Privatization is really a plan to dismantle Social Security

Advisors


Of course, this is what markets do — they have bubbles, corrections and crashes. But the recent tumult on Wall Street serves as a stark reminder of the role that Social Security plays as a stable source of income, insulated from the inevitable fluctuations in private investments — including the 401(k) plans that many Americans increasingly rely upon in the absence of employer-provided pensions.

The volatility in the stock market also reminds us that privatizing Social Security remains a really bad idea, because it would subject every worker’s lifetime contributions to the caprices of the market.

Most financial advisors counsel that temporary market volatility is no reason to abandon 401(k) plans, as they usually grow over time despite the normal ups and downs on Wall Street.

Younger workers have time to recover from the kinds of huge losses the market experienced in 2002 and 2008, for instance. For workers in their 50s or 60s and approaching retirement, however, such losses can be devastating and difficult to recover from — unless those older workers are willing to defer retirement for another five years to 10 years to make up for what they lost in the market.

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The most serious attempt to privatize Social Security took place in 2005, when President George W. Bush decided to expend political capital from his successful reelection campaign on this longheld conservative goal. Seniors’ advocates beat back Bush’s privatization scheme through intense grassroots activism.

Privatization slunk away with its tail between its legs. Since then, most Republicans have been hesitant to advocate too loudly for privatizing the program, but it remains part of the party’s ideological DNA, the current administration and leadership in Congress included.

If the GOP were to once again find itself in control of both houses of Congress and the White House after the 2018 elections, privatization may snake its way into the forefront of the Republican agenda.

A 2008 report from Center for American Progress Action Fund made plain the risk of gambling Social Security contributions on Wall Street. In the report, a hypothetical worker who diverted a portion of her Social Security contributions into a Bush-style private account (over 35 years) — and retired just after the stock market crash of 2008 — would have lost $26,000 in retirement income, compared to what she would have received by keeping her money in traditional Social Security.



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