In the current Social Security debate, the left often attempts to label those in favor of private accounts as loony. Typically, supporters of the Social Security status quo use scare tactics in efforts to convince the American people that private accounts would be “risky” by “gambling your Social Security on Wall Street.” President Obama pledges that he will “continue to fight to make sure we do not jeopardize the future of Social Security with risky schemes that leave our seniors vulnerable."
In America, how risky would private Social Security accounts be? For this answer, we can look at the country of Chile for some insight. Chile once had a Social Security system similar to what the United States has now. Prior to 1981, Chile’s Social Security system faced a crisis— its Social Security deficit rose to about 25 percent of the country’s economic output. Chile’s efforts to “fix” Social Security by rising the retirement age and cutting benefits proven unsuccessful. Finally, in 1981, Chile emphasized individual liberty by allowing workers the choice to invest in personal Social Security accounts.
In Chile, 93 percent of workers have voluntarily chosen personal accounts rather than government controlled accounts. On the other hand, Congress has trapped all American citizens in the compulsory government run Social Security with no other retirement savings options. Those Chileans who opt for a personal account contribute 10 percent of their wages to one of 20 pension funds of their choice. Unlike the United States, Chileans are able to pass the remaining balance in their pension funds to loved ones upon their death.
As a result, Chile’s private Social Security accounts have been widely successful. The savings rate in Chile has increased to 26 percent of GNP from a mere 10 percent. Overall, the private pensions have collected more than $34 billion with an average real rate of return of 11.3 percent annually. Experts attribute these private Social Security accounts to the doubling of Chile’s real growth in the past ten years. According to Chile’s former Minister to Labor Jose Pinera, “Chilean workers benefit directly, not only through higher wages, not only through more employment, but through additional capital in their individual pension accounts.”
So why is the left so afraid to give Americans Social Security choice? As Former Majority Leader Dick Armey once overheard late Senator Edward Kennedy say in a conference committee regarding personal medical savings accounts, “We can’t give people that choice; they’ll take it!” While Chile's Social Security system is not perfect, implementing a similar plan in America would be a step in the right direction. We must allow every American at least the option to stay in the current bankrupt government run system or convert their payroll taxes into a private account that they own and control. If Chile is any indication of the demand for private accounts, the majority of Americans will also prefer to control their retirement funds in an individual account that produces higher rates of return.
Julie Borowski is a staff writer for FreedomWorks, an organization that promotes lower taxes, less government and more freedom.
"FreedomWorks, an organization that promotes lower taxes, less freedom and more freedom."
That must be a tough task to promote both less and more freedom :)
:) Thanks for pointing that out, I've updated it with emphasis to make up for the oversight.
Oh wow that was a horrible typo... thank you for correcting that!
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Fascinating article. It has always been difficult for me to win this debate with a leftist because it always ends up in a "people will not be responsible with their money" "yes they will" back and forth scenario. This example certainly will swing the debate back into our favor.
My only concern was the pre-selected 20 pension funds. However, it is certainly a step in the right direction and at the very least introduces some choice.
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I did the math once and it was something like... if an average person making 50k/year invested 12.4% of their pay in the S&P index it would be worth about $1.4 million more in retirement than they would get from social security. The fact that statists defend it is breathtaking. And oh, if you are too risk adverse for the stock market.... you would still be FREE to invest in government bonds. There is only one reason to defend the status quo...contol.
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My first question to you is : have you ever visited Chile? It is a beautiful country, but it has a signficantly different definition of poverty than we have in the US. If we lowered our definition of poverty, Social Security wouldn't be in trouble. Chile didn't have massive legacy costs to deal with. It is an emerging market. It really just isn't a meaningful comparison.
This is the problem with privatization. The only plans that I have seen use economic assumptions for real returns not seen in 100 years. The stock market doesn't have 6.5% real returns. The plans don't factor in disability. They assume 100% employment. What is your version of the best plan?
The question that I have for you is if private accounts would work? Why hasn't it? The country has had 401K, IRAs, and the like for 30 years. The boomers have had them, and yet no generation has arrived at retirement less prepared for retirement than any generation. Mind you the last 30 years have been actually pretty good for the markets - even with the crashes in 1987, 2000, and 2009.
You will find that government normally fixes problems by making them bigger. Social Security isn't working, so the smart people say - if we just make it bigger. You can't fix Social Security by making it bigger. That is exactly what privatization is : It takes Social Security and adds ownership. It's a better deal for you but it is a worse deal for those stuck with the legacy costs.
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The question that I have for you is if private accounts would work? Why hasn't it? The country has had 401K, IRAs, and the like for 30 years. The boomers have had them, and yet no generation has arrived at retirement less prepared for retirement than any generation. Mind you the last 30 years have been actually pretty good for the markets - even with the crashes in 1987, 2000, and 2009. Car models
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socialism and letting the middle class get the tax cuts are two different things. It is not bad to have some programs to help the average Joe. If we don't have money, you business people don't get money and thus, the economy goes into the toilet like it is now.
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We must allow every American at least the option to stay in the current bankrupt government run system or convert their payroll taxes into a private account that they own and control. If Chile is any indication of the demand for private accounts, the majority of Americans will also prefer to control their retirement funds in an individual account that produces higher rates of return.
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If Chile is any indication of the demand for private accounts, the majority of Americans will also prefer to control their retirement funds in an individual account that produces higher rates of return.
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