Saving and Rettenmaier: Social Security Privatization Can Be Win-Win

by | Nov 2, 2015 | ENTITLEMENTS

Thomas Saving, Andrew Rettenmaier and Liqun Liu have produced a first-of-its kind calculation of the value of Social Security to young people in light of the political uncertainty about its future. They conclude that a 21-year-old earning the average wage with a moderate degree of risk averseness would be better off if he could completely opt out of the system by paying a 5.5% payroll tax for the remainder of his work life. That means he would forgo all future Social Security benefits and avoid all future Social Security taxes, including the current 12.4% tax he and his employer are now paying.

The exit fee he and others would pay would be enough to keep the system solvent and with the payroll tax savings the worker could invest and have better privately financed benefits than under Social Security. Privatization, in other words can be win-win. There do not have to be any losers. This is a remarkable study.