The Social Security program was initially created as a means of being able to take care of aging Americans. The original system that was in place created a retirement age that was above the average lifespan of people at that time. In doing so, it was believed that Social Security would always be funded. Now Americans are living longer and a good portion of the US debt is because of money that has been taken out of the program.
Should Social Security be privatized? Here are some of the pros and cons regarding this somewhat controversial idea.
The Pros of Privatizing Social Security
1. It could increase the viability of the program.
When Social Security was created in 1935, there was an average of 17 workers contributing to the retirement of just one person’s benefits. When 2035 rolls around, it is estimated that just 2 workers will be contributing to the benefits of an individual retiree. By privatizing the system, more investment power could help to keep the system viable.
2. It will prevent deep cuts.
Because of the larger numbers of retirees that will be hitting the Social Security system, the only way to keep it viable is to slash benefits or create heavy borrowing from other departments. Another option would be to raise contribution levels to off-set the losses that are experienced. Privatizing the program could prevent all of this from happening.
3. It would give workers contracted rights to their money.
The current Social Security system actually provides no guarantee for worker compensation. It is entirely possible that a worker could put in 45 years of work, contributing to Social Security the entire time, only to have the rug pulled out when it was time for them to retire. A privatized system would provide a contract of reimbursement that would give the worker a better guarantee on a return.
The Cons of Privatizing Social Security
1. It’s incredibly expensive to get started.
The Reagan Administration attempted to privatize Social Security and ended up having to raise taxes because it didn’t work out as expected. Under current estimates, for Social Security to continue providing benefits to individuals while creating new privatized accounts, there would be a cost of up to $2 trillion required.
2. It gambles with the retirement funds that people need.
Many of the plans to privatize Social Security involve the investment of accounts into stocks, bonds, and mutual funds. The stock market has some safe harbors for cash, but the bottom line is that any investment is a risk. When people think of retirement, they want more of a guarantee.
3. It would add to the already massive bureaucracy.
If Social Security were privatized, then there would need to be a new administrative section created to begin the distribution of benefits that people are entitled to receive. There would also need to be a system of accountability installed so that benefits would not be embezzled or outright stolen. The UK has had private retirement accounts since 1988 and 43% of the return has been taken by management fees.
Whether you are for or against the privatization of Social Security, all can agree that the current system needs some work to survive. By weighing the pros and cons of these changes, the best solution can be eventually reached.