Social Security Cost Of Privatization

Social Security has been around for over fifty years now, and has provided for secure retirements for many generations of people. However, Social Security may not be here when the next generation of people becomes old enough to start retiring. This would not only jeopardize the retirement of many people, it would be theft of the money that people have had to pay into the system. Seeing how Social Security spends more money than it takes in, privatization of Social Security is crucial in retiree benefits, especially considering that it would keep the program running and would allow retirees to get higher returns on their investments into Social Security. As of right now, Social Security needs to be changed in order to keep the system from completely

The claim that government managed accounts are less expensive is not true. Chairman of the committee to evaluate privatization plans estimates that the cost for privatization would cause people to receive about 80 cents under personal choice, to every dollar under the government managed plan (Meltzer). Though it may be costly to let an individual chose it is not as costly as the Chairman predicts. The percentage of benefits that people receive under the government plan is 1.5% of benefits compared to how much is paid in. The cost of the private plane is much more favorable to this when you factor in investments done and private funded services that help people manage their investments (Meltzer). Another argument some opponents have against privatization is that the private accounts could be affected by the stock market, however this is not a problem because any reforms for privatization would require all private accounts be invested in U.S. securities

In one of Kotlikoff’s analysis, he found that at the time of privatization, the initial elderly, or the older generation, being that it consumes more than younger generations, in terms of retirement funds, would have a large fiscal burden put on them, however, it will lower the fiscal burdens of future and younger generations, shortly after or at the time of privatization (Kotlikoff 270-271). As observed through simulations of how privatization would affect the U.S., Kotlikoff concluded that there are multiple ways privatizing Social Security can be beneficial. He states that privatization could cause major long-run increase in the total output and living standards of the nation, however compensations to initial generations at the time of privatization of Social Security would be required as the long-run gains from Social Security would come at their expense. Also, Kotlikoff wrote that under privatization, there could be a substantial efficiency gain in the U.S. (304). Kotlikoff also writes that since privatization of Social Security will remove many of the taxes that put burdens on the poor, it will likely improve the well-being of the poor in the U.S. (305). Other effects that privatizing Social Security would do is reduce individual dependency on the government