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The Truth About Social Security and Privatization

Our Social Security System vs. "Privatization"

Social Security is a successful intergenerational program that has served this country well. Yet some groups want to "privatize" Social Security by taking payroll tax money that now goes into the Social Security trust funds and investing it instead in private investment accounts.


Under Social Security, people earn the right to participate by working and contributing. The program was never intended to be an investment program. With broader policy goals than private retirement plans, its intent is to provide guaranteed income to seniors, disabled citizens, survivors, and their families. Privatization would severely undermine this system.


The arguments for privatization can seem persuasive at first, but they are all hollow and easily disproved. Following are five simple rebuttals to many common and misleading claims being spread by the privatization movement. When you hear any of the pro-privatization claims, refer to the facts provided here.


When They Say , "Privatization Will Fix Social Security for Future Generations," The TRUTH is...


Privatization is not a plan to save Social Security; it is a plan to dismantle Social Security. Privatization means increased retirement risks, severe cuts in Social Security benefits, and a multi-trillion dollar increase in the federal debt.


Privatization diverts money out of Social Security into individual accounts leaving an even larger solvency problem. Privatizers fill this funding gap by dramatically cutting Social Security benefits. They cover the rest by borrowing money, thereby increasing the debt burden on all taxpayers by trillions of dollars over the next half century. With market-based accounts, the risk of an adequate retirement is placed entirely on the individual.


When They Say, "Social Security will soon go bankrupt," The TRUTH is...


If Congress does nothing - makes no changes or "reforms" - Social Security is projected to deliver full guaranteed benefits until at least 2037. Even after 2037, again without any changes, the trust funds will continue to pay 76 percent of benefits for years after that.

It's true, the aging baby boom generation will strain Social Security in the future. However, if Congress enacts modest changes, Social Security should be able to meet 100% of its benefit obligations for many decades to come.


When They Say, "Workers could get a better return by investing in the Stock Market," The TRUTH is...


Right now, Social Security provides a guaranteed income, paying benefits every month for life, with increases for inflation. After adjusting for risk, Social Security has a rate of return equal to that of any mix of financial assets in private accounts.


And risk must be taken into account, because stock market returns are never guaranteed! As we've seen in recent years, returns can fluctuate wildly. One need only be reminded that between 2001 and 2003, the NASDAQ lost 75% of its value. And the market took a major downturn again in 2008. Nest eggs can disappear in an instant - and take months, if not years, to rebuild.


With privatization, some might do well, many might lose - but our society would lose the benefit of the sound, basic income security provided by Social Security retirement, disability and survivor benefits.


When They Say, "Social Security is unfair because tomorrow's workers will have to support the Baby Boomers' retirement," The TRUTH is...


In fact, the Boomers have helped pre-fund part of their benefits by building a huge surplus that should keep Social Security alive and well for many years. With privatization, however, workers would end up in a double bind - paying taxes to support the Boomers' retirement plus investing money in their own individual accounts, in hopes of building retirement funds for themselves.


To make matters even worse, today's workers would have to bear the transition costs of switching to privatization, estimated at nearly $5 trillion over just the first twenty years- a cost that would fall on today's young people.


When They Say, "Privatization gets rid of the inefficiency of big government," The TRUTH is...


Administrative costs for Social Security are very low - less than 1% of the program's budget. Diverting money to the stock market would incur the very high costs of brokers' commissions, mutual fund management fees, and other expenses inherent in buying and selling stocks and bonds.


Small investment accounts are very expensive to administer. Commissions and fees could easily burn up as much as 15 cents out of every dollar of a worker's annual investment as they do in some countries with privatized systems.


Wall Street brokers and fund managers would stand to make billions of dollars a year thanks to privatization, so it's no surprise that they strongly support the privatization movement!


Conclusion: Privatization is NOT the Answer!


Unfortunately, exaggerated media coverage regarding Social Security's finances has contributed to the illusion that Social Security is in immediate trouble. And the pro-privatization movement has spent millions of dollars promoting that illusion.


That's why the National Committee to Preserve Social Security and Medicare is spreading the truth, through education material like the booklet you're reading right now. And that's why NCPSSM remains committed to blocking any effort to privatize Social Security.


By using these facts, you can help the truth - and Social Security - win! Thank you for supporting Social Security for the benefit of every generation of Americans!


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