# Privatizing Social Security. **URL:** \ **Category:** Great Debates\ **Created:** [August 17, 2000, 1:45am UTC](https://boards.straightdope.com/t/privatizing-social-security/29652 "2000-08-17T01:45:14Z")\ **Posts on this page:** 18\ **Page:** 3
**Author:** ![C\_K\_Dexter\_Haven](https://avatars.discourse-cdn.com/v4/letter/c/b2d939/32.png) [@C\_K\_Dexter\_Haven](https://boards.straightdope.com/u/C_K_Dexter_Haven)\ **Post date:** [August 18, 2000, 6:57pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/41 "2000-08-18T18:57:24Z")
Kabbes, that means we got three actuaries regularly posting to these boards (me and december bein’ the other two)… What are the odds of THAT? Anyway, just to get a bit into the fray: Chile started a fully privatized social security system in the early 1980s. It has been a very successful experiment, copied by a variety of countries, including Poland and Mexico. It works roughly as follows: there are a number of registered social security funds (I think around 12 in Chile, if memory serves.) To be a registered social security fund, a company must meet various government requirements; in Chile, the funds are all joint-ventures between banks and insurance companies. Each employee selects which fund receives his social security contribution, and the funds compete for the business. They advertise, again within some government regulations, and try to show how their investment strategy out-performed their competitor funds. The employee can move his money from fund to fund (there are restrictions, such as once a year.) Each fund works like a savings plan: the employee’s money accumulates investment earnings each year. It’s not an unlimited investment market, so that the fears expressed in this thread of crummy investment choices, etc, are covered. In addition, some of the employee’s money is used to buy life insurance and disability insurance, through the insurance branch of his fund. When the employee gets to retirement age, he has several options, including taking the payments stretched over a period of time. This is not the system that I’ve heard discussed in the U.S., but I wish we did. The Chilean system seems to combine the best of government-run and competitive market-driven. The government does what it does best: regulate. The funds do what they do best: compete. A very interesting system, IMHO. ---
**Author:** ![pldennison](https://avatars.discourse-cdn.com/v4/letter/p/9fc29f/32.png) [@pldennison](https://boards.straightdope.com/u/pldennison)\ **Post date:** [August 18, 2000, 7:10pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/42 "2000-08-18T19:10:48Z")
**Kimstu** : > [@](#): > > I think the point Daniel was probably trying to get at is that constructively helping the needy takes a whole lot of effort, information, and organization, I don’t disagree. I would quibble about who we define as “the needy,” but that’s a minor quibble within the scope of the discussion. > [@](#): > > and that realistically speaking, most of us in a totally privatized society would probably fail to meet our theoretical goals of altruism. Hmmm . . . I don’t know about that. I think the problem lies more in the fact that, in a totally privatized society, _other people_ would fail to meet the goals of altruism that you (the generic you) would prefer that they have. Besides, as my Jewish brethren say, “Whoever saves one life saves the world entire.” 😉 > [@](#): > > As kabbes pointed out about investment finance, these are complicated issues, and giving people the responsibility to handle them on an individual basis without ensuring that they have the knowledge to do so wisely would be ineffective, if not downright cruel. Well, nobody’s proposing that we ban the consultation of investment professionals or fund managers. When my income and my savings grow to a certain point, I fully intend to consult one. It would take an unwise, even (dare I say it) a stupid person not to consult someone who is more schooled in the ins and outs of financial management. > [@](#): > > Government agencies may be bloated and ineffective but they’re not literally inert: the Social Security Administration and other entitlement programs are handing out a lot of concrete assistance to a lot of people, and if we citizens had to handle all of that personally in our free time it would involve a huge amount of work. And God forbid we each undertake a huge amount of work. The effects could be _devastating_. 😃 ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [August 18, 2000, 8:06pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/43 "2000-08-18T20:06:59Z")
**Phil** replied to me: “realistically speaking, most of us in a totally privatized society would probably fail to meet our theoretical goals of altruism.” \*Hmmm . . . I don’t know about that. I think the problem lies more in the fact that, in a totally privatized society, other people would fail to meet the goals of altruism that you (the generic you) would prefer that they have. \* Well, that would be a problem too: if everybody is thinking “more should be done to alleviate suffering, and other people should do it”, then it sounds as though not enough is being done. At least a universal entitlement supported by tax revenues represents some kind of social consensus as to what our obligations are, albeit a very imperfect one. ---
**Author:** ![TampaFlyer](https://avatars.discourse-cdn.com/v4/letter/t/71e660/32.png) [@TampaFlyer](https://boards.straightdope.com/u/TampaFlyer)\ **Post date:** [August 18, 2000, 8:46pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/44 "2000-08-18T20:46:24Z")
Socialist Insecurity is nothing but a Ponzi scheme. ---
**Author:** ![Doctordec](https://avatars.discourse-cdn.com/v4/letter/d/cdc98d/32.png) [@Doctordec](https://boards.straightdope.com/u/Doctordec)\ **Post date:** [August 18, 2000, 9:32pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/45 "2000-08-18T21:32:10Z")
I have to weigh in on the privatizing side. By the time I’ll be able to collect social security at (68 or 70) I expect there to be a means test or some other catch that will keep me from collecting a nickel of my money back from the SSA. Really, government has no business running a program like social security anyhow and it points out why government has no business in health care either. They always end up screwing the sorry taxpaying bastards like me that pay the bills. Just remember, congress and the prez don’t pay FICA and they retire pretty well. > [@](#): > > Or, perhaps you want to continue paying fica AND and additional amount for a private plan? I already do, and it takes 22 percent of my paycheck because I fully expect to get screwed by the feds! > [@](#): > > Also I’d like to not see a cap on what they take out for social security. Have it keep going up the more you make. Now that’s scary. Gee, that would make it a TAX instead of a contribution, wouldn’t it ? So if I’m a pro basketball player making 40 mill, I contribute 2.8 million a year to SSA so I can get $1,800 a month after age 70 ?? I’m laughing so hard I may bust a gut. ---
**Author:** ![mangeorge](https://avatars.discourse-cdn.com/v4/letter/m/d78d45/32.png) [@mangeorge](https://boards.straightdope.com/u/mangeorge)\ **Post date:** [August 18, 2000, 9:32pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/46 "2000-08-18T21:32:28Z")
> [@](#): > > \*Originally posted by TampaFlyer \* > \*\*Socialist Insecurity is nothing but a Ponzi scheme. \*\* How so? Peace, mangeorge ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [August 18, 2000, 9:53pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/47 "2000-08-18T21:53:20Z")
**PunditLisa** (in, of all places, a [Pit thread about Tupperware parties](http://boards.straightdope.com/sdmb/showthread.php?threadid=21416)—and it actually wasn’t a non sequitur!) provided a good summary of the differences between Social Security and a Ponzi scheme. ---
**Author:** ![Danielinthewolvesden](https://avatars.discourse-cdn.com/v4/letter/d/ce7236/32.png) [@Danielinthewolvesden](https://boards.straightdope.com/u/Danielinthewolvesden)\ **Post date:** [August 18, 2000, 10:02pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/48 "2000-08-18T22:02:54Z")
> [@](#): > > \*Originally posted by pldennison \* > > . I am saying that we should not reward people for willful stupidity. Taking my (and your, and Daniel’s) money to provide for the willfully stupid is a reward.\>1 > > Incidentally, if there were no SS, what efforts would you, personally, make to save people from “starving in the streets”? I’m curious. Last time a similar question was posited, Daniel regaled me with stories of how he would blow all his money on yachts and vacations instead of helping the poor if taxes didn’t exist.\>2 > > Unfortunately, most people (well, many people) believe that SS _is_ their hope for a prosperous retirement. They’re taught that the government will take care of them in their old age, when in fact the reality is much more stark, and they therefore do little or nothing to provide for themselves. If told they were required to provide for their **own** well-being after retirement, people might exercise a bit more prudence.\>3 > Go troll elsewhere, Daniel. \>4 > \*\* \>1. I am sorry, but someone can be quite bright and intelligent, and still not be able to properly understsnd the in & outs of annuities, IRA/s, and other retirement plans, and still not be “wilfully stupid”. Especially when a fast-talking fiancial “expert” is giving you “advice”. So I guess what we will have to do is put the pldennisons on a board, and when some 70 year-old couples retirement plan goes bust, this board makes a decision on whether or not the old folks were 'wilfully stupid", whereupon they get stamped “stupid”, and are sent out to starve to death. :rolleyes: \>2. OH, I do donate, and serve on boards & commisions & such. But as far as “aid” goes, I want all of us to be required to give, so I know WE ALL are giving to help. \>3. I know of NO-ONE who counts on social security for a “prosperous” retirement. \>4. personal attacks & name-calling. Right. ---
**Author:** ![matt\_mcl](https://avatars.discourse-cdn.com/v4/letter/m/7ab992/32.png) [@matt\_mcl](https://boards.straightdope.com/u/matt_mcl)\ **Post date:** [August 18, 2000, 11:14pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/49 "2000-08-18T23:14:20Z")
The question we should be looking at is not the scholasticist argument as to whether someone who makes a bad investment in their youth deserves to starve in the street or not. The question ought to be whether a society in which elderly people regularly starve is or is not preferable to one in which they do not. After deciding which is the case, we may then decide how we are going to go about securing that end. ---
**Author:** ![pldennison](https://avatars.discourse-cdn.com/v4/letter/p/9fc29f/32.png) [@pldennison](https://boards.straightdope.com/u/pldennison)\ **Post date:** [August 19, 2000, 12:01am UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/50 "2000-08-19T00:01:54Z")
> [@](#): > > \>1. I am sorry, but someone can be quite bright and intelligent, and still not be able to properly understsnd the in & outs of annuities, IRA/s, and other retirement plans, and still not be “wilfully stupid”. If they don’t understand them, they should consult a licensed financial planner. > [@](#): > > So I guess what we will have to do is put the pldennisons on a board, and when some 70 year-old couples retirement plan goes bust, this board makes a decision on whether or not the old folks were 'wilfully stupid", whereupon they get stamped “stupid”, and are sent out to starve to death. Gee, that accurately represents my position. > [@](#): > > \>2. OH, I do donate, and serve on boards & commisions & such. But as far as “aid” goes, I want all of us to be required to give, so I know WE ALL are giving to help. I never thought you’d actually own up to the fact that you intend to take everyone’s money at gunpoint to satisfy your own need to feel altruistic. At least you’re honest. > [@](#): > > \>4. personal attacks & name-calling. Right. Hey, you’re the one who insinuated that I don’t understand the difference between the mentally retarded and the willfully stupid. Are you standing by that statement? ---
**Author:** ![Danielinthewolvesden](https://avatars.discourse-cdn.com/v4/letter/d/ce7236/32.png) [@Danielinthewolvesden](https://boards.straightdope.com/u/Danielinthewolvesden)\ **Post date:** [August 19, 2000, 9:45am UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/51 "2000-08-19T09:45:28Z")
> [@](#): > > \*Originally posted by pldennison \* > \*\* > > > [@](#): > > > > So, do you think we should allow you to starve to death because you were unlucky, stupid or naive? > > Ignoring the other two, you **don’t** think people should have to suffer the consequences of their own stupidity? \*\* Note that in your 1st mention of letting “the stupid” starve to death, you do not differentiate as “wilfully” stupid. Forrest Gump was “stupid”. I have no idea what “wilfully stupid” means, but it seems that your are taking it to mean those who are NOT stupid, but are actually bright, but still deliberately perform foolish actions. Well, I would not let them starve, either. However, I do not feel being stuck living on just minimun SS, ie about $600 a mo, is exactly a picnic. That would a a humane “consequence” of their own decisions. Also note, folks, that Social security is mostly tax free, entirely so for those ONLY on SS. Under a privatized plan, that would stop. And it takes quite a bit extra “return on investment” to make up for not paying some 38% in taxes (FED & St). ---
**Author:** ![Liberal](https://avatars.discourse-cdn.com/v4/letter/l/848f3c/32.png) [@Liberal](https://boards.straightdope.com/u/Liberal)\ **Post date:** [August 19, 2000, 12:13pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/52 "2000-08-19T12:13:25Z")
Why not let people decide for themselves if they want to opt for a private plan in lieu of Social Security? Two reasons I can think of off hand are: (1) Social Security does not hold for you an account, per se, but pays you your entitlement from a general fund (like multi-level marketing) or (2) the majority of people don’t have sense enough to make decisions like that. Of either would I be afraid were I a staunch defender of majoritarianism. ---
**Author:** ![labdude](https://avatars.discourse-cdn.com/v4/letter/l/5fc32e/32.png) [@labdude](https://boards.straightdope.com/u/labdude)\ **Post date:** [August 19, 2000, 8:07pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/53 "2000-08-19T20:07:46Z")
> [@](#): > > \*Originally posted by Libertarian \* > \*\*Why not let people decide for themselves if they want to opt for a private plan in lieu of Social Security? > > Two reasons I can think of off hand are: (1) Social Security does not hold for you an account, per se, but pays you your entitlement from a general fund (like multi-level marketing) or (2) the majority of people don’t have sense enough to make decisions like that. Of either would I be afraid were I a staunch defender of majoritarianism. \*\* Another reason. Social Security is progressive. The upper classes pay more than they get, but the lower classes get more than they pay. If SS was optional the upper classes would opt out, and this would leave the poor without enough money to support even a minimal level of necessities. People often use an example of a person making 50,000$ a year, and say “look you are only getting a 1.5% return.” Well a poor janitor or maid gets a 10-12% return. In a private system they would never make enough to save an adequate amount. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [August 19, 2000, 10:19pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/54 "2000-08-19T22:19:35Z")
**labdude:** _Another reason. Social Security is progressive. […] People often use an example of a person making 50,000$ a year, and say “look you are only getting a 1.5% return.” Well a poor janitor or maid gets a 10-12% return. In a private system they would never make enough to save an adequate amount._ Good point, and let me note, for the benefit of those who figure that that ought to be the janitor’s or maid’s problem, that it would be much harder for employers to make enough to retire on comfortably if they had to pay their unskilled workers enough to retire on comfortably too. In fact, it’s probably **far** cheaper for employers to pay janitors and maids modest wages and help support their modest retirement than it would be to pay them $50,000 per annum and let them pay for retirement themselves. Of course, there’s always **Libertarian** ’s alternative: \*I know that your concern for starving old people is genuine. Perhaps there is a tactic you have not considered. What if you played the game of capitalism, made yourself wealthy, and actually built shelters and care-centers for starving old people? \* But I have an even better tactic! You go down to the bazaar, see, and you buy this old lamp at a junk dealer’s, and you take it home and start to clean it and then this genie pops out and gives you three wishes, and so you can have your private wealth **plus** shelters and care-centers! Much quicker and more economical, and about as practical. 🙂 Seriously though, I’m surprised that nobody’s yet picked up on **CKDextHavn** ’s proposal of the Chilean-style combination of privatized investment and government regulation for a universal retirement plan. This sounds very exciting, and I don’t understand why we haven’t heard more about it. **kabbes** , any actuarial comments on this one? ---
**Author:** ![oldscratch](https://avatars.discourse-cdn.com/v4/letter/o/ed655f/32.png) [@oldscratch](https://boards.straightdope.com/u/oldscratch)\ **Post date:** [August 19, 2000, 11:48pm UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/55 "2000-08-19T23:48:47Z")
Being naturally psychic. You will notice I commented on CKDextHavn’s proposal before he even mentioned it. 🙂 ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [August 20, 2000, 12:02am UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/56 "2000-08-20T00:02:15Z")
Oh! _blush_ So you did, **oldscratch**. Hmmm, interesting points. How about it then, **CKDH**? Any comments on the FAIR report on the Chilean system from **oldscratch** ’s post (a few earlier than yours)? ---
**Author:** ![Danielinthewolvesden](https://avatars.discourse-cdn.com/v4/letter/d/ce7236/32.png) [@Danielinthewolvesden](https://boards.straightdope.com/u/Danielinthewolvesden)\ **Post date:** [August 20, 2000, 11:14am UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/57 "2000-08-20T11:14:02Z")
Everyone’s for “private” systems, and the Chilean syatem does not look TOO bad, but this is during “boom” tims. When times ain’t so good, SS will look a lot better. Everyone is counting on a 7\>10% return thru stocks. Well, if the market goes REALLY bear, then you might have a minus return of some 20%. ---
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [August 21, 2000, 9:31am UTC](https://boards.straightdope.com/t/privatizing-social-security/29652/58 "2000-08-21T09:31:28Z")
Some thoughts: Practicalities of Privatisation In Britain there are two state pensions; the basic state pension (a fixed amount for everybody providing they have either paid their social security or been exempt from it all their lives) and the state second pension which is based on your career earnings. There would certainly be a problem with suddenly privatising the whole state second pension system. This is because it is an unfunded, or ‘pay-as-you-go’ scheme. In other words, the Government never put aside and earmarked money for individuals. Instead, successive generations must pay for the generation before them. This means two things: [ul] [li]If the system became privatised there would be a whole generation for whom there is no money set aside to pay their benefits.[/li][li]As the population becomes ever more aged the system is costing more and more to each successive generation.[/li][/ul] The British government are seeking to combat this problem in two main mays: [ul] [li]contributions to social security (“National Insurance” contributions) are not explicitly divided into pension contributions and other welfare. If you do opt for a private state second pension you receive a rebate on your NI, but this is by no means all of your NI. In addition, since you are paying for the previous generation and not yourself the rationale behind even this rebate is questionable.[/li][li]State second benefits are gradually being eroded. I fully expect that by the time I reach retirement age that[/li][ol] [li]Retirement age will be more like 70 or 75 rather than the current 65.[/li][li]the state second pension will be a negligible amount anyway.[/li][/ul] [/ol] Now, **Libertarian** said “Social Security does not hold for you an account, per se, but pays you your entitlement from a general fund (like multi-level marketing)”. Unfortunately, I don’t know the American social security system very well, but this sounds suspiciously like pay-as-you-go. Anyone want to refute this? Private Finance I’ve seen a few references to the idea that an individual can always consult a financial expert. However[ol] [li]Personally directed financial advice doesn’t come cheap. Often the kind of advice being discussed here would be thousands of dollars - a significant proportion of a small fund (I reiterate - there are _lots_ of factors to consider when deciding on the best strategy for the **fall-back** part of your pension).[/li][li]It is far more efficient for the **safety net** to be managed en masse since the optimum strategy for this part of the fund will be pretty much common across individuals.[/li][li]Funds in excess of this safety net may of course be invested in Sri Lankan Internet Solutions if that is what you wish. This is exactly what existing arrangements (e.g. your 301k pensions) already allow for.[/li][/ol] **Kimstu** asked for my take on the Chilean system. It seems that the above is essentially what happens there. I agree with my colleague 😉 **CKDextHavn** that the system there combines the attractive elements of market efficiency and government regulation. However I’d also like to second **Kimstu** ’s note from **labdude** ’s excellent point about the lowly paid effectively earning a higher rate of return on SS vs private investment. If employers were forced to pay a totally private pension to all of their employees, they would be forced to pay them much more. From this point of view the Chilean system appears to fall down. Regards, pan \*ps to CKDextHavn: Actuary 1: “What’s the square root of 9?” Actuary 2: “Hmm. Let’s call it 4 to be on the safe side”. Actuary: Someone who likes you to be dead on time. I think I’ll stop now. \* [Previous page](https://boards.straightdope.com/t/privatizing-social-security/29652.md?page=2)