Pros And Cons Of Privatization Of Social Security

Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year. Social Security has paid out more in benefits than it has collected in employee taxes, and is expected to run out of money within the next few decades. Many have suggested to replace the current government administered system with the partial privatization of Social Security, thus allowing workers to manage his or her own retirement funds using personal investment accounts. Supporters of privatization believe that workers should have the option to control their own retirement investments, and that having private accounts could give retirees higher returns than the current system can. Those who oppose privatization believe that retirees could lose their benefits in a stock market downturn, and the people lack the information needed to make sensible investment decisions.

Supporters of privatization believe it could possibly make the economy more efficient and thus improving the structure of incentives. Laurence Kotlikoff argues that this would benefit some generations without impairing others. “The most important incentive affected by social security is the incentive to work. By financing social security benefits via payroll taxation, social security reduces this incentive, although the degree

Those who privatization argue that instabilities in the financial market could threaten retirement security for those whose investments failed, “In addition, high cost of administering small accounts, marketing charges, and management fees, as experiences in Britain and Chile indicate, would take a big bite of the workers savings. Added to these problems are the high transitional costs, which are estimated to be between 1 and 2 trillion dollars over the ten-year period,” (O’Donnell, Shetty, pp.