Privatize Social Security?
Mr. Bob O’Brien: Hi, welcome to myWealth.com. I’m Bob O’Brien. I’m one of the senior instructors with the courses. Welcome to the blog for the day, “Why is it time to privatize Social Security?”
And this has always been a very controversial topic, privatize Social Security, leave it as it is and so forth, and one thing no one can argue about is the Social Security System is in very bad shape and it is in grave danger and these problems that it has have been magnified by the current economic crisis.
Now, if you’re a Social Security recipient, I don’t want you to worry or lose any sleep over it. You know, you’re going to continue to get your payments, but there are projected deficits in the future, and these deficits are getting worse and worse.
So it’s really important that you understand this topic and if you’re in the younger generation, make sure you take our investing course, make sure you take our course, so you’ll know what to do in terms of managing your own money, but also to have an opinion on this subject as well.
Voiceover: Be sure to check out the written blog at www.mywealth.com/blog.
Okay, the current economic crisis has further punished the Social Security System. The Social Security System was not in very good shape prior to 2008, but the economic crisis has made it even worse, simply because the Social Security System is funded through payroll tax, but unemployment as is well know has been on the rise and payrolls are being cut, and therefore, there is less revenue generated via the payroll tax.
Now, Social Security has projected deficits in 10 years, but these deficits have been moved up because of the current economic crisis and the reduced payroll tax money that’s coming in due to lesser payrolls.
So let’s take a look at what the current system currently looks like. Can you pay a payroll tax in order to provide retirement benefits to current retirees with the promise that you will receive your benefits when you’re retired? The government then invests any surpluses into Treasuries, which is used to finance other government spending and so forth, in which the Fed then prints money to buy these Treasuries.
So you can see this is a very fragile system and I posed the question, “Which is more irresponsible, continuing to just print money in order to finance Social Security or taking any surpluses or perhaps in the case of printing money creating any surpluses and investing them in the stock market?”
Now, the government has already become one of the world’s largest hedge funds and has taken major positions in the banks, in the automotive industry, and another problem that is on the horizon for Social Security System in inflation. The current increases that recipients receive each year is based upon inflation, and with inflation being projected to go to the roof, this is just going to increase to the overall expenditures of the system.
So make sure that you have your own financial house in order and that’s what we’re here to do, so don’t wait, get one of our courses, get educated, get to www.mywealth.com.
Mr. Bob O’Brien: One other thing that the government could do is to increase the payroll tax. But, on April 15th, there was a big tax protest, tax tea parties and so forth, and this is something that would be very difficult because the people that you would be increasing those payroll taxes for are the people that are not projected… basically receive anything from the Social Security System. So I think in light of that and in line of what we see in terms of some of the tax tea parties and so forth, the taxes tea parties on April 15th, that would be magnified, that type of protest, so it would be very difficult to increase those taxes on that, an people generally don’t want to pay taxes anyway.
So I’m not certain if I’m in favor of a complete privatization, but I do feel strongly that some of this money, assuming that there is investible money without interfering with government bonds and so it should be invested in stocks and it is just pruded to have a portion of any portfolio should have a portion invested in stocks. As long as that is disciplined and it is re-balanced appropriately, the risks certainly in the case of Social Security, a 25 to 50 percent portion in stocks, re-balanced appropriately, even for the last 20 or 30 years in light of the current crisis, it would be much better off than the system currently is if it was done properly with proper risk management and so forth.
So one thing to keep in mind, don’t trust your company pension. If you work for the state, you’ll be given the state pension and so forth and of course, Social Security, make sure that you have a plan, some type of plan, where you’re protecting yourself and that you have your own retirement plan.
Take advantage of anything that’s given you by your company, by your state, by Social Security and so forth, but nevertheless, don’t rely on those systems completely. You need to make certain that you’re saving and investing on your own, and that’s where we are here for, to help you deal with it. The personal finance course will help you design your retirement plan.
The investing course will help you manage the money and the currency course as well where you’ll have a better and broader understanding of the global economy. So make sure you check out these courses. They are incredibly affordable, $25 with the investing course. The currency course is $19.99. I’m Bob O’Brien. I’m one of the senior instructors. I look forward to seeing you in the course and have a great day.
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