Privatise Social Security? Have You Been Living Under a Rock?

During the election I heard many times that Social Security should be privatized. With the Tea Party having successfully elected several candidates to the Congress, and a good many other conservative Republicans and Democrats having been trying to burnish their credentials by suggesting the same thing, I suspect we will continue to hear about this bad idea. My question to the people saying that privatization of Social Security is a goof option is: have you been living under a rock for the last couple of years?

If Social Security had been privatized during the 2000s, as President Bush attempted to do, and citizen's Social Security savings had been invested in the stock, bond, and mutual fund markets as would have been inevitable, how much money can we reasonably expect to have been left? The answer is very little. In case people have forgotten, most of us knew someone who lost most of their stock/bond/mutual fund IRAs in the 2000 dot-com stock market crash. The same happened during the 2008 financial crisis, and associated national economic downturn.

If citizen's Social Security savings had been invested in markets during the 2008 financial crisis, citizen's savings would have been largely wiped out. Moreover, to cover the retirement of these many, now destitute, retirees, the government would have to take up the check--probably equivalent to the Social Security earnings just lost--essentially the same position that the government was in before the money was lost.

Social Security as we know it today is not going to remain. But privatization is not the right way to go about reforming this important entitlement. The one main important attribute of Social Security is that it is inflation-adjusted cash. It is little-affected by the ups-and-downs of the economy. Reform of Social Securityretirement should focus on continuing the entitlement as it currently exists for those already retired, or who are within 30 years of retirement. Younger people who have not, for the most part, started saving for retirement, should have expectations of carrying themselves through retirement more that the baby-boomers have expected. Social Security will always remain. Social Security was created to keep older people from being destitute in old age. That need has not gone away.

So, does Social Security need reform? Yes! Should Social Security be privatized? No! It makes for good soundbytes though...