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Monday, January 24, 2005

Americans totally confused about privatization


It is still not clear what American people really want and that can actually hurt them. When the country is as divided as it was in the elections of 2000 and 2004, even a small number of people can make all the difference. The same thing is happening with the Social Security privatization issue. If one were to analyze various polls out there, one would get the impression that Americans want no new taxes, privatization of Social Security (there is support for personal retirement accounts) and guaranteed retirement benefits. Unfortunately, these are contradictory. (Related article: According to Pew Research, Americans oppose privatization of Social Security)

Summary: Americans are simply too confused because they seem to want it all: no higher Social Security taxes, no reduction in benefits for everyone, availability of private retirement accounts, but higher taxes for the ultra-rich (which again can not happen since these are the folks driving the Social Security privatization initiative).

This month, investors were polled about the privatization of Social Security in a joint effort by UBS and the Gallup Organization. When asked if they would prefer to privatize Social Security or continue with the current system, investors were divided. 49 percent reported that they favor putting a portion of their Social Security takes into a personal savings account, and 46 percent preferred to retain the current system. These findings contrast with a similar survey conducted in June 2000, which found that 60 percent of investors polled were in favor of privatizing Social Security and 36 percent wanted to keep the current system. This means that as the Social Security debate has heated up, Americans have had more opportunities to understand the mechanics better. Indeed, Americans realize that in general stock market might produce better returns but few want to risk their retirement benefits. (Related article: Social Security privatization explained in simple terms)

In addition, investors were asked about their personal expectations of the current Social Security system. When asked if Social Security benefits would be a major source of their retirement income, 19 percent said it would be a major source while 17 percent reported not at all. This differentiates from investors polled in 1998, when a similar 17 percent said it would be a major source but 30 percent of investors said not at all. This is very interesting change since it indicates that after the meltdown of the stock market, Americans have finally realized that when it comes to retirement, it is better to have guaranteed (even if small) benefits than unreliable (even if huge) benefits. That is why more Americans now expect they will receive all of their Social Security benefits upon retirement.

Despite increased concern about the U.S. government addressing the issue, investors today are somewhat more optimistic than they were five years ago about the state of Social Security. Today, 53 percent of investors say the system needs major changes compared to 2000 when 61 percent held that view.

On the issue of how to fix our current Social Security system, 64 percent of investors reported that it was a bad idea to raise Social Security taxes and 87 percent disapprove of reducing benefits for all recipients. In addition, 70 percent reported that it would be a bad idea to gradually extend the age at which benefits can be received to 70 years old. However, 73 percent of investors reported that it would be a good idea to raise taxes for people with incomes of $500,000 a year or more in order to ensure that the current social Security System can continue indefinitely.

Suggestions to those Americans who are confused

Social Security is not to be taken lightly. Even if you believe that you will not get any benefits at all, you should not ignore the issue by being passive. You and your family members contribute to it and you have every right to participate in the debate and also to plan your retirement. So get engaged, do your research, learn more about it through research, and participate in the discussion.

Recommended article: Bush's real reasons for privatizing Social Security