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Privatization of Social Security

Essay by   •  January 1, 2011  •  Essay  •  1,025 Words (5 Pages)  •  1,605 Views

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Recently, the future state of Social Security has been a hot issue in our country. Some

feel that the remedy for any future problems is the privatization of Social Security. While this

may be good on paper, it is a horrible idea. The national government is pushing more in

favor of privatization of Social Security, and will indeed affect Americans in a negative way

because future retirees won't be protected against inflation, it has been unsuccessful in other

countries, and people will not have total control over their money in private accounts due to the

unexpecting fluctuation of the stock market.

It is important that our future retirees be granted the benefits that they deserve.

With the privatization of Social Security however, due to inflation this will be near impossible

to complete. One of the factors of privatization is that people will be charged for the interest rate

of inflation and an additional three percent to compensate for the federal money that was used to

create the account. I feel that this is ludicrous because in history it has been proven that inflation

has hurt the stock market. The government is unable to always control inflation. If it was

controllable then this crisis could have been avoided in the past. If this pattern continues, and

it most likely will, people with private accounts will end up getting hit with higher interest rates.

In return, these people will have less money in their actual accounts because they have to pay

off the high interest rates that were caused by inflation just so they could have the account. Also

under the current proposed plan it is required that all privatization plans be converted to annuity

that will make payments to them in monthly installments for their lifetime. If inflation

protection is not then provided for these annuities it will be a disaster. When inflation occurs the

buying power of those monthly payments will decrease, thus making these retirees unable to

purchase as many necessities to live. If an inflation protection plan is implemented then it will

more than likely prove to be very expensive. Which will then in-turn cause a cut back in

monthly benefits at the outset of the program. All in all, future retirees will not see the benefits

and rewards of their hard work due to most of it being lost to rising interest rates they will have

to pay.

Secondly people who support privatization seem to fail to realize just how unsuccessful

this plan has been in other nations. The first and most famous nation for implementing this was

Chile, who did so in 1981. Now 24 years later, Chile's social security system is in such a mess

that all of it's political parties agree, regardless of beliefs, that it should be abolished as soon as

possible. Supporters of privatization list Chile's system as a great example and success.

However, it is crazy to do so because this was done out of impending collapse of Chile's

financial system. It was not done to better Chile, but was created as a quick fix for the mess.

The military dictatorship in control at the time, had made of the economy. As a result, many

other Latin American countries who were in the same financial system followed suite.

Therefore, this action made South America's economy as a whole a disaster for many years to

follow. This point alone should prove the horrible downfall of this plan.

Another factor to be considered is the fluctuation of the stock market. Depending on

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