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"Are Social Security Private Accounts a Good Deal or Raw Deal for African Americans?"
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How many legs does a dog have if you call the tail a leg? Calling the tail a leg doesn't make it a leg. -- Abraham Lincoln
Whew! I almost wrote a really long article about the Social Security System and what it means to Black folks.
Fortunately, I fell asleep while writing it just like you would have reading it. I can't think of anything more boring then an in depth analysis of what is wrong with Social Security.
I think that one thing the under 40, Black American, internet savvy crowd already knows is that the Social Security system is in trouble and that it won't be there for us when we retire the same way it is for our parents and grandparents. Something has to give.
One thing is definitely true, the Social Security system won't exist in the same form and with the same level of promise that it has now.
So, with all the boring stuff out of the way, I want to say a few things about private accounts and what I think they mean for African Americans. I'll start with the bottom line up front. I think that Social Security private accounts are a good deal for African Americans but with some very serious reservations.
First of all, a private account is the government's attempt to add an ownership component to the system. However, in this case, your ownership rights will be severely restricted.
I can invest MY money in stocks, bonds, cash, real estate, businesses, mutual funds and any other investment vehicles I so choose. The private accounts system will likely offer a limited range of choices in nothing but paper assets like stocks, bonds and money market accounts that are managed by large Wall Street brokerages and mutual funds - the so-called experts.
Ownership with restrictions is merely the illusion of ownership. Very few things you own will have as many complex rules, restrictions and legal entanglements as private account will have attached to it.
Second, the government is forcing every American to become an investor without committing the resources to raise the level of basic financial literacy in this country. Alan Greenspan has said that basic financial literacy should be taught in our public schools.
The government did this very thing before when they created the 401K retirement system. That system has been a boon to Wall Street, Corporate America and many fellow Americans. However, the pain felt when the 401K gets hurt is not shared as freely as the benefits. Ask employees at Sun Microsystems, Enron, Martha Stewart Omni Media and other companies that have gone belly up or otherwise taken a brutal pounding in the stock market because of mismanagement and corruption.
Who will get hurt when Social Security private accounts take a beating? Will the average citizen be the last to know, as is already the case, when their private accounts hit rock bottom? Without a major, national effort to boost the financial literacy in this country, how will people react to negative news about private accounts? Will the government restrict our ability to react to negative news?
Third, what will the government do should you out-live your private account? Because the account only offers limited ownership not real ownership, I expect that we won't be able to bet their private account at the casino on the day they retire. I do expect the withdrawals from our private accounts to be amortized over a period of time based on something like the average life expectancy. What happens if you are the lucky somebody that lives a long, healthy life to 120 years old? If your account goes broke, what will the government do for you? If you enroll in private accounts, you agree to a cut in your benefits. Will you suffer if your private account suffers?
Fourth, the new promises are just as shady as the old ones. Private accounts will salvage the system for some time but ultimately will become plagued by their own, new and different challenges that will need to be fixed by a future generation.
No one in either political party wants the truth to get out about Social Security. Socialism is a miserable failure. Taxes will ultimately have to be increased on us no what fix we decide today for the system. When and by how much are the only questions that need to be answered. Cuts and elimination of some benefits are inevitable. Retirement will become anathema in the future.
In the past 10,000 or so years of human history, retirement didn't exist in any way, shape or form as it does today. People either got too sick to work or died. We've tried to change history with our current system but we can't change humans.
If you send someone a check and tell them they don't have to work anymore, they won't work. There are able-bodied and able-minded senior citizens that are not working because the governments sends them a check every month regardless. The truth is, a system set up like this will collapse one day on its own because its not the way of humanity.
I think its good that my generation believes more in UFOs then in Social Security being there for us when we retire. maybe that belief will be the motivation we need to save outside of Social Security to secure our own retirement.
So, with all of these reservations, you may wonder why I think that Social Security private accounts are a good for Black Americans. The answer to that is simple math.
Simple Math Reason Number One: Black males live to an average age of 66 years old. The average Black male now collects one year of full Social Security retirement benefits. The age of full retirement for the under 40 crowd is now set at 67. Watch for proposals to raise that age even more. The average Black female has a live span of 72 years meaning that she collects 5 years of benefits. The average White male and White female have life spans of 76 and 78 years, respectively.
Personally, I would rather pass my life time of Social Security tax dollars on to my children and grandchildren then to a little, old white lady I've never known in my life like we do now under the current system. You may not like this truth but that is who is getting your benefits now.
Simple Math Reason Number Two: It is not hard at all for the to earn more then the 2% return on investment that Social Security provides now. A money market mutual fund is paying anywhere from 3% - 5% interest at this time. You could easily and safely earn double what Social Security offers.
Simple Math Reason Number Three: The average Black American has a net worth less then $5,000 and that is only one-tenth of the average White American. Social Security private accounts, because they are form of forced savings, will add to the net worth of Black Americans. All other Americans will see their personal wealth build also so I don't expect that private accounts will close the racial wealth gap. I do believe that private accounts will inject much needed wealth into the accounts of African Americans and we need the boost most of all.
Also, because we don't live as long beyond the retirement age (which I hope will one day change), more of the wealth in our private accounts will get passed to our children, helping them to build wealth. So, a legacy of wealth will begin to grow from the seeds of investment into private accounts.
Simple Math Reason Number Four: This relates to what I said about bucking human history by creating this artificially constructed, man-made system of retirement and actually believing that it will sustain us unchanged in perpetuity. The system is breaking down. We need to start taking complete ownership - and control - for our retirement security.
Partial privatization is a step in the right direction. Even if the step is one small incremental one, we must begin somewhere. I don't think the destitute and disabled should be left out in the cold without our help and support. I do believe that the truth needs to be told and that no one is telling it today.
So, here is what I have to say: make a plan to provide for your own financial independence, invest heavily into your own financial education, invest your money wisely, prepare for the absolute worst and hope for the absolute best.
Bret Searles wrote the book titled "The 7 Simple Secrets to Wealth Building: An African Americanís Guide to Wealth Building in the 21 st Century and Beyond" and publishes the ezine Black Wealth Now at http://www.blackwealthnow.com