{"id":15644,"date":"2020-10-01T12:15:00","date_gmt":"2020-10-01T16:15:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=15644"},"modified":"2020-10-12T17:44:54","modified_gmt":"2020-10-12T21:44:54","slug":"privatize-social-security","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/privatize-social-security\/","title":{"rendered":"Privatize Social Security? The Right Way to Save It"},"content":{"rendered":"\n<p>Is it possible to privatize Social Security? What would be the best way to do it, and would it work?<\/p>\n\n\n\n<p>Social Security privatization is one option for addressing the financial strain on the program. This strategy is politically divisive and would need careful execution.<\/p>\n\n\n\n<p>Read more about the way to privatize Social Security.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The Right Way to Privatize Social Security<\/strong><\/h2>\n\n\n\n<p>Given the ever-increasing financial strains on Social Security, policymakers have long sought ways to shore up the program. One oft-considered avenue of reform is Socia Security privatization\u2014 transitioning the program from a defined-benefit plan to a defined-contribution plan. (George W. Bush, for example, attempted to privatize Social Security partially in 2005 but was defeated.)<\/p>\n\n\n\n<p><strong>Many of the <a href=\"https:\/\/www.shortform.com\/blog\/methods-of-decision-making-crucial-conversations\/\">decision-making<\/a> risks associated with private retirement plans\u2014complex options, confusing language, incomplete information\u2014would likely be present with a privatized Social Security program<\/strong>. And so responsible choice architecture on the part of the government, in alignment with libertarian paternalistic principles, is paramount.<\/p>\n\n\n\n<p>Sweden\u2019s experience with privatizing Social Security (their version of it) offers some important lessons for US reformers. The Swedish plan:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Included a carefully chosen default fund with a smart asset allocation (high investment in equities, with significant holdings in foreign equities; 10% in bonds as a backstop against market corrections; 60% of funds across asset classes indexed)&nbsp;<ul><li><strong>Choice Architecture Grade: Good (takes into account human inertia)<\/strong><\/li><\/ul><\/li><li>Encouraged Swedes to choose their own retirement portfolio by advertising heavily and urging citizens not to rely on the default fund<ul><li><strong>Choice Architecture Grade: Good (if choosers are well-versed in finance); bad (if choosers aren\u2019t)<\/strong><\/li><\/ul><\/li><li>Allowed any fund meeting certain fiduciary standards to be available through its program, resulting in hundreds of options (as of August 2007, there were nearly 800 funds available)&nbsp;<ul><li><strong>Choice Architecture Grade: Bad (<a href=\"https:\/\/www.shortform.com\/blog\/too-many-options\/\">too many choices<\/a> with no hierarchy)<\/strong><\/li><\/ul><\/li><li>Mandated that information like fees, past performance, and risk be provided to participants in book form<ul><li><strong>Choice Architecture Grade: Neutral (this information is essential, but can be misunderstood by novice investors. For example, <\/strong><strong><em>past performance is no indication of future returns<\/em><\/strong><strong>.)<\/strong><\/li><\/ul><\/li><li>Allowed individual funds to advertise directly to citizens<ul><li><strong>Choice Architecture Grade: Bad (advertisements omitted or obscured key information like fees)<\/strong><\/li><\/ul><\/li><\/ul>\n\n\n\n<p>The Swedish plan, in sum, adopted the \u201cjust maximize choices\u201d approach of <em>libertarianism<\/em> (without the paternalism part). <strong>This resulted in Swedes\u2019 investing in high-fee, high-risk, badly leveraged funds that ended up underperforming the default fund<\/strong>.<\/p>\n\n\n\n<p>If the U.S. chooses to privatize Social Security, the plan should feature:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>A good default fund<\/strong> (as the Swedes\u2019 did) with a mix of assets, the majority of which are passively managed\/indexed to reduce fees and risk;<\/li><li><strong>A web-based choice process<\/strong> that begins with a simple question\u2014\u201cDo you want the default fund?\u201d\u2014and builds from there (for example, the next screen might offer a choice of five funds, the one after that a dozen, etc.)<\/li><\/ul>\n\n\n\n<p>These are the ways that Social Security privatization might work. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Is it possible to privatize Social Security? What would be the best way to do it, and would it work? Social Security privatization is one option for addressing the financial strain on the program. This strategy is politically divisive and would need careful execution. Read more about the way to privatize Social Security.<\/p>\n","protected":false},"author":6,"featured_media":11210,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,24],"tags":[132],"class_list":["post-15644","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-society","tag-nudge","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Privatize Social Security? 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But there&#039;s a right way to do it.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/privatize-social-security\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2020-10-01T16:15:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-10-12T21:44:54+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2020\/07\/cashflow-rich-dad-poor-dad-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1707\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Rina Shah\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Rina Shah\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/privatize-social-security\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/privatize-social-security\/\"},\"author\":{\"name\":\"Rina Shah\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d07435826f13a8f422d5d333dceac287\"},\"headline\":\"Privatize Social Security? 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