You know, after the financial meltdown that has put everyone’s financial future, except for the ultra wealthy, in jeopardy, I thought for sure that wackadoodle ideas like privatizing Social Security would die a quiet death.
Boy was I wrong.
Turns out, there’s a renewed push to create private accounts for Social Security by a candidate that hails from right here in Tennessee. Robin Smith, a candidate for the 3rd Congressional District is all over it according to an article in the Chattanooga Times Free Press.
From the article:
Speaking Monday with the Chattanooga Times Free Press editorial board, Mrs. Smith proposed that people younger than 50 could divert up to 40 percent of what they would have paid into Social Security and Medicare and put it in a pre-tax, interest-bearing account that would remain tax-free if spent after the person turns 65.
“This would be considered private property and, at the point of death, if anything remains, it’s transferable to a family member,” she said.
Chip Forrester, chairman of the Tennessee Democratic Party, called the proposal “harebrained” and said it would put people’s retirement funds at risk. He said people already have the opportunity to invest in private IRAs and 401k plans for retirement.
Dr. Richard Wilson, a professor of political science at the University of Tennessee at Chattanooga, said Mrs. Smith’s proposal is similar to other ideas floated to reform Social Security. Mr. Wilson added the caveat that he usually votes in the Democratic primary.
“That form of reform of Social Security does appeal to a significant section of the most-conservative wing of the Republican Party, so I assume her proposal will be popular for her in the primary,” Mr. Wilson said.
Her proposal probably would have less appeal outside of her party, he said. But he said Mrs. Smith is in a strong position in the race and she is a likely front-runner.
Is there anybody, outside of far-right wing ideologues and investment bankers that thinks this is a good idea? Seriously, the financial crisis that we’re still digging out of wiped out some 40% of the world’s weath in a very short time. Are regular income earners really prepared to take on that kind of risk?
If, however, you were forced to buy a lifetime annuity with your current balance – when you buy such an annuity, you trade your cash for a series of guaranteed payments for the rest of your life – you’d be making your loss permanent. That’s how things could be worse.
That scenario is what could have happened to many people under President Bush’s proposed Social Security privatization program. It would have required people of modest and very modest means who invested their Social Security taxes in the market to turn some or all of those accounts into annuities when they hit retirement age. (Yes, Bush never proposed a specific plan – but annuitizing private accounts for some people is what his 2001 Social Security privatization commission proposed.)
Current Social Security benefits, of course, are set by a formula that isn’t affected by markets moving up, down or sideways.
I’m a big fan of individual initiative and saving – but a year like 2008 gives you an idea of how risky investing can be. If you have to cash out at a particular time, you might make out well (during market highs of October of 2007) or terribly (now).
That’s the point. It’s fine for you to take market and timing risks if your basic retirement needs are already being met with your own sources of income. It’s another thing to have to take those risks with your eating money, which is what Social Security represents for perhaps two-thirds of retirement beneficiaries.
If you want to supplement Social Security with private accounts, I’m all for it. But the disparity we’ve just seen shows why it’s wrong to force people to depend on the markets for eating money.
Someday, Social Security privatization will come back into vogue. When that happens, I’ve got two words that will remind you why it’s a bad idea: Remember 2008.
Sloan predicted it would come back around, though I’m not sure he thought it would be this soon. I’m sure this will garner some votes for Smith in the Republican Primary, but here’s to hoping that the good people of the 3rd Congressional district see beyond the sunshine and happy day rhetoric of this nonsense. This isn’t a good deal for anyone but the bankers.