The main issue with social security is that it may be bankrupt in the next twenty years or possibly sooner if we do not get out of this recession. As the baby boomers retire, they will begin to deplete social security at a fast rate. After 2025, Americans are not guaranteed social security once they reach sixty-two if the program is not fixed. When I planned for my own retirement, social security never entered into the equation. It simply is not a reliable source of income. The amount received from social security will be fairly finite when compared to an individual’s current salary. Social security is more at risk when the government is operating at a deficit as opposed to a surplus. When the government is operating at a deficit, social security funds may be used to curtail the deficit or pay for other programs. The bottom line is that the government does not have the money to pay social security benefits past 2025.
Privatization is not necessarily a bad idea. With privatization, the government will still tax Americans for social security. But, instead of monies being controlled by the government, Americans will have control over their taxed money. The money will go into an account, and each American will be able to invest the money the same way as with a 401K plan. The government would decide on what the investment options would be, but the bottom line is that the money will be there when an individual retires. The same general rules would apply; the money could not be withdrawn until a person reaches at least sixty-two years of age. The government cannot go into your account and withdraw any money to pay for a war or to decrease the deficit. It is safe. Better yet, American’s can grow their account at a much faster rate than if it were under the government’s control. Hence, the amount in our social security accounts could be higher when we retire under a privatized plan as opposed to the current socialized plan. This is because Americans can invest their social security funds in riskier stock market investments. The government does not invest monies in the social security account into the stock market. Growth is dependent only on the national GNP growth. Even by investing in relatively safe mutual funds, these accounts should outperform the national GNP growth over the long haul. Besides, government bureaucracy and red tape to maintain the program neutralizes and even diminishes gains and growth. There is just way too much waste in government, and it costs Americans in the long run, especially for social security. For young people that are a long way to retirement, riskier investments over the long haul generally pay off. However, high-risk investments for those close to retirement would not be recommended because there is a better chance to lose money. That is one of the issues that Democrats have with the privatization of social security: they are afraid that Americans would make bad investment choices and lose money. That is ironic because the government has be negligent and mismanaged social security. Investment risk can be alleviated by allowing only a few of the top performing mutual funds for citizens to choose from.
The reason privatization is not a viable option is because Social Security is run like a Ponzi scheme. In other words, my social security taxes are being used to fund current retirees. When I reach 62 the government will pay for my social security from the taxes collected from younger citizens. Hence, the money is currently not available for the government to place social security in private accounts. This is a travesty and why the government has mismanaged social security and other social programs.
Instead, to keep social security alive the government will be forced to raise taxes. The social security cap can be raised from its current level of $97,500. Currently, if a person makes over $97,500, social security only taxes them up to the $97,500 cap. Thus, raising the cap to $120,000 may be a viable solution. This sounds reasonable, but remember businesses match social security taxes and by raising the cap, it will raise the taxes on corporations and small businesses. And higher taxes on corporations are not the way to keep the economy thriving.
Everything the government tries to manage, even with good intentions, turns into a fiscal fiasco. Social Security is a mess and it is not going to be easy to fix.
My Book: Is America Dying? (Amazon.com, Barnes and Noble)