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.

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.