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  Social Security was created when Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935. The program provided a social insurance system based on the idea that if workers pooled a portion of their wages, they would be able to protect each other and their families against wage loss due to retirement. Through this national benefits program, Social Security made available a basic level of monthly income to workers who paid into the system.
Although benefits were initially restricted to workers aged 65 years and older, the program expanded over time and is now also known as the Old-Age, Survivors, and Disability Insurance program (OASDI). In 1939, benefits were introduced for spouses and minor children of retired workers, and “survivors benefits” could be paid to the family of a worker who died prematurely. Benefits for disabled workers were added in 1956, and the minimum age at which workers became eligible for old-age insurance payments was lowered to 62 for women in 1956 and for men in 1961.
       About 59 million people were receiving Social Security benefits at the end of 2014: 42 million retired workers and their dependents, 11 million disabled workers and their dependents, and six million surviving relatives of workers who had died. A 1983 Social Security Amendment included a tax on benefits for the first time – 50% of Social Security benefits became subject to taxation for individuals with an income of $20,000 or more – and raised the full-benefit retirement age from 65 to 67.
Social Security benefits were initially intended to supplement pensions and personal savings for retirees, however, Social Security payments have become the primary retirement plan for many Americans. The percentage of American workers with employer-funded defined benefit pension plans declined from 39% in 1980 to 20% in 2007. By 2014, 22% of married retirees and about 47% of unmarried retirees relied on Social Security for 90% or more of their income.
Social Security does not maintain individual savings accounts for each worker but operates as a pay-as-you-go system in which each generation of workers supports the preceding generation’s retirees. As of 2015, US citizens have 6.2% of their earnings (up to $118,500) taken out as Social Security Federal Insurance Contribution Act (FICA) taxes, which are commonly referred to as payroll taxes. Employers are also required to pay 6.2% of each employee’s earnings (up to $118,500) in payroll taxes. Individuals can begin collecting reduced retirement benefits at age 62, and full retirement benefits can be claimed at the age of 67.
Although the Social Security Act entitles workers to receive benefits, these benefits are not guaranteed by law. The federal government does not have a legal liability to pay retirees the money they paid into the system over their working careers and Congress can change the rules regarding benefit eligibility at any time.
According to the 2015 annual report of the Social Security Board of Trustees, the cost of Social Security benefits will exceed tax revenues beginning in 2020, and the program will become insolvent (i.e. unable to pay beneficiaries in full) when reserves become exhausted in 2034. In 2034, Social Security is projected to have enough tax revenue to pay 79% of benefits owed. The Trustees predict a budget shortfall of $10.7 trillion through 2089.
Several factors contribute to Social Security’s predicted insolvency, including America’s aging population. Millions of post-World-War II baby boomers began reaching retirement age in 2011, in what has been called America’s “silver tsunami.” By 2030, almost one in every five Americans will be 65 or older. By 2050, there will be between 80 and 90 million people aged 65 or older, and almost 21 million people aged 85 or older. In 2010, the estimated life expectancy was 78.7 years, compared to 61.7 years in 1935 when the program began.
Birth rates have fallen from over three children per woman during the baby boom (1946-1965) to two children per woman since 1970. Because of this decline, the ratio of workers to beneficiaries has dropped significantly. In 1940, there were 159.4 workers for each beneficiary, but the ratio fell to 5.1 workers to each beneficiary by 1960, and by 2013 there were only 2.8 workers to each beneficiary.
In a Jan. 2015 Gallup poll, 46% of those polled said they “personally worry about the Social Security system,” which is fairly consistent with polls taken regularly since 2005. An Apr. 2015 Gallup poll found that 36% of US non-retirees expected Social Security to be a “major source” of their retirement income, the highest percentage in 15 years of polling. Gallup also found that the percentage of 18-34 year-olds who expected to rely on Social Security as a “major source” of their retirement income doubled between the 2005-2006 and 2014-2015 periods, from 13% to 26%. According to Feb. 2014 polling by Pew Research, 51% of Millennial and 50% of Gen Xers believe Social Security will not be able to provide them with any benefits at all by the time they retire.

Privatizing Social Security would do nothing to solve its impending insolvency, and would actually make it worse. 

The trust funds are destined for insolvency because the program’s cost is increasing at a faster rate than revenue from payroll taxes. The situation will get even worse if a portion of each individual’s payroll taxes is diverted away from the Social Security trust funds and into individually controlled retirement accounts, shrinking the funding source for future retirees’ benefits.1, 2 According to a 1997 Brookings Institution analysis, if just 1% of payroll taxes had been diverted to private accounts in 1998, the trust funds would have been insolvent by 2015.3 William A. Galston, Senior Fellow at the Brookings Institution, said about President George W. Bush’s 2005 privatization proposal that “it was not clear how private accounts were even part of the solution. At best, they would function alongside of, and in addition to, needed fiscal reforms; at worst... they would exacerbate the system’s fiscal woes.”4
1. Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “The 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,”, July 22, 2015 2. Richard W. Stevenson, “Bush’s Social Security Plan Is Said to Require Vast Borrowing,”, Nov. 28, 2004 3. Barry P. Bosworth and Gary Burtless, “Privatizing Social Security: The Troubling Trade-Offs,”, Mar. 1997 4. William A. Galston, “Why President Bush’s 2005 Social Security Initiative Failed, and What It Means for the Future of the Program,”, Sep. 2007

Private Social Security accounts will undermine the guaranteed retirement income provided by Social Security by putting peoples’ retirement money at the whim of the stock market. 

During the 2008 financial crisis, the three main stock market indexes all dropped precipitously: the Dow Jones Industrial Average fell by 33.8%, the S&P 500 dropped by 38.5%, and the NASDAQ fell 40.5%.1 Due to the “boom and bust” cycles of the market, those who retire during an economic downturn would be significantly worse off than those who retire during a boom.2 Even diversified mutual and bond funds carry significant risk and are not guaranteed or insured by the government.3
1. Matt Krantz, “Markets’ Fall in 2008 Was Worst in Seven Decades,”, Jan 2, 2009 2. National Committee to Preserve Social Security & Medicare, “The Truth about Social Security and Privatization,” 3. US Securities and Exchange Commission, “Invest Wisely: An Introduction to Mutual Funds,”, July 2, 2008

Many people lack the basic financial literacy to make wise investment decisions on their own. 

A 2015 survey published in USA Today revealed that only 39% of Americans know the annual percentage rate (APR) on their primary credit card, and almost 45% don’t know what a credit score evaluates.1 According to researchers Annamaria Lusardi and Olivia S. Mitchell of Dartmouth College, financial illiteracy is widespread among older Americans. In their Oct. 2009 study on financial literacy among adults over 50, Lusardi and Mitchell found that only half of the participants could answer two simple questions on compound interest and inflation.2
1. Charisse Jones, “Survey: Americans Have Big Gaps in Financial Knowledge,”, May 2, 2015 2. Annamaria Lusardi and Olivia S. Mitchell, “Financial Literacy and Planning: Implications for Retirement Wellbeing,”, Oct. 2006

Privatizing Social Security would dramatically increase the national debt.

Transitioning to private accounts while continuing to provide benefits to current Social Security beneficiaries would leave a multi-trillion dollar hole that would need to be filled by more government spending. According to Bloomberg Business, President Bush’s plan would have required “Washington to borrow at least $160 billion a year in the early years,” increasing the nation’s debt by 40%.1 MIT economist Peter A. Diamond estimates that the costs incurred during the transfer to private accounts would add $1 trillion to $2 trillion to the country’s national debt, which “could trigger an economic crisis.”2
1, 2. Aaron Bernstein, “Social Security,”, Jan. 23, 2005

Privatizing Social Security would expand, not reduce, government bureaucracy. 

In 2014, Social Security paid benefits to 42 million retired workers and their dependents.1 Creating and tracking this many individual private retirement accounts would generate more government bureaucracy and would require the hiring and training of tens of thousands of new government workers to oversee accounts and explain the system to millions of people. The administrative costs of the current system were less than 1% of total revenues in 2014.2, 3, 4, 5
1. Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “The 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,”, July 22, 2015 2. Campaign for America’s Future, “Media Advisory: Former Thrift Savings Plan Director to Talk with Reporters about Problems of Privatized Social Security,” Campaign for America’s Future website, Aug. 22, 2001 3. Social Security Administration, “Fast Facts & Figures about Social Security, 2009,” Social Security Administration website, July 2009 4. Greg Anrig, “Twelve Reasons Why Privatizing Social Security Is a Bad Idea,” Century Foundation website, Dec. 13, 2004 5. Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “The 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,”, July 22, 2015

Guaranteed benefits would be reduced significantly under a privatized system. 

In order to fund private retirement accounts, special insurance protections that are provided by Social Security, such as disability and survivor’s insurance, would need to be reduced. A 2005 Century Foundation analysis of the Bush Administration’s privatization proposal demonstrated that the diversion of payroll taxes to private accounts would reduce benefit levels by 44% below their 2005 levels by 2052.1 Economist Dean Baker estimated that an average 15-year-old in 2005 who retires in 2055 stands to lose more than $160,000 of his scheduled benefits under Bush’s plan, and gain less than a third of that loss back from his investment in a private account.2
1. Century Foundation, “False Promise: How Social Security Privatization Would Sting Young Adults,”, Mar. 8, 2005 2. Dean Baker, “Cutting Our Benefits,”, Dec. 6, 2004

If workers had to adopt private accounts, unscrupulous financial advisors could take advantage of novice investors. 

According to the FBI, there were 1,846 cases of securities and commodities fraud pending as of 2011, and some of the schemes defrauded several thousand investors each. Many of the victims were elderly investors.1 The Obama Administration’s Council of Economic Advisors estimated that Americans lose about $17 billion per year on retirement investments that are arranged to benefit financial advisors at the expense of investors.2, 3 After the United Kingdom introduced private accounts in the 1980s, unscrupulous salespeople advised millions of people to invest in risky personal pensions dependent on stock market returns. As a result of the losses incurred, the UK government had to pay out more than £13 billion (equivalent to about US$20 billion as of Aug. 2015) in compensation to the victims.4, 5, 6
1. Federal Bureau of Investigation, “Financial Crimes Report to the Public: Fiscal Years 2010-2011 (October 1, 2009 – September 30, 2011),”  2. Jason Furman and Betsey Stevenson, “The Effects of Conflicted Investment Advice on Retirement Savings,”, Feb. 23, 2015 3. Zach Carter, “Elizabeth Warren Nails GOP Financial Exec,”, July 22, 2015 4. British Broadcasting Corporation (BBC), “Business: Your Money: Watchdog Focus on Young Pension Victims,”, Jan. 5, 1999 5. Sam Dunn, “Six Scandals from the Darkest Days of an Already Murky Industry,”, June 20, 2009 6. Mark Rice-Oxley and Jennifer Ross, “In Britain and Chile, Lessons for Revamping Social Security,”, Mar. 14, 2005

Privatizing Social Security will put billions of dollars into the pockets of Wall Street financial services corporations in the form of brokerage and management fees.

Private Social Security accounts will be a boon to Wall Street, where banks and investment advisors could receive over $100 in fees for each account.1 Since the number of Social Security beneficiaries is expected to grow to more than 125.7 million by 2090,2 Wall Street will have guaranteed access to a rapidly growing pool of customers courtesy of the federal government.
1. Robert Genetski, “Administration Costs and the Relative Efficiency of Public and Private Social Security Systems,”, Mar. 9, 1999 2. Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “The 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,”, July 28, 2014

Social Security is highly efficient in comparison with private accounts. 

Social Security provides benefits through a centralized, highly efficient process administered directly by the US government, with an administrative overhead of less than 1%.1 Moving benefits into individual private accounts creates a decentralized system that will have to take into account the full diversity of opinions, preferences, and expectations of individual investors, which may increase the program’s annual administrative costs by more than 83% (from less than 1% to 1.83% of assets), amounting to $54-$117 per worker per year.2, 3
1, 2. Christian E. Weller and Edith Rasell, “The Perils of Privatization: Bush’s Lethal Plan for Social Security,” Economic Policy Institute website, May 1, 2000 3.Robert Genetski, “Administration Costs and the Relative Efficiency of Public and Private Social Security Systems,”, Mar. 9, 1999

  Other policy changes can fix Social Security more effectively and less disruptively than privatization.

     Future budget shortfalls can be eliminated by reducing benefits, increasing taxes, and/or raising the retirement age.1, 2, 3, 4 In 2010, the nonpartisan Congressional Budget Office (CBO) estimated that either a 15% cut in benefits or a 2% payroll tax increase could keep the trust funds solvent for an additional 44 years. In addition, the CBO found that eliminating the payroll tax cap ($118,500 as of 2015) would also keep the trust funds solvent for another 44 years.5 Higher returns could be offered to retirees if Congress allowed the Social Security Trust Funds to invest in equities in addition to bonds.6                
1. Brad Plumer, “Ryan Supported Social Security Privatization in 2005. What Was That Again?,”, Oct. 12, 2012 2. Jamie Hopkins, “Congress Proposes Three Changes to Social Security That Make Sense,”, Oct. 29, 2014 3. Martha M. Hamilton, “How You Would Fix Social Security: Tax Higher Earnings,”, Oct. 27, 2014 4. Emily Brandon, “5 Potential Social Security Fixes,”, Nov. 14, 2014 5. Congressional Budget Office, “Social Security Policy Options,”, July 2010 6. Michael Hiltzik, “You Really Want to Privatize Social Security in THIS Market?,”, Aug. 24, 2015

Social Security is an equalizer, leveling the playing field for rich and poor, whereas private accounts would favor the wealthy.

Social Security taxes are weighted to balance the system for all levels of wage earners, while private accounts favor the rich because low-income earners without their own savings would have their retirement funding dependent on the success of the markets.1 Both the General Accounting Office and the Social Security Administration examined a private accounts system established in three Texas counties, and both organizations “concluded that lower-wage workers, particularly those with many dependents, would fare better under Social Security, while middle- and higher-wage workers were likely to fare better [under a privatized system], at least initially,” according to the Texas Tribune.2
1. Greg Anrig, “Twelve Reasons Why Privatizing Social Security Is a Bad Idea,” Century Foundation website, Dec. 13, 2004 2. Becca Aaronson, “How Privatized Social Security Works in Galveston,”, Sep. 17, 2011

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