Key Takeaways. Privatization would replace the pay-as-you-go Social Security system with a privately-run system in which each taxpayer has a separate account. Those in favor of privatization believe this approach would result in a higher rate of savings, better returns, and a higher standard of living for retirees.
Privatization is a bad idea because it places risks on individual workers that they should not be expected to shoulder and that Social Security now spreads broadly among all workers. It would create costly and needless administrative burdens.
Top 10 Privatization Pros & Cons – Summary List
| Privatization Pros | Privatization Cons |
|---|---|
| Better product quality | Lack of access to medical equipment |
| Technological progress may be accelerated | May create private natural monopolies |
| Better service quality | Public companies may be sold too cheap |
Social Security has its advantages since it provides post-retirement income, gives recipients a choice when they want to receive benefits and allows eligible non-working spouses to receive benefits. Its disadvantages include that some people will not be eligible and that the funds for it are dwindling.
The Social Security earnings limit is $1,470 per month or $17,640 per year in 2019 for someone age 65 or younger. If you earn more than this amount, you can expect to have $1 withheld from your Social Security benefit for every $2 earned above the limit.
4 Drawbacks of Relying Only on Social Security in Retirement
Social Security is a separate, self-funded program. The federal government does, however, borrow from Social Security. Here's how: Social Security's tax revenue is, by law, invested in special U.S. Treasury securities. As with all Treasury bonds, the federal government can spend the proceeds on a variety of programs.
Social Security replaces a percentage of a worker's pre-retirement income based on your lifetime earnings. The amount of your average wages that Social Security retirement benefits replaces varies depending on your earnings and when you choose to start benefits.
Having a pension from a private employer will not affect your Social Security benefits, since you will have paid FICA taxes during your working years. However, pensions from government jobs will generally reduce Social Security benefits.
One important disadvantage to recognize is the opportunities for bribery and corruption that come with privatization. Typically, private companies are less transparent than government offices, and this reduced transparency paired with a drive for profit can be a breeding ground for corruption.
Privatisation always helps in keeping the consumer needs uppermost, it helps the governments pay their debts, it helps in increasing long-term jobs and promotes competitive efficiency and open market economy.
Following workers employed in 339 privatized firms in Sweden, another study provides evidence that privatization has no effect on wages, while it leads to an increase in the incidence and duration of unemployment.
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