Skip to Content

Social Security Privatization: A Bad Deal for Younger Americans

Social Security Helps Young and Old Americans

According to Social Security Administration data, about one in six Americans (47 million) receives a Social Security benefit today. More than one in three are not retirees. Social Security provides benefits to young workers and their families if they become disabled, and it provides benefits to the survivors of deceased workers, including their children.

Social Security Protects Children

Social Security protects young people even before they've obtained protection based on their own work. In fact, 98 of every 100 children could get benefits if a working parent dies. More than 3 million young people under age 18 were receiving Social Security benefits at the end of 2003. The average monthly benefit was $411. (Social Security Administration 2004. Annual Statistical Supplement to the Social Security Bulletin. Washington, D.C.: Social Security Administration Web page.)

As we all know, sometimes in life stuff happens. We can never know when an injury at work, an accident on the highway, or a severe illness will keep us from working, sometimes for a long time. The National Urban League Institute for Opportunity and Equality found that Social Security lifts a million children out of poverty yearly. (The National Urban League Institute for Opportunity & Equality, The Effects of Social Security on Child Poverty, May 2000.)

Private Accounts Would Subject Young People to Tax Increases and Cuts in Benefits

Social Security privatization is often sold to young people as a much better deal for them than the current system. But recent studies show that if Social Security is converted to a system of private accounts, younger people will be the ones who bear the costs of transforming the program.

The estimated transition costs for privatization range from $1 trillion to well over $2 trillion for the first 10 years. (President's Commission, Strengthening Social Security and Creating Personal Wealth for all Americans, December 2001; Jason Furman, William G. Gale, and Peter R. Orszag, CBPP, "Would Borrowing $2 Trillion for Individual Accounts Eliminate $10 Trillion in Social Security Liabilities?", December 2004.) Transition costs will last for at least 40 or 50 years, and maybe longer. Based on Congressional Budget Office estimates, economist Paul Krugman has estimated that the federal government will need to borrow $15 trillion in extra debt over the first 40 years of the privatization plan. (Paul Krugman, "The Iceberg Cometh" in The New York Times, January 11, 2005.) The Century Foundation has a similar estimate, finding that the increase in the federal deficit would mean that, 32 years from now, the debt burden for every citizen would be $32,198 higher simply because of privatization. (Reason #3 in Greg Anrig Jr. and Bernard Wasow, "Twelve Reasons Why Privatizing Social Security Is a Bad Idea"pdfsmall.gif  PDF, 14 pp, December 2004.)

In addition to transition costs, the President's plan will include drastic cuts in benefits for future retirees -- today's young people. The plan would cut benefits compared to current law by changing the formula by which they are calculated. Specifically, the proposed formula would replace the "wage indexing" of benefit levels with "price indexing," resulting in a large benefit cut that deepens over time. In essence, future adjustments to Social Security payouts would be based on inflation increases rather than earnings increases over time, essentially freezing retirees' standard of living at whatever point they retire.

Private Accounts and Investments Are Not Insurance

Privatization is a huge bait and switch. Social Security is structured as insurance, and intelligently so. When specified conditions are met (age or disability), specified payments are made. It mitigates risk around the issue of aging and disability much better than beneficiaries could likely do for themselves. Social Security is a good government program that works and provides vital protections to students and younger workers.

I need more information: