With this new setup, workers would be allowed to invest up to four percent of their money earned intoprivate accounts, such as the stock market.
Even without going any further, this plan sounds sketchy.
All of the major stock market indexes are presently below the levels at which they were five years ago. This could change for the better or for worse in the future, but there is no way to know what the outcome will be.
What about stock picks that wind up being busts? To avoid picking busts, should we put all of our money into well-established companies such as those that donate hundreds of thousands of dollars to people like George W. Bush? Like, say, Altria (formerly Phillip Morris), AT&T, Pfizer, Wal-mart and Merrill Lynch? What about disasters like Enron or the fate of airline companies following Sept. 11?
The President says the government will protect us from sudden swings in the market near one's retirement, but I, for one, would not place my future welfare into the hands of an entity laden with so much bureaucracy.
Now that I've gotten my obligatory snide comments out of the way, we can return to the actual plan itself.
Bush began his appeal by exaggerating the current path Social Security is taking, and asserting that the program is currently in danger of going bankrupt. The main problem is that there will soon be more people reaching retirement age, but not as many new workers.
Under the present system, current workers pay Social Security equal to the amount that those currently retired receive. Thus, having more people retired than working presents a problem.
Bushs claim of impending bankruptcy was met with the collective, and very audible grumbles by Democrats who oppose the President's propositions for reform. According to the non-partisan website factcheck.org, Bush's statement was misleading and reflects an omission of details regarding the problems facing Social Security.
Bush stated that by 2018, Social Security would be paying out more money than it takes in and, as a result, it will be bankrupt by 2042. Bush and Cheney have also claimed (in different venues) that within the next 75 years, Social Security will be nearly 11 trillion dollars short of the money necessary to continue paying out current benefits.
However, because Social Security works on a payment system whereby retirees are given monthly "allowances," the majority of the 10-11 trillion dollars would not be payable until long after 2078.
The current system will be short approximately 3.7 trillion dollars. This is still a lot of money, but it is far less than the amount Bush purported.
Incidentally, Bush lambasted liberal groups that have been trying to persuade various special interest groups to come out against his proposal, saying they should not let anyone scare them with lies that they will lose all their money or that inflation will prove detrimental to any profit they make. Apparently only the President is allowed to scare the American people with inaccurate rhetoric.
John Spratt, a Democratic representative from South Carolina, currently estimates that the cost to revamp Social Security would be around 750 billion dollars and that such a plan would weigh upon the national debt approximately five trillion over the next 20 years.
Much of this would be the result of changing the direction of the money flow; current workers would be keeping their money in an account instead of paying for current retirees.
In theory, the idea is not a bad one. People would be forced to save money and the government would prevent them from taking the money out (thus eliminating the possibility that people could spend their retirement money before reaching retirement age).
Additionally, no one would have to invest in the stock market if they did not want to. However, the real question is whether most people would be better off with the current system (which does need work, regardless) or whether they would be better off with privatization.
Should people be trusted to bet their retirement if they have little to no experience investing? Even picking a "safe" stock wouldn't necessarily accrue more money than would be accrued if the current system were given a slight face lift.
The risk of privatization hardly seems worth it, and even were it to prove an equilvalent system, billions of dollars would be wasted just to attain the results that could have been realized in a much simpler, and less risky configuration.