Question

Social Security system is a pay as you go retirement plan. Money taken from workers checks is
transferred to retirees. At one time there were 42 workers per retiree; today the ratio is now under 3 to 1.
By 2030, the ratio is expected to fall to 2 to 1. The only way to keep the current system solvent is to raise
taxes on those currently working or cut benefits to those already retired. Neither of these options is
particularly pleasant. Another option is now being debated, privatization. Under this plan, the government
would still deduct money from our checks, but it would be put into personal retirement accounts under our
own individual (but limited) control.
Carefully read the information below, and then do three things with the data. (1) Make two columns (one
for costs and the other for benefits) and place each piece of information in the correct column. (2) Prioritize
each list, from most important to least important. (3) Write a three-paragraph analysis. Paragraphs one
and two should explain why you feel the top two costs and top two benefits are the most important. Finally,
paragraph three is your analysis, based on your interpretation of all the facts listed below, explain whether
you believe we should privatize Social Security or not. The paper should be word-processed and no
more than one page in length.
1. The stock market has averaged a 7% return on peoples’ investments over the last
50 years, which is significantly higher than the 1-2% or less most will receive
under the current Social Security plan.
2. Many people close to retirement could be harmed by a sudden drop in the market,
reducing the value of their retirement accounts just when they need it the most.
3. Any privatization plan would have much higher administrative costs than our
current transfer program, reducing the potential returns.
4. Disabled workers and widows of workers who die young would see a reduction in
benefits.
5. Under privatization, people would be more in control of their own retirement.
6. Social Security is indexed to protect against inflation (there is a COLA tied to the
CPI), private retirement accounts would not be able to guarantee this protection.
7. If we try to privatize, the only way to continue to pay for today’s retiree’s benefits
and put money into separate accounts for each individual would be to raise taxes
or cut benefits or both (at least in the short run).
8. Instead of the government simply paying out the collected money in transfer
payments, this money could now be funneled into investments across the country
leading to more economic growth.
9. Privatization may lead to a loss of “community”, the idea that we are all in the
same retirement plan together.
10. Under privatization, even the poor would have a chance to invest in the stock and
bond markets normally only available to the wealthy.
11. Some people are concerned that many people are totally unprepared to choose the
investment strategy best suited to their individual needs. This could lead to
people making bad choices and having less retirement income.
12. If you die before retirement age the money in the account would pass to your
heirs, not the government.

Answer 1