The increasing interest in replacing Social Security with private retirement accounts has spawned worries that people’s retirement money would be too much at risk.
I have experience with both Social Security and a private investment program and have learned something about the relative performance of each. Beginning in 1943 when I worked summers while in high school, and then in 1951 when I began to work full-time, until my retirement in 1991, Social Security taxes were taken from my paychecks. That was a period of 48 years of employment, 40 years full-time.
In contrast, during 22 of those years, 1966 to 1988, I taught at colleges that participated in the TIAA-CREF (Teachers Insurance and Annuity Association and College Retirement Equities Fund) program. Payroll contributions to TIAA went into fixed-income securities (bonds), and those to CREF went into equities (stocks). Participants could allocate their contributions between the two programs. My contributions were either 5 or 6 percent of my pay, depending on where I was teaching. Social Security took that much or more during that time period.
When I retired in 1991 I elected to withdraw only interest from my TIAA-CREF account and leave the principal untouched until I was required by law to begin drawing it down. (That occurred a few years ago.) That interest, on just 22 years of investments, was greater than my Social Security check, which was based on a lifetime of work. The investments in private businesses paid off far better than the taxes taken for Social Security.
Someone might observe that I got out of the stock market before it dropped in the year 2000. True, but I was also out before the run-up in the 1990s. In fact, in 1987 I asked that the portion of my funds that was in stocks be transferred completely to bonds, and I contributed only to the bond fund during the following year.
I must add that I was a reluctant “beneficiary” of Social Security. When I retired, the oldest of my four children was 34 and the youngest 29. My oldest son told me to sign up for Social Security and, in that way, get back a portion of the Social Security taxes that he and his siblings were paying. He believes that the program will fail before they are eligible for benefits.
A second, more compelling reason for participating in the retirement part of Social Security is that I was forced to do so in order to obtain medical care. Social Security and Medicare are tied together, and I was forced into Medicare.
Many people do not know that a medical doctor who accepts private payment from a Medicare-eligible patient loses all right to take Medicare patients for two years. Since most people over 65 do participate in the system, this would severely cripple many doctors’ practices. Therefore, the only way that I could obtain treatment from most physicians was to enroll in Medicare.
Social Security and Medicare legislation held a life and death grip over my life.
Social Security Requires Force
If people were allowed to choose freely, many would opt for a plan that invested in private securities. The only way to get these folks into Social Security is by force.
Granted, my personal experiences are anecdotal, but I’m sure they are similar to those of many other people. Our investments have weathered several recessions, wars, and various other events that tend to upset economic activity.
Private retirement investment yields higher returns than a government-manipulated scheme.
Roger Clites is retired, but still teaches economics part-time at East Tennessee State University.