|WALL STREET REFORM|
How can the Bush administration and Congress clean up Wall Street and restore investor confidence in the wake of corporate scandals?
DeFacio of Alameda, Calif. asks:
What would have happened if the legislation to privatize a portion of Social Security had been approved? How would current retirees be affected?
Would they have lost a substantial part of their savings and security in the current economic downturn?
Current retirees would be affected to the extent that the value of
their holdings declined. However, even if the market had gone up, social
security benefits could have been affected because social security is
a pay as you go system. If a significant percentage of social security
payments had been diverted to private investment there would have been
less money to pay benefits.
In an economic slump, tax receipts also decline, so under current circumstances it would have been much harder to find the money elsewhere to pay benefits. The result: benefit cuts or tax increases.
The recent corporate scandals, crisis of confidence in the stock, and decline in market value have exposed the risks of proposed plans to privatize Social Security. If money that would have gone to Social Security were invested instead, substantial losses to retirement income would have resulted from the recent drop in the market.
It is estimated that mutual funds have lost 21 percent of their value. While some of these losses may even out over time, retirees, or those about to retire, would have seen their retirement income greatly diminished if a portion of Social Security was privatized.
Workers who are retired have been forced to go back to work because of a drop in the value of their investments in the wake of the corporate scandals.
Other workers have put off retiring after the value of their 401(k), pension or other retirement plans fell in recent months. Social Security checks are more important than ever to retirees and older workers. Some in Congress appear to be backing off of the privatizing Social Security in light of the corporate scandals and market instability.
There have been numerous proposals regarding the privatization of Social Security. Most of them contained provisions that would have protected some or all of the benefits in the event of a downturn.
However, we do not know what the affect would have been without knowing the specific provisions of whichever privatization bill might have been adopted. I feel certain that the events of the past year will be carefully considered in any proposed legislation in this area.