#13 Should Social Security Be Privatized?
- Katt Anomia
- Sep 2, 2015
- 3 min read
It's no small secret that our country is running out of social security money. We have more people depending on social security and less people making money for social security. By a lot! In 1940 there were nearly 160 workers for every 1 person on SS. Today, there are almost 3 workers for every 1 person. Yeah. 3. That's a HUGE difference, guys. The system is broken and needs to be fixed. Privatizing social security seems to be the popular plan among Republicans, so I thought I'd take a closer look at exactly what that means.
1) Social Security taxes have become excessive. The max SS tax instituted in 1935 was just $60. Today it is $7,347, which is 700% higher than inflation. That's insane! The tax rate rose from 2% to 6%. For the self employed, like me, that number is 12%. The amount of income that can be taxed rose from $3,000 to $118,500. Privatizing social security would send less money to the government, and more money would remain under our personal control. That sounds pretty good, right?
2) Unfortunately, privatizing will put peoples' retirement money at the whim of the stock market. The stock market rises and falls. Remember 2008? There was that awesome financial crisis where the 3 major stock market indexes dropped a scary amount. Dow fell by 33.8%, S&P fell 38.5%, and NASDAQ fell 40.5%. Due to the very nature of the stock market, not all retirees will be treated equal. Anyone who retires during an economic downturn will be significantly worse off than those who retire during a boom. I'm not that interested in gambling with my future. Are you? Even diversified mutual and bond funds are risky, and not guaranteed by the government.
3) With personal accounts, retirees will see higher returns on their investment. On the bright side? When it's good, it's real good. The average growth rate for private investments is higher than what a retiree would receive from social security benefits. It's worth noting that young people like me will get less out of SS than we put in, because we've paid the highest taxes. If I invested, I could theoretically come out ahead...Or not. High risk, high reward?
4) Privatizing would expand, not reduce, government bureaucracy. What does this mean? Creating and tracking individual accounts takes work. That means jobs! Yay jobs! It also means higher cost. The admin costs of the current system is less than 1% of the total revenue. Add to that tens of thousands of workers to manage millions (42 million received SS benefits in 2014) of accounts...This plan might not be so cheap after all.
I'm not personally a fan of the high risk high reward plan. I tend to be a cautious person by nature. and I dislike placing the stability of my future in an area so far outside my control. SS currently is a little easier to plan for, a little more stable (though let's remember that the government can change the rules at any time). Still, the current system is less scary to me. That being said, there IS a problem that needs to be addressed, and if privatization can fix that then my own personal fears are unimportant. I would be okay with a hybrid plan that allows people the option to privatize their SS, but also allows people to opt out and receive their SS under the current (or a reformed version of the current) system. And hybrid plans have been suggested in the past, so I know they're not a figment of my imagination! In fact, George Bush was all on board with a hybrid plan, but then he got all distracted by like...going to war and stuff. Anyway, there is a lot of evidence for and against this issue, and because it's economics (my absolute WORST subject), I honestly have no idea if privatization is the answer. If the experts can't agree, there's no way I can come up with the magical answer! What I can say is that privatization makes me uneasy. I really do not want my future income to be based on the whims of the stock market. What do you think?
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