Originally published January 31 2005
Privatizing Social Security costs money, but could show big returns in the long run
by Mike Adams, the Health Ranger, NaturalNews Editor
One of the biggest problems with the idea of privatizing Social Security is the cost associated with moving from a large-scale, bulk depository of money to individual accounts. This cost is especially large, with baby boomers reaching retirement age, which will take a huge chunk out of Social Security.
You're talking to a financial adviser about refinancing your mortgage to get a lower interest rate and cut your total finance charges.
Like the millions of other Americans that have refinanced, you know that what you save over the long term with your new mortgage more than compensates for anything you pay up front.
So why take the same flawed advice when it comes to Social Security reform?
Critics of personal accounts often point to "transition costs," arguing that there will be a huge taxpayer cost associated with "privatizing" the system.
Part of the idea of reform is to begin to dig out from this hole, just as you would want to do if you had a mortgage like that.
Advocates of personal accounts often point to the better financial returns one can expect from such accounts.
Under most reform proposals, younger Americans would be able to take some of the taxes they now pay to Social Security and put them instead into a government-regulated personal retirement account.
First, as more workers opted to take part of their retirement as income from personal accounts rather than from Social Security, the future benefits Social Security have to pay would fall, and so the unfunded liabilities (i.e. the total finance charges) would decline quite sharply over time.
In fact, if workers could put half their Social Security payroll taxes into a personal account in return for halving their traditional Social Security benefits, some analysts put the drop in those mortgage-style financing charges at a staggering $20 trillion over 75 years.
That short-term tab for reducing Social Security's liabilities is called the "transition cost," and it's just like the upfront points you pay to get your mortgage charges down.
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