The Big Gap in Social Security Privatization

January 8, 2005
By Mary Pitt

There is at least one little "chink" in the plan of the Bush administration to "privatize" Social Security that does not appear immediately and may not sound terribly important to those who are young, able-bodied, and absolutely convinced of their indestructibility and their prospects of growing very rich before becoming old and ill. However, the parents of these young Titans should inform them of these caveats before they cast their support behind the plan.

It is a fact of life that anybody, at any age, may fall victim to an accident or a debilitating disease unexpectedly. Under the current Social Security system, in such an event, the workers may, upon becoming permanently disabled and regardless of any applicable insurance coverage, begin to draw full disability payments that will continue for the rest of their lives, with payments also being added for support of spouse and/or minor children. It is a given that, in the event of "privatization," these benefits will continue at a reduced rate. Since the current payments are barely sufficient to meet most of the essential expenses of remaining alive, still less will be received and the result will be unmitigated poverty for the family.

But, you will have "all that money" that you have had invested in the stock market, you say? Once that precious stock is "cashed out," it will be eligible for garnishment for medical bills or other indebtedness as soon as it hits your bank account. In addition, you will be ineligible for any medical assistance until every penny of that money has been spent for "legitimate purposes," according to Medicaid requirements. This will not be difficult since you will not be eligible for Medicare until the permanency of your disability is firmly established. And, most importantly, once that money is received and spent it is gone. There will be no more "growth," no more dividends or interest. It will be gone.

In the event of a premature death, with surviving spouse and minor children, the results will be even more traumatic. The proceeds of the "private account" will be required to pay for funeral and "final expenses," leaving only the pittance from Social Security to support the kids. Since it is only a survival stipend now, they will find that it is considerably less under the proposed regulations, possibly requiring the sale of home and car and recourse to the welfare system to provide food, lodging, and education. Forget higher education for the kids unless they are very ambitious and find themselves able to work to survive and pay their own books, tuition, and living costs. Since Social Security for dependent children stops on their nineteenth birthday, they may have to pay their own graduation expenses. By the way, as the kids grow, your wife will have to work to support herself since she will not be eligible for "widow's pension" until she, herself, reaches retirement age.

Nobody who is in the prime of life, whose career is on an upward path, and who fully expects to build themselves a rich, full life wants to consider the possibility of a disabling accident or a premature death, but the fact is that these things happen every day, and even insurance is not a sufficient solution to all the problems involved when they do. We all would be thrilled to own a "piece" of the booming stock market which is painted as the road to riches, and it may well be just that. However we have recently seen a stock market debacle where fortunes were lost by people who were sure that they were going to have a serene retirement due to their investment via 401K's and company pension plans. Today's Social Security can become very important under those circumstances.

If you make enough money now to save and invest in the stock market, by all means, do it. You may make all your dreams come true. But, in the event things do not go as you planned, good old Social Security, as it is today, may become a lifesaver for you and your family. Social Security was not begun to make sure that everyone gets rich, and it certainly does not, even though many who are rich benefit by it. But, when disaster falls and the need is great, without its safety net it will be a long way down.

 
Mary Pitt is a septuagenarian Kansan who is self-employed and active in the political arena. Her concerns are her four-generation family and the continuance of the United States as a democracy with a government "of the people, by the people, and for the people." Comments and criticism may be addressed to [email protected].