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So far, I’ve set the political and demographic context for a discussion of the presidential candidates’ positions on retirement savings for Americans. This post will present a few of those positions. The most important positions address what is generally accepted to be the bedrock for retirements: Social Security.
Social Security is funded through contributions from employers and employees, with the rate of contributions rising over the years. Essentially, as each generation of younger workers contributes, they are paying for the retirement of the older generation. These contributions are put into a Social Security trust fund. Over time, the U.S. Treasury has borrowed heavily against that trust fund and is now repaying that borrowed money, with interest. Generally speaking, the Social Security contributions made by employers and employees, supplemented heavily by what the Treasury owes, pay for retirees’ monthly checks.
As a major result of the changing age demographic, it takes 10 times more to fund social security now, than it did at its inception. It is important to note that although Social Security is estimated to be run at a deficit by 2033—meaning that more will be paid out to retirees than will be contributed—the source of funding will continue to be through the U.S. Treasury repaying what it has borrowed, with interest.
The public policy discussions circle around four courses of action:
- Maintain current payouts
- Reduce payments
- Privatize Social Security
- Abolish Social Security
I’m happy to say that none of the people still in the running advocate abolishing Social Security. And all of them oppose privatizing this essential safety net for Americans’ financial stability in retirement.
The idea of privatizing all or part of Social Security has been around for a while. Privatizing, Social Security would allow people to privately invest all or a portion of the contributions they and their employers make in an individually allocated Social Security account. This approach would be subject to rules established by the federal government. Individual states also are likely to get involved in administration, tax deferral and investment aspects. In some ways, this mimics the rules and regulations governing 401(k), IRA and other qualified and non-qualified retirement savings plans.
Generally speaking, liberals and populists oppose privatization; moderates and centrists tend to favor some aspects of privatization. Conservatives and Libertarians generally favor privatization, with a very few favoring the abolition of Social Security.
Here’s what the current candidates have said about privatizing Social Security:
- Hillary Clinton is maintaining the position she took in her 2008 bid for the presidency, declaring that privatization (along with cutting benefits and raising the retirement age) are “off the table.” This echoes a position she took as far back as 1997 when privatization was floated as a possibility during Bill Clinton’s administration.
- Bernie Sanders has stated that Social Security is facing an ”unprecedented attack “from people who want to privatize it or make substantial cut. He opposes any efforts to privatize or in any way weaken this vital social safety net. Indeed, he wants to strengthen it.
- Donald Trump says he “will do everything in my power not to touch Social Security....I want to make our country rich again so we can afford it." He believes It is reasonable for people who paid into a system for decades to get their money's worth, saying, ‘That's not an entitlement, that's honoring a deal."
While privatization is one of the big issues surrounding the long-term viability of Social Security, it is not the only retirement savings issue the candidates are talking about. In my next post, we’ll look at what the candidates have to say about funding and eligibility for Social Security.
Other articles in this series:
- What the 2016 Presidential Candidates Have to Say about Retirement
- 7 Ways Retirement Demographics Have Changed in 80 Years