Privatization: The Better Choice Essay, Research Paper

Privatization: The Better Choice

Every working American citizen contributes to Social Security. Anyone who has ever

held a job has felt the frustration of seeing how much money the government takes out of their

paycheck. Being told that we will all be able to collect social security when we can no longer

work does not ease the frustration of having 6.2% of our hard earned money taken from us each

payday. If individuals could have control of their retirement funds, this frustration could be

eased. Being able to control our own retirement funds is an option that is being supported more

and more by American workers.

Currently, nearly 44 million Americans receive Social Security benefits. Of these 44

million, 61% are retired workers, 17% are survivors of deceased workers, 12% are spouses and

children of retired workers, and 10% are disabled workers. Obviously, the major group of Social

Security Beneficiaries is retired workers. Since the number of working Americans has not

grown along with the number who are retiring, Social Security has become a black hole to the

current generation of workers. We will pay into it most of our lives, but will not be able to

collect unless a drastic change is made.

Everyone has heard the ongoing debate over the past few years about what should be

done to reform Social Security. The Social Security Board of Trustees estimates that by the year

2032, Social Security funds will be fully spent. There are several reasons for this, including the

retirement of the ?baby boom? generation and the assumption that the U.S. economy will grow

at a slower rate than it has been. While republicans and democrats fight over whose plan is

better, there is a simple alternative to Social Security: privatization. By making social security a

private matter for individuals, everyone can benefit. One of the plans the government is

considering includes partial privatization, but it is still centered around a flat tax deducted from

the paychecks of American workers.

The idea of Social Security is a good one. There are many retired workers who would

not make it without Social Security. I have seen it myself. My mother has been in banking for

more than 20 years, and during that time I have seen all kinds of people coming in to deposit

their Social Security checks. The majority of them are middle class, retired workers, and

although their Social Security checks are not their only source of income, the little bit of extra

money does help them. Others, however, would not be able to put a roof over their heads

without their Social Security. Even though it may not seem like much to most of us, that little

bit of money is all they have, and they depend on it. A private system, however, would give

retired workers a greater chance at having more money upon retirement. By investing into

mutual funds or other low-risk investment programs, people could get a greater return on their

money.

Even with a private system, Social Security should still be mandatory. If people were

concerned enough to plan for their retirement, they would already be investing or saving money

for that purpose. Since many people have trouble saving money or do not feel they can afford to

set money aside, a privatized savings system should still be mandatory, perhaps even with a set

amount to be withheld from each paycheck. The difference between this idea and the existing

Social Security program is that individuals would be in control of where and how their money is

invested. Workers who do not care to make investment choices for themselves would still

accumulate funds for their retirement, while those who choose to do so are choosing how they

want their money to be invested, and possibly yielding greater returns.

Many Americans would agree that helping our fellow citizens in their time of need is part

of the American way; however, with the current Social Security program falling apart, the best

way to secure the future of young workers is a system in which they can invest for themselves.

A mandatory private savings account system would benefit everyone. The current SSI paycheck

deductions are not only a frustration, but they distort the compensation sought by employees and

reduce national savings and investment. Privatization would allow individuals to invest in the

economy through the Stock Exchange and bonds. Not only would privatization allow

individuals to secure their future well-being, but it would also boost our economy. Imagine if on

every payday everyone was investing, pouring money into the economy. This would be a huge

boost in economic growth.

In May of 1981, Chile?s government-run-pay-as-you-go retirement system was replaced

with an investment based private system. This new system has been extremely successful, and

has been the perfect intervention to the problem the old system faced, which was fewer workers

having to pay the retirement benefits for more retirees. Chile has created a system which gives

retirement investment rights to the people, which enhances not only economic growth, but

personal freedom and dignity as well. According to Jacobo Rodriguez of the Project on Global

Economic Liberty at the Cato institute, more than 95% of Chilean workers have their own

personal savings accounts, assets have grown to more than $34 billion, and the average real rate

of return has been approximately 11.3% per year, which has allowed workers to retire with

better and more secure pensions.

According to the Washington Times, a huge majority of Americans support the idea of

Social Security privatization. The general population feels that they would benefit financially by

having control of their own retirement funds, and they are right. A private system would give an

average compound return of at least 7% annually, leaving sizeable retirement nest eggs much

larger than the pea sized amounts that Social Security pays.

Currently in San Diego, California and Galveston, Texas, there are about 9,500 city

employees who escaped Social Security before all laws were set in stone. The Galveston

employees, with a very conservative, low-risk investment program, have great retirement

benefits. The San Diego employees have greater freedom to invest. They can choose between

low risk securities and among four mutual funds. Since 1996, they have received an average

annual rate of return of more than 14%.

There are some who would argue that too many people might make poor investment

choices, and end up going to the government for assistance upon retirement. There is no sure

guarantee that this would never happen; however, this has not happened in Chile, Galveston, or

San Diego. The purposes of mutual funds is to make a profit with very little risk. By investing

into these and other low-risk programs, there is very little chance of people making poor choices

that leave them with nothing.

The simple fact is that privately owned retirement accounts would produce an income

much greater than Social Security provides, and we wouldn?t have to face the problem of

running out of money. Real life programs like the ones in Chile, Galveston, and San Diego show

how successful Social Security privatization can and would be if only the government would

give us the freedom to choose how to protect our future. The current system has failed. It?s just

a matter of time until Social Security is bankrupt. It is time for the government to let the people

decide how to provide for their own futures.