Privatization of Social Security

Many politicians, economists, and other experts warn of the impending doom that will befall every American tax payer who has contributed to the Social Security Fund since it was established on August 14, 1935, like a dark storm on the distant horizon threatening to inflict havoc on everyone in its path. In order to pay survivors and beneficiaries in the case of contributors’ death, partial or total disability, or retirement, the Social Security fund offers a kitty into which contributors’ funds are deposited. The administrators of the fund may use the funds they have gathered to pay the trust fund in cases of disability insurance. Continued contributions to the fund in rare cases result into excess of funds, in which situation the funds are directed to the trust fund. In the United States, social security funds go to the extent of investing in securities, but this is possible only when it is properly managed. The current law requires that the government take a legal responsibility of funding social security in the event that it cannot be able to meet payments to its beneficiaries. It is dual structured, with one branch being that of Old Age and Survivors Insurance (OASI), and Disability Fund (DI). OASI takes the biggest fund while the DI is for smaller funds. In most situations, the security funds will have excess of funds given that the number of beneficiaries at a time may be lower than the number contributing (ProCon.org, 2017). This happens because contributors are not affected at once. There is a new wave of trying to privatize the fund although some groups feel that SSF should never be privatized.

Privatization of the social security fund is of much benefit to the citizens because it substantially increases economic efficiency, savings, and capital formation. The fund also raises the living standards and the income of the neediest elderly retirees would rise. Taking care of the senior citizens can be involving and costly but with an insurance fund life can be quite comfortable. Although the current Social Security system is apparently designed to be progressive, the benefits are not enough for the elderly poor’s retirement needs. The system affects the poor in that the difference in life expectancy demoralizes the progressivity of the Social Security fund(ProCon.org, 2017). The low income earners have a shorter life expectancy than the wealthy, hence the rich benefits more from the payments over the course of their lifetime. However, in a privatized system an individual’s benefits would not be dependent on life expectancy as compared to the current one. An individual would receive the benefits depending on his payment into the system as well as the investment return on those payments but not based on the number of years the individual received the benefits. All insured individuals would have a property right in their benefits and in case of any moneys remaining after their death, they would become part of their estates and their heirs would inherit them. In addition, privatization of the social security would enhance the increase of the national savings (ProCon.org, 2017). SSF also enhances economic growth largely as well as provides new capital for investment that is of great benefit, more so to the poor. The persons who started work earlier and contributed for extra years will earn additional benefits because of their contributions.

Privatization of SSF will promote transparency thus serves as an investment to the contributors. Under a privatized system, workers can receive retirement account statements on a regular basis. In addition, they will see higher returns on their investment and be able to control their retirement decisions. The current Social Security drains capital from the poorest areas of the country and thus leaves less money available for job creation and new investment (ProCon.org, 2017). When one invests in his own retirement account, one has contractual right to retirement benefits; a right not found in the current social security system. The system as well allows only low risk investment so returns will be assured. On the contrary, the current social security system does not have an avenue for the workers to receive any information concerning the size of their future benefits. On social security system, workers can as well request the social security administration to grant their security benefit calculations under the privatized system. Moreover, the privatization of the Social Security will benefit every individual, including the poor a great deal. They will have an opportunity to take part in the economy by owning part of it and the poorest workers would become capitalists. Workers will be empowered to become stakeholders and the division between labor and capital would be broken down. In any case, privatizing social security is able to bear positive impacts in the economy such as reduction of labor supply distortions (ProCon.org, 2017). It can as well tighten actual and perceived benefits-tax linkage. Ultimately, privatization of Social Security would completely shed light on how to deal with social security’s long-term financing crisis. However, privatization of social security is not an assurance that it would increase the economic efficiency. It will depend on the type of social security system that would be privatized and the manner in which privatization will have effect as well as the nature of other economic alterations. Excellent management will be required to ensure high performance of the invested funds and promote profitability. Decisions made must ensure transparency and good governance for profitability.

On the other hand, social security fund should not be privatized as is proposed by some economists and political affiliations. Owing to the benefits it has on the economy, contributors, and the country, there is the need for it to remain in the public domain. First, its privatization would be a threat to contributors and their families since the chief aim of protecting them against death and disabilities would be at stake. Amendments towards privatizing social security would involve the shift of finances currently in the contributors’ accounts to investment accounts in respect to every individual worker (ProCon.org, 2017). In so doing, the transition would mean lack of concern for those affected by either disability within that period. For instance in the United States, it is suggested that a single dollar directed from the social security to a person’s account results into a loss of one dollar in order to facilitate income for the thirty seven percent of beneficiaries yet to attain the retirement age. There is a suggestion that the disabled people’s ability to mitigate for benefit reductions in their benefits would be limited in the event of privatization of social security (ProCon.org, 2017). First, those who are unfortunate of getting disability before retirement might be just a few years to their retirement; hence, the personal account would be a meager. Secondly, the contributor’s beneficiaries will have no access to these accounts not until they retire. The cost of preserving the existing number of people living with disabilities and their beneficiaries, and putting in mind that more are joining, would make the cost of funding the shift to privatization to be extremely high. The economy would be negatively affected either, pushing the burden to citizen.

Privatization of social security, which would involve the opening of private accounts, would slow economic growth for countries and rather than strengthen social security, weaken its financial position. As discussed above, the process of privatization would mean the contribution of finances by the state to support this transition. For countries with an already weak economy, the next step would internal or external borrowing, both of which make the state of the economy worse (ProCon.org, 2017). With the current state borrowing it is very clear that savings remains far behind and is almost impossible. Without savings, there will be low investments thus the overall economy will decline, as people will have no power to inject more cash in businesses. National borrowings would increase by a significant percentage of gross domestic products in a short time. If privatization paves way, the interest rates for borrowings will shoot, making the access to loans for mortgage difficult. Student’s access to school loans would as well be made hard hence affecting education that is a key player in strengthening the economy. Therefore, the pace at which the economy grows slows down and may finally stagnate. The decline in savings mention here would affect key players in the economy including the government, employees, employers, as well as contributor’s families (ProCon.org, 2017). Consequently, the economy would further be made weaker and development abandoned as well. The state of the economy would become devastating.

In conclusion, the idea that social security should be privatized is ill driven and a very negative move to this fund. The implications would be a nightmare to the already bad economy and ought to be shunned by all means. The current state of the fund is working better than would be if privatization was made a priority. Drive to take this unacceptable step would extend its devastating effects not only to the country involved by all external partners. Consequently, efforts should be made to device ways of making it better in the state it is now, in disregard to the possibly of transforming it to anything else. Privatization of the social security fund may be advantageous since it can lead to higher rates of return compared to the current system. Improved management by the executive representing the stakeholders will enable quick growth enabling the depositors to earn higher pays after they retire. The move will ensure higher returns to many, which will raise their retirement benefits. People in their elderly age need support to live a healthy life, which can be achieved through investment in SSF. However, if the finds are poorly manage contributors do not get higher returns thus there is need for privatization. The current system is not very efficient and stakeholders should see the need to privatize the body and promote growth on benefits.

Reference

ProCon.org. (2017). Should social security be privatized? Retrieved from: http://socialsecurity.procon.org

References

Marjorie Honig, “Minorities Face Retirement: Worklife Disparities Repeated?” in Forecasting Retirement Needs and Retirement Wealth, B. Hammond, O. Mitchell, and A. Rappaport, eds. (Philadelphia: University of Pennsylvania Press, 1999)

Peter A. Diamond and Peter R. Orszag, “An Assessment of the Proposals of the President’s Commission to Strengthen Social Security,” The Brookings Institution, Washington, D.C., June 2002.