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In: Economics

What are the pros and cons of replacing social security with private funds? Do you support...

What are the pros and cons of replacing social security with private funds? Do you support privatization or not support it? Provide arguments to support your side.

Solutions

Expert Solution

The current debate is the privatization of the Social Security funds showing pros & cons arguments.

Pros’arguments:

Population aging and low birthrate, By 2030, almost one in every five Americans will be 65 or older. By 2050, there will be between 80 and 90 million people aged 65 or older, and almost 21 million people aged 85 or older”(Preparing for the Silver Tsunami, 2006)

Private accounts offer workers more flexibility and more control of their retirement plans and reduce government bureaucracy.

With the private sector workers would have full property rights in their retirement accounts with a low-risk in investment. This means the account owner is not allowed to put his/her Social Security in any investment with a high risk.

The Social Security government version has been found collecting more money than paying out benefitsThe maximum Social Security tax instituted by the Social Security Act of 1935 was $60; as of 2015 it is $7,347 for employees and employers – which is over 700% higher than inflation” (Statistics, 2015)

The privatization restrict the act of spending the surplus money collected on bonds and on other government benefits.

Cons’ arguments:

Replacing Social Security with private funds may worsen the overall financial situation based on the pretext that people may lack financial literacy, and retirees would face the risk of losing stock market benefits.

The possibility of no more treasury bonds guaranteed by the government with the surplus collected would affect economic growth.

Privatization of Social Security would not solve the problem of government bureaucracy as many people think, instead, it may occur more offices.

Personally, I found the good part privatize Social security is the inheritance allowance by children or grand-children in case the owner died, which I found very logical and adequate. Since the money collected by the employee is a property, it should be considered as an asset and is a subject of all the asset characteristics. However, the most relevant risk of Social Security privatization would be the limitation of survivors, and disabilities benefits, unless the government comes up with a new source of provision to help people in need.


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