Several people on several other threads have asked questions about the reality of Social Security privatization. With all of the hyperbole, it's hard to know the truth. We in this forum, justifiably, do not trust the Chimp or anything he might offer. By the same token, it seems reasonable to consider looking at a retirement plan that might offer greater benefits than the current program.

First, let me give you my credentials. Today I am, as some of you may know, an English teacher in Anaheim, CA, but before I started teaching, I was a Registered Investment Advisor and a Chartered Financial Consultant. I spent 20 years in the financial services industry, and sold about $200,000,000 in stocks, bonds, mutual funds, along with various insurance products: life, disability, and annuities.

Let's start off with the investment tools most likely to be used in privatization: mutual funds. Although at any given time they may be risky, over any given 10 year period of time they outperform virtually any other financial instrument. If you invest in a conservative stock fund in your early 20's then gradually move to bond funds as you move into your 50's, you will outperform t-bills, cd's, and other money instruments by about 6 to 8% annually. That means your money doubles every 4 to 6 years rather than every 9 to 12 years. You do the math... it makes it a very powerful argument for privatization.

That being said, there are far too many problems with privatization. The most obvious is the up-front cost: since SSI is a 'pay-as-you-go' plan, and, since all new deposits will be sent to Wall Street, not DC; there will be no 'as you go.' Current payees must be paid through additional taxes- which is where the $2 trillion figure comes from. For Boomers retiring today at 65 with a life expectancy to age 80, this will mean an additional $100 billion annually for around 20 years. What makes this even more insidious is that our children and grandchildren- the very people who are trying to fund their own SS benefits- are paying off the debt and interest used to pay for your and my benefits. Under the current plan, they only pay for your and my benefits, not their own.

The next problem is finding the right mix of investments. Our citizenry is not skilled in balancing their checkbooks, let alone trying to determine the beta ratio of a stock fund and its impact on their portfolio. While there is a great deal of diversity and security in mutual funds, and a certain degree of safety (it is virtually impossible for them to become completely worthless), they are not guaranteed. The first rule of any portfolio is laying off risk, which is what SSI does. It lays off the risk of abject poverty at retirement, when one cannot afford to be in abject poverty. In this way it acts like life insurance: it shifts the risk of loss of future cash flows to everyone else who buys an insurance policy. Thus, SSI shifts the risks of investment losses to the whole of the nation.

Next is the disposition of the privatized assets themselves. Do they become part of an estate, taxable through estate taxes at death? Can they be converted into a pure income, like an annuity? Assuming they can, will that income be fixed, or will it be set to the vagueries of the market? While over any ten year period mutual fund performance is excellent, month-to-month variations can be quite dramatic. What about premature death, or disability? As it is right now, children will receive a known amount of income until they are 18, even if the employee worked for only one day under SS; will a similarly guaranteed income become available to the beneficiaries, or will it be based upon a formula involving the privatized account? And what about disability benefits- the SDI portion of OASDI. Because people are able to recover from illnesses that used to kill but now only disable, it is currently the most underfunded portion of the trust. How will disability benefits be determined in light of the value, or lack thereof, of privatized accounts?

Finally- and perhaps of greatest import- is the vacancy of the 'crisis' itself. There is no more of a crisis in SS that there were WMD in Iraq. In 1995 the Annual Report of the Trustees said the Trust would run out of money in 2030; the 2004 report says it will run out of money in 2042. In reality, therefore, over the last ten years, it has pick up an additional 2 years of reserve.

The 'crisis' is based upon three factors: reduced birthrates, low Gross Domestic Product (GDP), and longer lifespans. IF the worst-case scenerio is projected out for the next 75 years, then we will run out of money in 2042. If the rosiest scenerio is projected out, the trust will never run out of money. Under the two intermediate projections, the money runs out between 2042 and forever.

The fact is, however, the worst-case scenerio has already been made obsolete. Birthrates among immigrants, primariliy hispanics, has increased the ratios between workers and retirees well above the worst-case scenerio. By the 3rd quarter of 2004, the GDP was greater that the projections of 2004 made in 1995. And the mortality tables have only increased by about 20 months over the last 10 years. The net results is, as discussed above, the trust has gained two years of reserves in excess of projections made only 10 years ago.

This is not to say that there are not problems with SS; there are. None, however, need such draconian measures as privatization. Because people are living longer- many making second careers after age 65- it would be reasonable to extend retirement age to, perhaps, 67 or 68. It might even be reasonable to reduce benefits in the future. Or, according to the Brookings Institute, the SS tax could be increased by about 1.8%- about $18 a month for a person making around $40,000 a year, with a similar amount for the employer. That's about the cost of a pizza and a 6-pack.

Think of the 'crisis' as an asteroid heading toward the earth, and that it might hit in 75 years. We might find that we were wrong, and don't have to do a thing. But, after considerable calculations, we might find that we are in danger. With some technology we develop over the next few years, we can change its direction by a few centemeters an hour by putting jets on its surface. The compounding of these mere centemeters over time will cause the asteroid to completely miss the planet. We might plant thermonuclear explosives deep in the center and blow the body to pieces. Or, we can change the orbit of the earth. That's privatization.