cost of the transition and come up with the money to pay for the current benefits of Social Security without the next generation’s taxes.
While it is true that changing over to a private account system would be expensive, the alternative is even more expensive.
Cutting benefits and or pushing back the retirement age won’t save Social Security, it will simply push the day that the system will run out of money back a few more years.
Fixing Social Security is going to cost a lot of money one way or another.
The only real decision is whether we want to pay a lot of money one time for the permanent fix that private accounts would provide or spend a lot of money over and over when the program runs out of money trying to pay promised benefits.
Social Security is like a leaky dam.
What is more expensive?
Paying a lot to fix the problems we know exit now or paying more and more to patch up the dam as new and ever larger holes keep appearing.
Daniel Watkins, 21, is a senior computer information sciences student from Hephzibah, Ga. He can be reached at firstname.lastname@example.org.