At first glance, Social Security seems innocuous enough. What’s not to like? It’s as American as, well, the Great American Century. Also, until recent years, it’s managed to straddle the political divide from Democratic President Franklin Roosevelt, under whose administration it was instituted, to Republican President Dwight Eisenhower.
But today many Americans view it, ironically, as un-American and would like to see Social Security (along with most federal functions) reduced with an eye to abolishing it. Besides opposing large government in principle, they believe that the money withheld from their paychecks for Social Security is just another form of taxation, to which, in itself, they’re constitutionally incapable of reconciling themselves. Furthermore, it’s money that they feel they could invest more profitably in stocks and bonds, mutual funds, IRAs, 401(k)s, or . . . lifetime savings accounts.
Lost in all the recent talk about cutting back Social Security is an explanation of what would replace it. As opposed to Social Security, with lifetime savings accounts, workers could exert more control over how they’d like to invest their money. On the other hand, participation is voluntary and the accounts would have fewer restrictions on both contributions and withdrawals. As for concerns “that the lifetime savings account ‘could be raided at will, leaving [workers] without a cushion later,'” reports the National Review in 2002. “It’s true. A family would have to decide whether to ‘raid’ a savings account to pay for the children’s college tuition, or to leave it in there for retirement and health-care needs. This is called freedom.”
Beyond opposing big government and controlling how one invests one’s money, there’s a more powerful agenda behind lifetime savings accounts. See, they’re likely to be administered — at some level, anyway — by Wall Street, which hopes to reap a small fortune in fees (from the government and maybe even account holders) for managing them.
It’s bad enough that the real reason Republicans seek to take a hammer to Social Security is to enrich Wall Street (and, by extension, ensure the continuation of their campaign contributions). Even worse, their “creative destruction” may not enrich them as much as they anticipate. Think about it: from where are the funds that will allegedly be deposited into lifetime savings account on a regular basis expected to come?
For starters, however involuntarily, many who depend on Social Security to withhold money from their paychecks are, often — usually, in fact, these days — poor savers. Books such as The Great 401(k) Hoax (Basic Books, 2008) by William Wolman (long-time chief economist at Business Week) and Anne Colamosca demonstrate what a poor job 401(k)s have done providing retirement security.
First, when given a choice, workers, whether because they can’t afford to or don’t have the discipline, have difficulty committing a significant enough portion of their paychecks to 401(k)s to make a difference. Second, I have yet to see this mentioned, but, when the average worker (okay, me) read his or her statement, it’s difficult to stomach the ups and downs. My hard-earned money is regularly withheld — how can the total be lower than this month than last? It’s too much to expect the average worker to have the emotional equilibrium to look at the big picture. After all, think how few active investors in equities are able to restrain themselves from selling when their stock tanks.
There’s an even greater potential impediment, though, to Wall Street’s dreams of yet another windfall. Consider how difficult it is for young people to become gainfully employed today. Until that time comes, most will delay contributing to their lifetime savings accounts or even opening one. In fact, even if after securing a good job, their contributions will likely be minimal because their focus will be on paying off the student loans with which many of them are saddled. We all know the basics of compounding: even if you discontinued contributing at age 35 but began at 20, you’ll have more at retirement than if you began at 35 and continued contributing until retirement.
In other words, if it thinks there’s a pot of gold at the end of the Social Security rollback rainbow, Wall Street is in for a rude awakening. It will have to content itself with a consolation prize: victory for the principle of small government.
In the meantime, whenever an official or commentator declares that Social Security needs to be reformed — disfigured might be a better word — those of us who feel otherwise need to remind their audience why. One more time: because Big Money hopes to reap a gold mine in fees for managing the program that will augment and ultimately replace Social Security.
Since the author claims no special know-how in matters financial, kindly correct his facts or address his assumptions in the comments section as you deem necessary.