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Would Privatizing Social Security Work?

There is much debate about the concept of privatization of Social Security. In general, Democrats tend to oppose it while Republicans are for it, while both parties agree that something needs to be done because the Social Security System is projected to start running on a deficit somewhere between the year 2013 and 2037. Such a deficit will adversely affect both retirement and disability benefits payments for beneficiaries.

The drying up of the Social Security “water hole” has to do with the generation known as the Baby Boomers, who are continuing to leave the work field as they reach the age of retirement. At the same time, younger generations have been having smaller families, while life expectancies are longer than ever. This is resulting in a smaller number of working Social Security tax payers supporting each person receiving benefits.

Even though the Social Security system currently creates a surplus every year that can be dipped into once it becomes necessary, these reserve funds, known as the Social Security Trust Fund, will probably be exhausted by the end of 2037. One of the options that has been proposed is the partial privatization of Social Security. Here are some of the pros and cons considering the two basic viewpoints.

Privatization would take some of the load off the taxpayers by using government-supervised investments as a source of income. Instead of contributions to a general fund, payees’ funds would be sent to private accounts invested by the government, most likely in government-backed securities and not into the volatility of the stock market. This would eliminate the need to raise taxes to support beneficiaries.

Privatization would guarantee that the payee contributing to the accounts would be the person who actually receives it when they are eligible to start withdrawing monthly payments. Currently, there is no law that holds future Congresses to guarantee benefits to those who have contributed their entire lives, regardless of the bankruptcy of the system. On the other hand, private accounts are guaranteed to the person for whom they are designed, by law, and cannot be unlawfully withheld or seized.

One of the cons that critics present is that investing retirement funds is a risky venture and should not be attempted because investments may be lost. It is also projected that the state of the future stock market is not likely to yield a rate of return that will be sufficient to support retirees. Putting retirement funds in the stock market and other investments does not create security for beneficiaries.

Whether privatization would really work is still a matter of opinion since President Obama has declined to implement it, but it is certain that something must be done to fix the Social Security System.