Social Security There Are Huge Differences Between

Social Security

There are huge differences between Social Security and privatization. As this paper will discuss, Social Security is more than just an investment strategy. It is a guarantee to all citizens that they won't be subjected to the dire economic consequences resulting from inadequate income to save for retirement, failed investment strategies, and untimely death or a disability. These reasons require that Social Security remain in tact to protect Americans who have worked their entire lives from poverty.

Social Security guarantees working and retired Americans and their families economic stability that helps to keep them out of poverty; privatization does not. This is because Social Security shares risk across the entire workforce to ensure that all workers and their families are protected from old age, disability, and death. Privatizing Social Security retirement benefits would enable high-wage workers to reap gains from private retirement investment without having to help protect lower-wage workers from their disproportionate risks of disability and death. From their own earnings, most low-wage workers and even some middle-class workers would have difficulty putting enough funds in an individual account to maintain a decent standard of living in retirement.

Unlike private investment accounts, Social Security bene-ts are based on a balancing of two principles: equity and adequacy. Equity means that what a person puts in is related to what the person get outs. Workers with higher wages, who pay more into the system, receive higher bene-ts later on. But under the principle of adequacy, the Social Security bene-t formula overlooks years of low earnings and it replaces a higher proportion of earnings for the poor than for the rich. This is a progressive system that helps to level the playing field among long-time workers. In contrast, a private system based on total years of earnings would exacerbate racial labor market disparities.

Social Security is necessary because private investing contains risks that can upend even the most carefully planned retirement. The market goes down as well as up and even investments in well-run companies can lose value at inopportune times. Over the past seven decades, stocks have lost money nearly one out of every four years -- this would leave many seniors in a privatized system out of luck if they retired during a downturn. Social Security represents a more steady investment that is even indexed for inflation.

"The Social Security programs are insurance programs, not investment programs, designed to reduce risk from certain life events."