I just dont understand Social security and privatization. can someone please give it to me in a clear manner?

Question

what is it? whats the big deal? why would it be good or bad? thank you so much.

Answer 1

Social security pay recipients mostly out of current tax receipts both of which are in inflation adjusted Dollars. Privatization would take some or all of the current tax receipts and invest them in private markets for stocks and bonds in the account for the taxpayer. When the taxpayer retires an annuity would be purchased for him. The return on the money would on average be more because it would earn a risk premium, but the amount would not be guaranteed. The biggest down side of the plan is that there is no inflation protection for the taxpayer, and for the government, how to get the money for promised payments for current retires if the current receipts are diverted to private accounts.

Answer 2

Social security is a ponzi scheme run by the government. They basically say that you need to give them 6% of your salary, and your employer has to match that, until you retire. Then at age 65, they start to dole it back to you. They are not required to keep tabs of the money while they have it, and they are not responsible to have to give it all back to you. If you live long enough, you get your money back and then some, but if you die, they keep it all. Your widow and survivng children get some money if they meet certain requirements. The widow will likely not see any money for herself unless she's willing to live in poverty all her life.

The problem is that there's no government accountability for the money, and they are not required to show a return on the money while they are holding it for you. So the whole system is supported by the wage earners who are contributing right now. People are having smaller families, and old people are living longer, so you have a greater percentage of the population drawing from this fund and a smaller percentage subsidizing it. This cannot be sustained unless you lower the benefit, increase the withholding rate, or increase the elibility age, or any combination of these three.

If you take that same amount of money and invest it in a private investment fund, the balance will grow with compounded returns, and you will be worth millions when you retire, and you can easily live off the interest. When you die, your heirs get the entire balance.

Some people float the idea that privatizing will require a huge amount of money, that most people will not be able to afford. This is a common fallacy put forward by the opponents of privatization. 12% of your salary (6% from you, 6% from your employer) is already a huge amount of money. If this money had been in vested in the S&P 500 over the last 40 years, it would be worth a staggering amount. The idea that the market is not the same today as it was in the last 40 years is a tool used to convince people who have never looked at a stock chart.

To quote Enron as an example if why privatization is a bad idea is just plain silly. Part of privatization would require diversification. The only people really hurt by Enron were the ones who everything invested in one company. The rest have since recovered. And the killing argument to this point is: US Government. How much do you trust THEM?

Answer 3

I know many people feel that privatization is such a good idea for Social Security but they also need to remember one name: Enron. Many employees had their pension plans wiped out when that company went under. Investing your money is private funds may give you better returns when it's time to collect but it's also very risky. It's possible that company won't even be around by then or its crooked CEOs have embezzled all the funds. That's exactly what happened with Enron.

Social Security never was intended as a retirement plan. It was part of a three-pronged plan to supplement people's retirement income. Workers were supposed to also be able to live off their savings and their pensions when they retired. Unfortunately, many people don't have any money saved up and Social Security is pretty much their only source of income. There are a number of reasons for this such as bad investment choices, not being able to save money, living beyond personal means, credit card debt, medical expenses, and being cheated out of money.

I agree that Social Security needs to be fixed but I don't believe privatization is the answer. In Chile, which privatized its system years ago, those who are wealthier have benefited a lot more than poorer people.

Answer 4

If a person has only social security to retire on at least you will have something.. if it goes "privatization" a person will have to save or invest a hugh amount of money ( which most people can not do ), then a person will have a limited amount that will run out in a few years and your left high dry with nothing and the investment company's will end up with most of the money, will be run like Enron..

Invest and come up with millions..todays math is not like it use to be..like alot of other fast talkers today..

Answer 5

Basically, the government is not capable of effectively handling peoples' social security money. Privatization would be when a private company comes in and takes over the whole process. It would be much, much better if privatized.

Answer 6

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