Debating Privatizing Social Security

Two writers debate the pros and cons of privatizing Social Security. The author summarizes their positions and offers his analysis.

I do not see nearly enough coverage of Social Security in the mainstream media so I want to share a report provided by the Wall Street Journal on the privatization of Social Security.  The article provides the pro(s) and con(s) of the issue.

Typically, I discount the merits of this type of discussion. The concept is cost prohibitive, and does little more than distracts people from what should be a serious discussion.

In this piece, you need to understand that both writers base their idea on the notion that someone will pay the taxes that we don’t.  In my mind, that is where the discussion leaves the land of serious.

The Pro

Mr. Sauter’s support of a system of personal accounts assumes that at least one set of future workers will pay equivalent of 30 percent payroll taxes, so that past and some future workers will not even have to pay 10 percent.

At that level of funding (15%), assuming a 6% annual return, a retiree should be able to have a reasonable retirement.

Today we pay 10.3% for Social Security retirement benefits.  That amount pays for more than just retirement.  He is talking about increasing our contribution by 50 percent, so it should more than provide a reasonable retirement.

To prevent workers from taking too much risk, investment choices could be limited to low-cost, diversified options, such as target-date funds.

This strategy doesn’t prevent workers from taking risk.  This approach simply forces all of the incremental risk into our safest industries. Walmart and Coke will trade at 50 times earnings again.

The Con

While I find Ms. Altman’s discussion is little more practical, she has an affection for the Pollyanna of the program that can only come from a complete indifference to the consequences of a crisis in the system.  She argues that all we have to do is throw more money at the problem.

Guaranteed Benefits, Fully Affordable, Universal, Secure, and Fair

Social Security benefits are not guaranteed.  In exchange for” probable benefits”, the program takes more than 10 percent of a worker’s paycheck. An average worker will pay more for his retirement than he pays for his house.

Typically that worker expects to lose money on the transaction.  How is that fair?

Only the most optimistic expert believes that Social Security will provide scheduled benefits to the typical worker turning 70 this year over the course of his life.  How is that secure?

About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.