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10/20/2008
Wall Street debacle strengthens privatizing SS
The recent collapse in the stock market has caused a number of folks to smugly suggest that the advocates who promoted personalizing Social Security have buried themselves in their foxholes of embarrassment, never to be heard from again. Quite to the contrary!
The reasons for these erroneous assumptions are that the naysayers never really understood all the advantages of personalized accounts. The issue has been reduced to a false dilemma, where on one hand the government provides a defined benefit, whereas, on the other hand each person is left to his own expertise to navigate through a financial chamber of horrors, needing to invest in a gyrating stock market. That would be a wholesale misunderstanding of all the options available.
In addition, the recent exclamation "What would have happened if we privatized Social Security," is purely emotion sophistry. None of the people eligible under Bush's privatization plan would have been able to withdraw money for years to come, so it is irrelevant to observe that the market is way down at the moment.
The recent debacle on Wall Street only strengthens the arguments in favor of personalized accounts. In principle, politicians have long ago done to the Social Security Trust Fund, what CEO’s did by bankrupting their firms. Yet nobody in the government is held accountable for this impropriety against the American people.
The SS trust fund is not a separate account fully funded with payroll taxes. All the money withheld for Social Security from your paycheck has been redirected and commingled with general revenues to give the government more current money for spending on social programs. The trust fund is simply an accounting entry--IOU’s in the form of treasury bonds that are unfunded liabilities, redeemed as needed for the dispersions of monthly benefit checks.
Before the 2000 presidential elections, Vice-President Al Gore talked about a “lock box” for Social Security funds that would end the commingling practice. But the only secure lock box is one where each of us holds our own key or combination.
That’s the initial argument for personalized accounts: The funds can only be used by you for your own personal retirement.
The next reason for personalized accounts is that it would end the pyramid scheme structure, where the current generation pays for the retirement of the last generation. Social Security is running into a funding crisis due to demographics: There are increasingly fewer workers to pay for each retiree's benefits. Eventually, this will lead to means tests, reduced benefits, an older retirement benefit age, and the need for larger payroll tax contributions.
A third reason for personal accounts is that the current structure affords an abysmal rate of return on invested premiums. For people in my age group, we can expect no better than a 2% rate of return on money withheld from paychecks. A person who did nothing but invest in bank CD’s over the last 40 years would have easily achieved an average 5% rate of return. Such a conservative investment could produce 2-3 times the annuity payout received currently from Social Security.
One need not invest in risky technology stocks to far exceed the current payouts of Social Security benefits. But if you’re a risk taker, the stock market has achieved about an 11% annual rate of return since the 1920’s, including all the worst market declines. Let’s also remember that the money is not all contributed at the same time.
And in spite of all the analysis, no worker would be forced to have a personal account, so we should stop spooking elderly citizens.
It's not too late to learn from the past.
Robert E. Meyer, Fox Valley
COMMENTS
Most of current payroll tax payments go to pay current retiree benefits.The surplus collected since 1983 (about two trillion dollars) has been used to mask the size of the governments operating deficit. The combined budget deficit recently reported as a jaw dropping 455 billion would be more than twice that size (1.01 trillion dollars) if debts for funds borrowed from social security,civil service retirement,military retirements, borrowing for the wars, and many other items were not excluded by definition.
Mark L. Harris (Mon Oct 20 08:10:20 2008)
mark hits the nail on the head. This is indeed the reason the government will never let go of our pay-ins, why they will never approve of private accounts. They're too used to stealing from us via legislation, to further their own ends.
emily matthews (Mon Oct 20 09:20:53 2008)
I keep hearing about how much higher the return on that money could have been if it had been invested privately. I want to know what you're going to do about the people who take what would otherwise be their Social Security pay-in and use it to send their kids to college or pay down their mortgage or other less worthy endeavors?
Alice Teter (Tue Oct 21 15:09:38 2008)
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