None of the current proposals insures individuals when things go south. There would be no contingency system if retirement money ran out due to fraud, and no Who Takes the Hit?
The impact of changing the system would vary according to age group. The first group
people already retired. They would likely see some benefits cut because the system would face an immedi ate shortfall as fresh money diverted to external accounts. Even if the cuts were in the form of smaller cost-of-living increases, they'd be felt.
The second group is comprised of those nearing retirement, between the ages 50 and 65. They would suffer the most.
Many have already been hit with diminished health benefits. They simply don't have enough time to save for a major drop in future expected payments.
The third group, people in their 20s and 30s, is being heavily targeted by the administration and the business media.
The argument is that private account money could be managed in a way that exceeds the value expected to be received from social security.
And therein lies one of the biggest falsehoods in the debate over privatising social security; the idea that somehow an individual will be able to get a greater return than the government could provide.
The reality is that the fees alone involved in churning millions of tiny ACCO ELS would be individually higher than anything the government could capture more efficiently in bulk.
However, not only are average historical stock returns very volatile, but none of the current proposals insures individuals when things go south.
There would be no contingency system if retirement money ran out due to fraud, and no recourse for those who received misleading financial advice that destroys their nest eggs. The Winners!
Meanwhile, other financial service companies remain on stand-by to benefit from both the management and the administrative set-up cost of new retirement funds.
So, the real winners are firms in the financial services industry that have short-term profit, not long-term retiree well-being at heart.
Research suggests that the banks would reap a $940 billion windfall in fees and other administrative charges for managing private accounts. Just the costs of setting up the accounts would be equivalent to six months of increasing the retirement age.
For the average worker, these fees would equate to wiping out at least 20 per cent of their retirement value.
The United Kingdom discovered egregious fees being levied on individual retirement accounts after implementing privatised systems without controls.
Costs shot so high that caps to fees had to be implemented. This however, would also not jive with the modus operandi of today's Congress and regulatory bodies.
In the end, privatising the system, partially or otherwise, is hazardous for individuals and likely to increase debt for the government.
Thus, it's really not a financially sound idea for either. The fact that it would offer a new pot of money to Wall Street, which could be invested in riskier assets at more lucrative fees, is not a reason to make the switch. But it's a very good reason to keep fighting it. • Nomi Prins, a former investment banker, is now a journalist. The full text of this article can be found at www.solidarity-us.org