Should Social Security Be Privatized?
May 28, 2015
Social Security will be unable to pay its obligations in 20 years. In 2005, Congress considered transitioning Social Security to prefunded personal retirement accounts. But the Bush administration did such a bad job of selling the reform, and Democrats did such a good job of attacking it, that it fell apart.
Social Security provides a small income stream for every senior who contributed the required 40 quarters to qualify, a disability insurance provision that covers those who become disabled and a survivorship provision that helps a qualified deceased worker's spouse or minor children.
In 1981-1982, three Texas counties opted out of Social Security and created a personally owned retirement program that mirrored all three of Social Security's primary functions — except the benefits are better. It is known as the Alternate Plan.
Comparing the private sector Alternative Plan with Social Security:
- A low-income disabled worker in 1999 would receive nearly twice as much under the Alternate Plan as under Social Security.
- Disabled workers receive between 66 and 80 percent of their monthly salary in the Alternative Plan. Under Social Security, a large majority receives less than $1,700 a month, and only a handful receives more than $2,800.
- If a worker dies, the family or estate is paid the proceeds, equal to four times the employee's salary up to $215,000 compared to Social Security's $255 death benefit.
The best way to solve Social Security's long-term financial challenges is to privatize all of its components. Critics have long resisted that solution for the income security portion, arguing that the stock market is too volatile and that workers cannot be trusted to make good investment decisions.
Source: Merrill Matthews, "The Private Sector Can Reform Social Security's Disability Program," Institute for Policy Innovation, May 2015
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