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Question for Social Security In 2015

It's practically certain that privatizing the immense social insurance program by directing the program's billions of dollars into private investment channels would be a boon to the investment brokerage industry. But not all investment managers are jumping on the privatization bandwagon.

Financial planners are persistently bombarded with conflicting information concerning Social Security fiscal feasibility, its future form and its relationship to retirement planning in general. For some, Bush’s plan to divert portions of Social Security taxes into private accounts could mean a financial boon. They assert that privatization will help them gather additional assets and use them to build their clients’ current portfolios. On the other hand, some believe that privatization could end up in an unprofitable business if clients and accounts abruptly increase but benefits weren’t attached to big portfolios. Directing those funds into private market would obviously be a boon to the industry but planners don’t necessarily believe that privatization will boost or help their clients. Taking payroll tax revenues out of Social Security to create individual savings accounts makes the long-term problem bigger, not smaller. Unless benefits are drastically curtailed or other revenues raised, privatization only makes the financing problem worse.

Problems are arising because the number of workers supporting the number of retirees is decreasing, a trend that is exhausting the Social Security Trust Fund. By 2015, the ratio of payer to payee will begin to shift with more money collected in Social Security taxes than is paid out in benefits. This trend will greatly affect the administrative costs of millions of small accounts.

However, not all financial planners oppose the plan to privatization. They see a potential infusion of cash into the market that could have an effect on raising the industry. Economists point to additional commissions for brokers and fees for financial planners and portfolio managers, as well as a rise in stock prices due to increased demand for stocks. On the other hand, they suggest caution, citing possible problems such as a shortage of available stock, an increased federal deficit and higher interest rates, and high administrative costs for mutual funds that could result in initial losses rather than profits. There's also the danger of many individuals, new and unskilled in the world of investing, making inappropriate and costly investment decisions.

It is without a doubt the Social Security is the crown jewel of American social policy. There is growing debate among financial service professionals about whether to include Social Security income in the retirement income projections of their clients. Planners should not ignore Social Security income and that those who do ignore it will grossly overstate the amount a client will need to save for retirement. Thus, by asserting that whether the ultimate solution is privatization, reduced benefits or something else, planners and clients alike would be ill-advised to completely overlook Social Security benefits when planning for their retirement.


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