At this present time, the existing Social Security program is relatively a small contingency reserve, in which has invested in primarily U.S. Government securities and programs. As in the past observations, many of the advocates believe in increasing the funding level and tapping into higher rates of return available in private investment markets.
The primary goal here is to increase total national savings and ultimately lower taxes. The secondary goal is to obtain a greater return on the investments.
Since the founding of the U.S. Social Security program in 1935. It has been financed on a pay-as-you-go basis.
The Social Security Trustees' Board has indicated that the funds will reach to $2.31 trillion in2010. Then starting in 2011, the fund assets will begin to plummet until 2030 when it is projected that there will no longer be any funds available.
With the conclusion of the Trustees' report, it brings to mind the privatization of the Social Security program.
Under the current policy, investments of the Social Security trust fund assets have been in non-marketable special-issued U.S. government securities. With this tactic, it has enabled the U.S. Treasury's general fund to meet various federal outlays.
As in the past, it has been known that the stock and corporate bond investments yielded greater returns then that of the government securities.
With the investments of the Social Security in the private sector, it could spur an additional growth in the economy. Resulting in greater productivity and other opportunities such as increased employment.
It is not certain at this time, as to how the investment of the Social Security will affect the stock market, or in the economy. Some believe that the new capital will generate increased productivity in the economy.
With the privatization of the Social Security, the federal government will no longer be able to “borrow” funds from the trust fund assets. This will then force the federal government to do one of two things; (1) Increase taxes to support various outlays, or, (2) Cut government spending and be forced to consider budget cuts.
Like all private investments, there are some risk factors involved. Therefore, cautious and wise investment strategies must be taken.
Also with the infusion of funds, companies that were invested in could become influenced by the government. To prevent this, investments should be done by a broad market portfolio without voting or management rights.
In transitional issues, the Social Security income has exceeded the outgo over the past decade, resulting in a large buildup of assets that are loaned to the U.S. Treasury's general fund.
If the trust fund assets were to be directed in a substantial way, the Treasury would be forced to raise large amounts of income elsewhere to support and meet its obligations.
Any large-scale direction should be avoided and should be carefully conducted over a period time. This is also true to prevent shocks to the stock markets as well, for dumping large amounts of money into the market, could result in raising prices and forcing the Social Security into paying too much for its stocks.
Investment expenses would be next to zero. To some, doubt that private-sector investment managers could match this low level. To some extent, higher costs would offset higher returns. The enhanced income from investments would more than compensate for the increased investment expenses.
In conclusion of this report, any sweeping changes in Social Security investment policy should be carefully studied in the context of the program's obligation to the retirees and the general public.
Privatization of the asset investment could be done within the program of the existing Social Security, just by changing the law to allow private-sector investments.
However, most people would privatize the system thru direct use of individual accounts.
As for whether this type of proposal should be mandatory or voluntary, this would and could quite possibly be the most complex problem of the proposal. For if voluntary, the old system would have to continue on for a period of time. I really don't agree with this particular scenario. For I believe that with the budget cuts being down now, could in fact be used to cover benefits for retirees down the road. This can be done by placing the surplus funds into an interest-bearing savings account or investments of some sort.
Also with privatization, government administrative costs can be eliminated thru the individuals' own investment management services.
With privatization, employers would no longer need to match FICA withholding. Thus allowing businesses to increase their cash flow. With the increase in income, businesses could expand its productivity or provide wage increases up as much as 18%.
No matter what method is used, whether it's revamping the old Social Security and investing the trust fund's assets, or privatizing the Social Security by having individualized Personal accounts. We must decide which is the best way to go, and we must decide as quickly as we can. Below is an example of what the Board of Governors should be outlined.
Board of Governors
The President of the United States will appoint 12 members for the Board of Governors, who will then must be approved by Congress. After the appointment and approval, the Board of Governors will then have full control and full cooperation with the government. The qualifications of each member should be in the following areas;
- Investment Management
- Banking
- Financial Management
- Legal
The Board of Governors will then set the standards, and they will handle the trust fund's assets, investments, set the rates of FICA taxes, and retirement benefits given out. They will not permit any transfers of the funds to any other government entity. They will reset the retirement age.
Each member will oversee two investment firms, and each investment firm must submit a monthly report on all investments.
The Board of Governors will also set the rates of FICA Taxes. With the maximum of 10%, and for Medicare the maximum of 5% is to be given.
For the next five years, the Board will then select 10 states per year to begin this program.
The program is completely optional, as to whether the individual wishes to allow the government to handle the funds or they can handle their own funds. But the decision is solely on the individual's, for it is mandatory to have one or the other.
