Social security privatization proposals: an analysis of winners and losers

The current funding mechanism for Social Security is generally acknowledged to be inadequate to fund the retirement of future generations. Privatization has been seen as one way to solve the future funding problems. Both the Clinton administration and the Bush administration have convened commissions on Social Security. The 1994-1996 Advisory Council on Social Security, called for some level of privatization in two of the three proposals they recommended. The President’s Commission on Strengthening Social Security, recommended a degree of privatization in all three of the proposals that the commission offered. The study uses a stochastic simulation to project which groups of workers would benefit from and which workers would be harmed by the five privatization proposals offered by the two commissions. Using the Panel Study of income dynamics this work examines the effect on government sponsored pension benefits for workers. It includes marriage, divorce and remarriage and also stochastically generated market returns for the privatized funds.