The Hidden Danger of Social Security Privatization and How to Avoid It
March 2005 -- President Bush's recent emphasis on reforming Social Security to include personal retirement accounts has been welcomed by free market advocates as a needed step toward giving people more control over their own lives. So far, much of the debate has focused on issues affecting individuals as participants in Social Security, such as what portion of their payroll taxes people should be allowed to invest in personal retirement accounts, how much the government should restrict investment choices in those accounts, and the extent to which Social Security should provide a minimum benefit relating to personal retirement accounts. Most current reform proposals provide that investment choices would not include individual stocks and bonds selected by the holders of personal accounts, but would be limited to diversified funds that invest in a broad range of stocks, bonds, or both. For example, under the Cato Institute proposal, employees would initially have three investment choices. An employee's contributions would be deposited in one of three balanced funds, each highly diversified and invested in thousands of securities. The default portfolio, where one's money would be invested if no choice were made, would have 60 percent stocks and 40 percent bonds. The two other funds would have the same asset classes but with different weights. (See Michael Tanner, " The 6.2 Percent Solution: A Plan for Reforming Social Security. ")
2010-9-15
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