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Posted on October 10, 2008

Now More Than Ever: NO to Social Security “Privatization”

Social Security check

The ongoing stock market crash has wiped out literally trillions of dollars of wealth. Few Americans, from the richest to the poorest, have escaped unscathed.

Perhaps the most heartbreaking losses are being suffered by retirees and pre-retirees. Millions people in, or on the brink of, their golden years, have suddenly found themselves much poorer than they imagined. Some have had to postpone retirement. Others, already in it, have been forced to drastically reduce their standards of living.

Their suffering provides a graphic reminder of the importance of preserving Social Security as it exists today: as a defined-benefit, not a defined-contribution plan.

This is not to say that defined-contribution plans (e.g. 401(k)s, 403(b)s, and IRAs) are inherently a bad thing. In the long run, those who regularly invest in a diversified portfolio of stocks almost always enjoy substantial profits.

Eventually (one can only hope), the current debacle will work itself out. Even if we enter a serious recession, it will eventually end. Once confidence is restored, depressed share prices will look like very attractive bargains. Investors will return to Wall Street, and the market will recover. Saving and investing for retirement is still a good thing, and tax-deferred plans that encourage it should be preserved and expanded.

Nonetheless, to avoid living in constant fear, retirees must know that at least a portion of their income is completely independent of the vagaries of the financial markets. A shrinking number of corporate pensions still provide this. But for most American retirees, Social Security is the only guaranteed source of retirement income. This fact is so crucial that I’m going to repeat it: For most American retirees, Social Security is the only guaranteed source of retirement income.

Various schemes to “privatize” Social Security invariably involve taking away—or substantially weakening—the concept of a government-guaranteed old age pension, and replacing it with private investments. The current financial crisis has given us a sobering lesson on the limitations of such investments. They’re fine as source of long-term growth, and of supplemental income. But retirees need to eat and have a roof over their heads every day, without exception, regardless of what’s going on on Wall Street. They need a basic income that’s backed up by the kind of iron-clad guarantee on the U. S. Government can provide. In short, they need Social Security.

Social Security was born during the Great Depression. Back then, it saved millions of older Americans from abject poverty. During the heady years of the 1950s and 1960s, it helped senior citizens not just to survive, but to enjoy their golden years.

If Social Security didn’t exist, we would have to invent it. The last thing we need is any attempt to dismantle it, weaken it, or change its fundamental nature as a government-guaranteed defined-benefit plan. Especially in the present environment, that would be like canceling a fire insurance policy at the very moment when you smell smoke.

3 Comments on “Now More Than Ever: NO to Social Security “Privatization””

  • Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

    Posted by Allen Taylor on October 10, 2008 at 9:00 pm
  • […] At AAFR, we believe that the inherent risks in 401(k)s do not in and of themselves make them bad investment vehicles, but rather, that 401(k)s should only be depended upon for supplemental income. Workers should be able to depend on Social Security for basic income regardless of market conditions. This is why we stand in particularly strong opposition to Social Security privatization. […]

  • […] has repeatedly warned about various Social Security “privatization” schemes that aim to drain funds (and with them, viability) from the Social Security system and place them […]

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