Myths and Misperceptions

Social Security is a Savings Account

While no one in the administration or among the advocates of privatization actually claims that Social Security is sopme sort of private savings account, they do insist on judging it as if it were one. In his State of the Union message, the predient argued "Your money will grow, over time, at a greater rate than anything the current system can deliver."

The president is, once again, "technically accurate" -- because your money doesn't grow at all under the current system -- the money you put in today is used to pay your parent's benefits today on the premise that, when you are retired, the money your children contribute will be used to pay your benefits.

It also provides insurance in the event you become disabled or die before you reach retirement age and a portion is redistributed to reduce the chance that that those who worked, but did not earn enough to pay for thei r retirement do not live in poverty when they can no longer work. In fact, for those at the bottom of the income ladder, they would not have done better putting their money in a savings account.)

Continuing the intergenerational analogy, what the pressident is saying is that, if you put your money in a savings account rather than supporting your parents, you'd have more money when you retired. He is, of course, correct — except that leaves a problem of what to do for your parents, who used the money they could have been saving to support their parents.

Understanding that problem is critical to any understanding of what is being proposed, because if one decides that we have to convert to a savings program without leaving our parents on the street, it will take more money -- a lot more money. In effect, we'll have to dig into our pockets so we can continue to support our parents and, now, save for our own retirements as well.

Or we could just run up the national debt and leave it to our children to pay -- in effect, letting them try to pay for their grandparents' retirement as they try to save for their own.

Even if converting Social Security (in large part) to a savings program makes sense, do we really want to do that to our children?