Privatizing Social Security

Privatizing Social Security

Resolved: The United States federal government should allow citizens to have private social security investment accounts.

      Social Security is the cornerstone of retirement security in the U.S. today.   A third of elderly Americans depend on the program for almost all their retirement income; without it, one-in-five seniors would have no retirement income.  But the program so many depend on simply cannot afford what it promises today's workers and faces a shortfall in payroll taxes of more than $6.6 trillion over the next 75 years.  That is the amount of money the government would have to have in the bank today, earning interest, in order to pay projected Social Security benefits for retirees over the next 75 years.  Social Security desperately needs reform.

Are Private Retirement Accounts the Answer?

Many people believe that the most effective solution to the United State's problems with Social Security rests in allowing workers to invest part or all of their payroll taxes in stocks and bonds through private retirement accounts (PRAs).  In at least 30 countries, Social Security systems are at least partly paid for by workers' own savings.  The features of these systems vary, but most include personal retirement accounts owned by individual workers, into which they deposit a percentage of their earnings to be privately invested, and from which they draw some or all of their retirement benefits. 

PRAs give workers ownership of their retirement funds, and by investing them in highly diversified and qualified private accounts, workers see higher rates of return.  Some say that these rates, even when invested in super-safe federal bonds, yield returns up to two times higher than what is currently available under Social Security.  Since workers have ownership of these accounts, they can accumulate their benefits in forms of cash savings and pass it along to their families and heirs, both of which are currently prohibited by today's program.  Also, workers are able to choose when they retire, whether it is 50 or 70; the longer they work, the more money they will have.

The Negative Response

However, many people are leery about radical reform of Social Security.  They assert that most retired people receive 60 to 80 percent of their income from Social Security.  Investing in PRAs in a financial market, which is at times highly unstable, is a great risk for people whose livelihood depends on these retirement benefits.  Social Security provides retirees with a protected income against post-retirement inflation and possible financial market meltdowns, and even offers protection against an unsuccessful career.  Social Security is essentially a safety net and trumps the attraction of possible risky ownership in favor of financial security during retirement. Also, Social Security has matured so much that even transferring a part of program to PRAs will have huge administrative and transaction costs. Those who oppose privatizing Social Security assert that better budgetary control and oversight to restrain government spending growth by a special commission, or the Congressional Budget Office (CBO) would be a better solution since they would automatically adjust benefits to match the fluctuations in the work force and the total number of retirees.

Short-term solutions to Social Security's financial problems include raising the retirement age.  The current retirement age (the age at which Social Security pays full benefits) for individuals born 1960 and later is 67.  But the cost savings from delaying benefit payments are negligible.  Other reforms that have been considered include eventually reducing benefit payments to the wealthy.  But opponents argue that since all workers pay into the system through payroll taxes, they should be entitled to receive the full benefits they have been promised.