I’m in the demographic group that will not see much social security from her Social Security. According to my calculations, modest as they are, I expect that by the time I’m old enough for Social Security there won’t be enough young people in the workforce to be paying for my benefits. It’s been estimated that the amount paid out to retirees will begin to exceed that paid in by workers in 2018, so my numbers are not that much off. Therefore, all my working life I’ve been building a nest egg, so I won’t be a burden to my offspring or other relatives. Several of my friends are currently supporting their disabled parent(s) and their child(ren) in college; being a financial burden is one of the things I’d fear most from old age. And yes, I have done a good job in my pension planning. Therefore I believe that I can do a better job than the government in spending, or “investing”, my money. Not being a particularly talented investor (Warren Buffet has nothing to fear from me), I expect that the average person, like myself, can do a capable job if allowed.
Today the Wall Street Journal writes on “privatizing Social Security”:
Start with the political scare word, “privatization.” This accusation works with some voters because many Americans mistakenly assume that their payroll deductions are currently going into a government account with their name on it that will then be paid out when they retire. Privatization conjures up a vision that they will have to provide for their own retirement with no government safety net whatsoever.
Sorry to break it to these trusting souls, but there are no Social Security accounts. Today’s payroll taxes are spent by today’s politicians. And in today’s system, future benefits depend on politicians elected years from now keeping to the spirit of vague promises made by today’s politicians. That’s not the kind of guarantee we find comforting. Mr. Bush is talking about giving workers the kind of personal accounts, with an actual property right, that many thought they had all along, and filling them with real assets, not mere promises.
Social Security would still be a government program, but one with a choice of whether to stick with the negative real returns currently offered, or obtain positive growth available from a diversified portfolio of assets. Even the safety net part of Social Security would be made stronger and more reliable by putting government finances on a more sustainable footing. Far from cutting benefits, this is the only way to preserve them, short of raising taxes to a level that would destroy the economy.
I also believe that the “privatizing” would have a beneficial effect on financial markets and the financial net worth of individual investors, if only by decreasing the expected tax burden. As Dr. Prescott said, “The idea that you can increase taxes and stimulate the economy is pretty damn stupid.”