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Personal Retirement Accounts = Social Security Privatization
Individual Retirement Accounts Are a Recipe for Benefit Cuts
Even partial privatization of Social Security would require huge benefit cuts for today's workers, especially younger workers. Such plans are touted as being voluntary, but a recent study found that a worker who retires in 2032 and does not opt for a private account would still see a 17 percent cut below current retirement benefits. Some workers who do opt for private individual accounts could face a reduction in benefits of almost 50 percent.The recent decline in the stock market is a reminder of the importance of Social Security. Social Security is an insurance program, not an investment vehicle. Social Security is not supposed to make you rich, it is supposed to prevent you from slipping into poverty. Social Security is the one insurance program that provides some measure of economic support for Americans if a family wage earner dies or becomes disabled. Privatizing Social Security turns a safety net for everyone into a golden parachute for a few.
Still Unclear on Privatization/Personal Retirement Accounts?
Here are the three basic problems with Social Security privatization/personal retirement accounts:
- Personal retirement accounts dramatically worsen the long-term financing of Social Security by siphoning off money that will be needed to pay benefits.
- Personal retirement accounts require enormous cuts in guaranteed benefits, for retirees for the disabled, and for surviving spouses and children. It further exposes an increasing share of one's retirement income to economic risk, rather than spreading that risk throughout the whole of society. Privatization will have a particularly devastating impact on women, minorities, orphans and the disabled.
- Personal retirement accounts turn the insurance concept of Social Security on its head by rewarding higher-wage earners with uninterrupted work histories. Social Security was designed to provide income protection, especially for lower- and middle-income families due to death of a family wage earner, disability or old age. Social Security was created as an insurance program, not an investment scheme.
President's Commission to Strengthen Social Security
None of the three draft plans put forward in December 2001 by the President's Commission to Strengthen Social Security achieved the goal set out by the President: closing the gap in the program's solvency over the next 75 years None of the plans explains how it will achieve solvency. These plans do not change the fact that private accounts expose future beneficiaries to unnecessary risk and widely varying outcomes in retirement security.All three plans would require large cuts in the current defined benefit for future generations - even for those who do not opt for an individual account. Plan 1 would cut benefits 30 percent compared to what benefits would be under current law; the change in wage indexation alone, contained in Plan 2, would cut benefits 12 percent (compared to current law) in 2030 and 48 percent in 2070. The Commission skirted the main issue. The 25 percent shortfall in anticipated funding in 2041 could be closed without sacrificing the defined benefit if Congress were willing to dedicate the same revenues that the Commission proposed to cover the transition costs to private accounts. We can achieve full solvency over a 75-year period without sacrificing a guaranteed monthly benefit if we drop the idea of personal retirement accounts and look at a broader range of solutions.
The National Committee, a nonprofit, nonpartisan organization, acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing better-informed citizens and voters.