Social Security Riskier Than Private Retirement Accounts
May 12, 2000
The future of Social Security has entered into the presidential debate, now that George W. Bush has called for the creation of voluntary personal retirement accounts.
His opponent, Vice President Al Gore, attacks the plan as too "risky," potentially harmful to minorities and women, and too costly to implement.
Highly-respected economists take issue with his comments:
- Nobel Prize-winning economist Milton Friedman observes that "the current system is very risky" -- with the fund projected to go into the red after 2036.
- As for the impact on minorities, blacks experience low rates of return from Social Security because they have lower life expectancies and there are no residual benefits for heirs when they die -- whereas private accounts could be bequeathed.
- Twice as many women retire in poverty as men -- and they receive only 75 cents in Social Security benefits for every $1 received by men.
- Implementation costs would depend on the final plan designed by Congress, but the cost of doing nothing carries the certainty of tax increases on workers or reductions in promised benefits -- and quite likely both.
Boston University economics professor Laurence Kotlikoff suggests that everyone could have their account balances invested in a market-weighted global index of stocks, bonds and real estate -- for an administrative cost of about two-tenths of a percent.
Source: Peter Cleary, "How Risky Is Social Security Reform? Issue to Figure in Presidential Race," Investor's Business Daily, May 12, 2000.
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