Should Social Security be Privatized




Should Social Security be Privatized?
Many people don’t understand how the Social Security system really
works. There are no separate Social Security "accounts" set up for each
taxpayer to which he contributes his Social Security "tax" each year. Many
people believe these accounts exist, that the money they pay into their
accounts grows each year until retirement, and when they retire they get
back what they paid in with interest. This is not true. Most people are
unaware of the fact that our current Social Security system is a
"pay-as-you-go" program, which means that the revenue the federal
government raises each tax year for Social Security benefits is paid out
that same year to beneficiaries.
Many economists believe that our Social Security system is in need of a
major overhaul if today\'s workers are to receive future benefits.
Thomas R. Saving, Director of the Private Enterprise Research Center at
Texas A&M University says, "What is wrong is that the Social Security
system was never set up to be a sound investment-based retirement system."
Karl Borden, professor of financial economics at the University of
Nebraska recently wrote, "Social Security is an unfunded pay-as-you-go
system, fundamentally flawed and analogous in design to illegal pyramid
schemes. Government accounting creates the illusion of a trust fund, but,
in fact, excess receipts are spent immediately."
Robert M. Ball, former commissioner of Social Security said, "Some of
the trust fund money should be put into the stock market. I want to do it
to get a better return for the Social Security system. Historically,
long-term government bonds have had a real return, after inflation, of 2.3
percent a year, compared with 6.3 percent for stocks."
Paul W. Boltz, economist for the T. Rowe Price mutual fund said, "When
we examine the pending financial crisis of our Social Security system, we
find, in effect, the characteristics of a government sponsored Ponzi-type
scheme."
Michael H. Cosgrove, of the Dallas-based newsletter, The Econoclast
says, "People need to take the responsibility of investing their own funds
for their retirement. The Social Security system assumes people can\'t make
that decision and government can do it better. The result is a bankrupt
Social Security System."
These economists believe that by investing in the private market,
someone currently entering the labor force and retiring at age 65 can
expect to receive an inflation adjusted retirement benefit from 1.5 to 5.5
times the current social security benefit.

Increasing life expectancy and decreasing birth rates have combined to
create the crisis the system is now facing. For example, in 1950 there
were 16 workers for every social security retiree, while presently there
are only 3.3 workers for every retired worker drawing benefits. Estimates
are that by 2030 there will be fewer than two workers for every retiree.
Privatizing social security sounds extreme, but it has been done
successfully in other countries like Chile. Jose Pinera, who was Chile\'s
minister of labor, privatized the state pension system in 1981. It is now
giving retirees generous pensions while fueling investment, growth and
improving living standards in that country.

The heart of the Chilean system is a mandatory savings plan. All
workers under age 45 contribute 10 percent of their monthly earnings in
special accounts, known as AFPs (Administradoras de Fondos de Pensiones).
Workers between ages 45 and 65 could shift to the new system at their
option. The funds in AFPs are professionally managed and invested in
stocks and bonds. The money may not be touched until retirement, at which
time the worker may begin phased withdrawals or purchase an annuity. At
the end of 1995 more than $25 billion was invested in AFP accounts. The
old Social Security system is being phased out. By 2030 Chile\'s Social
security will entirely be privatized.

This system ensures the money a taxpayer pays for retirement goes to
helping that taxpayer retire (not others). It ensures the money paid in
taxes is invested and grows. It also gives taxpayers choices over their
plans and the age at which they want to retire.
If the US were to adopt a system like Chile\'s, we could save our own
failed Social Security system and provide real security and peace of mind
to everyone. The money paid into these individual retirement accounts is
invested, meaning more capital is available to the business sector for
investment. An individual would have their very own pension, with their
name on it. The government would no longer control the money that the
individual paid in to it. It is the individual\'s account, just like an
IRA. It is essentially a government mandated IRA.