Privatization of the social security would be a very effective tool in improving the capacity of the poor and low income earners to develop the capacity to invest. A closer examination of this action reveals that the poor would benefit most from the privatization of the Social Security. This is because the privatization would provide much higher rate in return on investments to the poor and the elderly. The system in its current form is specifically designed to be progressive but a closer synthesis of it reveal that it consists of many inequities that act to the disadvantage of the poor. In addition to this, its progressivity is put into test by the differences in life expectancy between the poor and the rich. It a natural fact the rich have higher life expectancies than the poor and as such are likely to receive higher rewards in social security returns. According to Turner (1996), “In a privatized system, an individual’s benefits would not be dependent on life expectancy in that individuals would have a property right in their benefits and any benefits remaining at their deaths would become part of their estates, inherited by their heirs”.
The benefits that the privatization program would bring are not hard to discern. Garrett (1995), illustrates that “first, privatization would bail out a system hurtling rapidly toward insolvency and second, privatization would provide retirees with a much higher rate of return on their investments”. In relation to the recent economic events revealed in the form of dwindling stock markets, lack of employment and drop in family household earnings, the best approach is to explore issues that would translate into higher investment returns to the poor in the future. Social security forms the major source of savings for retirement and such should be enhanced to not only address the current economic situation but also deal effectively with the future demands.
The recent structure of our social security plan is that it significantly contributes to the draining of resources from the poor areas thus leaving no money for investments in these regions. “Privatization would increase national savings and provide a new pool of capital for investment that would be particularly beneficial to the poor” (Turner, 1996). In addition to the above, privatization of social security would be of immense benefit to me. This is because I am a low income earner who would love to reap most from investments in the future. One path to the realization of this is through the privatization of the social security. Furthermore, I would like to retire early in my career and join self employment. In understanding the fact that if I proceed to retire at or before 62, my benefits will be permanently reduced to 80% of my PIA but would rise to 109% if I increase my retirement age to 67. I believe the privatization program would change some of these rules regarding the minimum age of retirement and come up with policies that can enhance the benefits of the poor.
Social security plan should be changed and some of its sections discarded so that its-pay-as-you-go financing mechanism achieves its objectives in increasing the value of capital investments and enhancing economic growth (Feldstein, 1996). In conclusion, challenges brought about by the recent economic crisis must act as awake up call to look deeply into our social security structure and enhance its role in providing higher investments return to the retirees. The only straight way to achieving this goal is through its privatization.
References
Feldstein, M. (1996). The Missing Piece in Policy Analysis: Social Security Reform. American Economic Review 86.
Garrett, D. (1995). The Effects of Differential Mortality Rates on the Progressivity of Social Security, Economic Inquiry 33.
Tanner, M. (1996). Privatizing Social Security: A Big Boost for the Poor.Web.