To be sure, as the Baby-Boom generation retires and life expectancy continues to increase, shifting demographics present clear challenges to the current Social Security regime. The number of workers paying into the Social Security system per retiree is in a constant decline; today’s 3.4 workers per retiree will shrink to as few as 2.1 workers per retiree by 2030. Even the most favorable outlook on the current system, in which the Treasury Department finds a way to pay back the $1.9 trillion it has milked from the Social Security “trust,” leaves Social Security insolvent by 2042. Something needs to be done. But privatization is not the answer.
In addition to its enormous upfront price tag, privatization fails on a number of other grounds. For instance, despite conservative rants about the inefficiency of government programs, only one percent of the money going into Social Security is currently spent on administration fees. This figure is in comparison to the 15 to 20 percent companies in Chile are charging their clients to maintain retirement accounts in the country’s privatized system. Moreover, despite its imperfections, the current system provides something privatization cannot: reliability. Just as stock markets rocket up, they also tumble down, often for years at a time. While the current system does not leave the possibility of “making it big” in retirement through high times in the markets, it also does not allow for retirees to be left out hung to dry in the case of prolonged bear markets. Retiring after a stock market crash under the privatized system could leave our elderly barely scraping by. Even schemes of partial-privatization forces Americas elderly to play dice with its retirement by lowering modest guaranteed income levels.
Though the privatization of Social Security would be a major coup for Wall Street and the banking firms who would maintain the personal accounts, the American citizen is left with a riskier retirement outlook from a system that’s very name heralds its aversion to risk. Social Security is in need of a facelift, not a burial. Placing the system on stronger footing is necessary and can be accomplished by a gradual increase of the retirement age to 70 to reflect the reality of longer life expectancies. While private retirement accounts should have a place in any individual’s retirement plans, that place should be outside of and in addition to the reliable kernel of our current Social Security system.