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The Current Social Security System Should Not Be Replaced by a Mandatory Private Pension System

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Policymakers and the public show growing interest in the idea of replacing Social Security with a private system of individual retirement accounts

It is too soon to tell whether curiosity will lead to popular acceptance, but it is already plain that many Americans are thinking about private alternatives to Social Security for the first time.

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In considering alternatives, a basic question is whether anyorganized social insurance system is needed. Some argue that pro-vision for future contingencies should be left to the individual

Inthe years since the Social Security system was established, there hasbeen a substantial expansion in private insurance, particularly in the availability of group insurance and private pension. The Commission recognizes the importance of such private arrange­ments and regards them and other forms of private savings asessential supplements to Social Security. It is not persuaded,however, that they could be used as an acceptable substitute.The primary difficulty with reliance on voluntary savings isthat too many people not only will not-save, but also do nothave an institutional basis for saving. It is not surprising thatfamilies hard pressed for funds to cover current needs--and seeinglittle prospect that monies put aside now will retain their value manyyears hence--choose to spend their money now. The growth inprivate insurance has come through employee benefit plans developedby employers or unions.

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When Congress implemented the Social Security program in the 1930s, the average life expectancy in the U.S. was 58 for men and 62 for women. Only 54% of men who reached age 21 would live to age 65, when it would be possible to collect Social Security benefits, according to the Social Security Administration (SSA).5In 1930, there were only 6.7 million Americans age 65 or older. The average remaining life expectancy for men who reach age 65 is nearly 19 years; For women who reach 65, it's 21½.779 Million The number of Americans the SSA projects will be 65 and older by 2035. Moreover, the value of a Social Security benefit has been hard hit by inflation. Even with Consumer Price Index (CPI) adjustments to their benefits, American seniors lost 33% of their buying power from 2000-2019 (Brookings Institute

"Privatizing Social Security: The Troubling Trade-Offs, 2020). Moreover, wage growth has been sluggish for decades, and slow wage growth will result in a lower rate of return on Social Security contributions for future generations of retirees.

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Ordinarily, pensions and Social Security operate for the same goal—to provide retirement funds—but they are not funded and structured in the same ways, which leads to different challenges for each. While the federal Social Security system will likely continue to provide aid to the disabled and elderly for many years—though by how much remains to be seen—private pension-plan systems are dying out, being replaced by defined contribution plans such as IRAs and 401(k) plans.1

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National Committee to Preserve Social Security & Medicare. "Social Security Is Not a Ponzi Scheme."

Brookings Institute. "Privatizing Social Security: The Troubling Trade-Offs."

Social Security Administration. "A SUMMARY OF THE 2019 ANNUAL REPORTS."

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