When financial crunch time comes for Social Security in the decades ahead, either the benefits are going to have to be cut or huge tax increases are going to have to be paid by the younger generation, to make up for the vast amount of money by which Social Security falls short of being able to redeem its promises.
Raising the retirement age is one of the politically easy and morally dishonest ways of cutting benefits. So is raising taxes on Social Security recipients. Raising taxes on those who are still working may not be nearly as easy, but that is some future administration's problem, as far as today's liberals are concerned.
Riskiness depends on what time horizon you have in mind. There is no question that stocks are more risky than bonds or bank accounts this year. But retirement money is not being put aside to be spent the same year. The real question is: What are the long-run risks?
When you are talking about money that is to be used decades after it was put aside, then stocks are one of the safest investments -- safer than bonds, safer than money in the bank and certainly safer than Social Security. Inflation alone steals the value of money put in a bank or invested in securities with fixed yields.
It is virtually impossible to find a 20-year period within the past half-century in which the stock market did not pay off better than Social Security. Obviously, you can find individual stocks that did badly but there is no need to invest retirement money in individual stocks, when there are mutual funds that invest in a cross section of stocks, in order to spread the risk.
Private investments represent increases in things that add to the country's real wealth -- factories, homes, power plants -- while Social Security money is spent by politicians as soon as it reaches Washington. Accounting sleight-of-hand conceals this difference but it is crucial. There will be more real wealth to support retirees when Social Security is privatized -- and it will belong to
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