Risks Far Outweigh Benefits of Privatized Social Security

Originally from The Hartford Courant September 30, 2004

Social Security is about to be sold off to the highest bidder. Wall Street can barely wait to get its hands on the $940 billion in fees (according to one estimate) that it will collect if Social Security is converted into individual investment accounts, as President Bush's Commission on Social Security has proposed.

Young workers are intrigued by the idea of diverting their payroll taxes into Wall Street accounts. Privatizers promise ownership of accounts and big investment returns. What they fail to mention are the costs -- increased retirement risks, dramatic cuts in Social Security benefits and a multitrillion-dollar increase in federal borrowing.

There is no free lunch in privatizing Social Security. Diverting money out of Social Security will create an even larger solvency problem. The privatizers fill part of this funding gap by dramatically cutting Social Security benefits for younger generations. They cover the rest by borrowing more money, thereby increasing the burden on young taxpayers by trillions of dollars over the next half-century.

Privatization places much of the risk of a secure retirement on the individual. Young people will not only 'own' their accounts, but they will 'own the risk' of retirement. Markets go up, and markets go down. Woe be to the person who retires in a falling market. From 1999 through 2002, near-retirees saw the value of their market-invested 401(k) retirement accounts drop an average of 25 percent. A decline such as that puts a big dent in one's projected monthly retirement income.

Retired Americans overwhelmingly oppose privatizing Social Security -- not only for themselves, but also for their children and grandchildren. They understand firsthand the importance of Social Security in providing a sound, basic retirement income that lasts as long as you live. They worked hard, raised families and contributed to the economy just as today's young people are doing. But they realize that new challenges arise as you get older. And Social Security and Medicare provide a bedrock of protection. Just ask the widow who receives Social Security when her husband dies, or the seniors who lost their homes and possessions to the recent hurricanes. In a privatized system, one has to worry that the stock market might decline in the same year that incidents of poor health or loss may occur.

Social Security exists for the same reason that insurance exists. We often can't predict what will happen or when it will happen. So we pool our risks. Privatizing Social Security would make every American a risk pool of one.

Thank heaven privatizers are now being asked to explain exactly what happens when payroll taxes are diverted to private accounts. The reason we heard nothing after the president's commission reported its findings was that the transition costs were so high. The debate has finally begun. Private plans will dismantle Social Security. The alternative is making the difficult but reasonable choices that address the solvency of Social Security and keep a tried and true safety net for all Americans intact.

--Barbara Kennelly, a former congresswoman from Hartford, Conn., is president and CEO of the National Committee to Preserve Social Security and Medicare in Washington.

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