Privatizing is a dangerous solution
By MICHAEL CULVER
President Bush’s attempt to pass legislation
to privatize Social Security insurance could benefit many people.
His idea to allow people to invest 2 percent of their Social Security
withholding into a private individual account would allow for greater
returns, thus increasing the annual income for retirees.
This all sounds great for those people who know how the financial
investment markets work. It sounds good for investment institutions
that will benefit from the commissions paid to them from the rush
of new investors.
But there are four hidden flaws with Bush’s proposal.
First, there are transition costs that will last an estimated 40-70
years. We currently have a “pay as you go” system. The
proposed system is a prepaid system. Meaning the generations living
through this transition period will be paying for two systems at
once. These people, in effect, will be paying for their own retirement
and paying for the retirement of their parents and grandparents.
Privatizing would mean passing the buck off
to our children and saying they need to pay for us because we want
more and it is now their responsibility to ensure we have what we
want.
Second, the new proposal doesn’t account for Social Security
disability or life insurance. The current system includes these
benefits along with the retirement benefits. Their figures compare
privatized returns to those of the current system without adding
in the existing benefits paid to those who collect SSI disability
and survivors benefits. This “fuzzy math” that was so
ridiculed by Bush seems to have been adopted by his own administration.
Third, we are currently under one centralized system. If the proposed
legislation passes, there will be 150 million individual systems.
And with each system, there will be those financial institutions
poised to take their cut of each and every transaction that takes
place. Experts have conservatively estimated management costs alone
would consume 20 percent of funds in private accounts over a 40-year
career.
Fourth, the new proposal follows the assumption the stock market
will not be weaker in the future than it is right now. This is a
gigantic risk Bush is willing to make on our behalf. Let us not
forget it was the stock market crash of 1929 that prompted many
of the social reforms that are in place today.
Let’s say, for instance, the proposal passes and there are
now a 150 million new investors with little or no financial investment
experience. These new investors will undoubtedly make mistakes.
Money will be lost in the stock market by many
of these investors. What do we do when we have a new generation
of retirees that have little or no income to support themselves?
What do we do when the new global economy stabilizes world wealth
and our system is dependent on the investments made in foreign countries?
What will we do? The answer is we will do nothing. It will be another
generation that will institute a new policy, much like the one we
have now, to clean up the mess we made.
Granted, there may be some problems with the current system, but
let’s not try and fix it by opening the lid to Pandora’s
Box.
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Proposed plan pays off for wise
investors
By JOSEPH HOLLAK
When Franklin Delano Roosevelt took office in
1933 our great country was a mess, suffering from post-war over-production,
crippling unemployment, decreasing international trade volume and
wounds of a devastating stock market crash still raw in the minds
of the average, hard-working American.
Introducing Social Security legislation in 1935, Roosevelt’s
goal was not to implement a plan giving every American a guaranteed
pension. It was legislation aimed to build reform and confidence
during a time of financial insecurity.
We are no longer living in those times.
Due to an aging baby-boom generation, whose numbers represent the
largest demographic age group in our country’s history, fast
approaching retirement age followed by age groups with not nearly
enough numbers to keep the Social Security program afloat, our government,
starting in the year 2018, will begin paying out more in Social
Security benefits than it gets in incoming revenues. Your Social
Security is going broke. Do nothing now and you will not have Social
Security benefits come retirement.
To remedy our out-of-date system, the current administration has
outlined a comprehensive solution which will save younger workers
from a bankrupt plan. The answer comes in the form of a voluntary
plan that allows hard-working Americans to save some of their payroll
taxes in a personal retirement account that gives them choices and
control over how some of their earned benefits get invested.
If an American chooses this purely voluntary option, an eventual
maximum of 4 percent of their payroll taxes can be allocated towards
the personal retirement accounts. Once the monies are in these new
accounts, the owner would have the option of investing in a mix
of conservative, well diversified bond and stock mutual funds.
Contrary to uninformed opinion, these investments will not be saturated
with costs commissions or fees. Truth be told, most administrative
fees are estimated to be around 30 basis points or .30 of 1 percent.
These low-cost investment choices give their owners the opportunity
to earn above-average returns by capitalizing on the long-term strength
and growth of our economy.
This new option is entirely voluntary, on an individual basis. Americans
will not be required to opt into the personal retirement account
solution.
Instead, those Americans without the comfort
level or investment knowledge to manage a personal account can continue
with the traditional Social Security system already in place. Personal
retirement accounts are only an option for those willing individuals
who are comfortable with some market fluctuation in anticipation
of better long-term returns. |
