Social Security and Privatizing Social Security


With the highest overall US expenditure, Social Security is the largest single government program in the world. The Social Security trust fund typically distributes more compensation than it receives in taxes from workers. Furthermore, it is anticipated to run out of money by 2034. Due to this, a proposal has been made to replace the existing government-managed systems by partially privatizing the social security funds. (Hassan, 2014). As a result, the employees will have to use a system of personal investment accounts to handle their retirement funds. The workers will have complete flexibility to manage their retirement investments, according to the program's proponents. The private accounts also will give the retirees higher returns compared to the current system. Moreover, the privatization will help in restricting the systems of the solvency. Privatization of the social security has much benefit to the citizens due since workers will be able to manage their funds and solve various issues such a insolvency.

Advantages for Privatizing Social Security

According to Williamson and Béland (2016), privatizing social security will help in solving the problem of insolvency by 2034. Social Security has been paying out more than the amount it is receiving in working contribution due to the increase in the aging population and lower birth rate. The ratio of workers to the retiree is reducing hence lowering the available funds for those who are retiring in future. Due to the issue that the trust funds may run out of money by 2034, social security has to come up with another plan to handle the situation (Kitao, 2014). In this case, a better solution is to turn to private retirement accounts, which will have to be funded with the use of the existing payroll taxes. Personal retirement accounts will eventually help to reduce social security debt thereby bringing the system back into solvency. In addition, the personal accounts will help the retirees to have higher returns on their investments. The growth rate for private investment is increasing than the returns gained by retired workers of the currents social security. Private social security is doubling the social security returns by putting a lot of the money in the hands of the retirees according to Feldstein (2008). The individuals will have an added advantage because the private accounts give then control over their retirements decisions. The Americans will have to decide on how their retirement contribution is invested. For this reason, private accounts allow their workers to access and control their retirement funds.

Benefits for American People

Privatizing social security is very beneficial to American people because the benefits of the people who have short life span can transfer their benefits to their family members that are in the private accounts. Personal accounts will provide people with an opportunity to transfer their benefits to their heirs, which currently is not found in social security (Mun & Mun, 2012). It will also be of an advantage to the poor because they will benefit from the inheritance. For example, the poor and the African Americans have shorter life expectancies but will have an opportunity to transfer their benefits to the people who have longer life expectancies (Ahmed, Barber & Odean, 2016). The disparity between the poor and the rich will reduce when the personal accounts are passed along to the next beneficiaries. The President and the Congress cannot access the private accounts. Therefore, it will not be easy for them to raid these accounts to fund other government or to buy treasury bonds to correct the deficits of the budget. Individuals covered by the plan have control of all the money kept in private accounts hence it is difficult to divert it to non-social security work. Money kept in private accounts is also restricted to only low-risk investments posting positive returns since individuals are not encouraged to invest in high risks investments, which might lead to losses.

Contractual Rights and Tax Benefits

Another merit of privatizing social security is that the workers will be offered the contractual right to retirement benefits by the private retirement accounts, which the current social security system is not offering. For example in the US, Flemming V Nestor was denied his money for social security retirement when he was discovered to be a member of Communist Party and was to be deported (Feldstein, 2008). He could not access to his money after saving with the system for 19 years. Privatization of social security is inevitable because workers will have full rights to their properties in retirement's accounts and government as well as wasteful spending, will be reduced when the program of privatization comes in practice. They will have no need to employ majority people in their offices, and the government bureaucracy would reduce. According to Mun and Mun (2012), Privatizing social security will benefit the poor for they will be fully insulated from the tax in the sense that their benefits will be guaranteed through the indexation systems. If the prices rise due to the consumption tax, it means that the social security benefits of the poor elderly will rise. On the other hand, people living in the middle-class as well as the rich elderly together with the middle-aged people alongside the younger people in the society will have to bear the burden of the tax. In this case, the tax will have to be distributed to every member of the community. However, the overall tax burden of the young and the middle-aged adults will have to decline because they will not pay the social security payroll tax any longer.


In conclusion, the current law does not protect Americans in the way the Congress is making the decision to deny them the benefits though they are the ones that have contributed to it. All Americans receive a written statement every year that dictates that all the benefits be subjected to the Congress that controls it and is capable of eliminating all the benefits from the people. The privatization idea is a guarantee that workers would get their future benefits if they put their retirement's funds into private accounts that are supervised by the government. It will also ensure that the worker's contributions are set aside to be used in future, unlike the current system where the contribution is set aside to pay off the earlier investors who have invested in the country. Privatization also will help to bridge the gap that exists between the poor and the rich because the poor can inherit the benefits from their relatives with short life span. Management of employee fund is important since it assures them of a bright future after retirement especially these that do not invest in other areas.


Ahmed, J., Barber, B. M., & Odean, T. (2016). Made Poorer by Choice: Worker Outcomes in Social Security Vs. Private Retirement Accounts. Journal of Banking & Finance.

Feldstein, M. (2008). Privatizing Social Security (1st ed.). Chicago: The University of Chicago Press.

Hassan, M. (2014). Privatizing Social Security: Advisable But It Can Be a Roller-Coaster Ride to The U.S. Taxpayer. Journal of Business & Economics Research (JBER), 12(4), 385. doi:10.19030/jber.v12i4.8861

Kitao, S. (2014). Sustainable Social Security: Four Options. Review of Economic Dynamics, 17(4), 756-779.

Mun, Y. & Mun, I. (2012). Privatizing the Social Security Program in the U.S.: How to overcome the Transition Costs. International Review of Public Administration, 17(2), 39-62. doi:10.1080/12294659.2012.10805227

Williamson, J. B., & Béland, D. (2016). The Future of Retirement Security in Comparative Perspective. Handbook of Aging and the Social Sciences.

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