Former Speaker of the House Newt Gingrich now finds himself at the top of the Republican race to see who will head that party’s presidential ticket next fall. Polls have him and Mitt Romney running neck and neck at this point. As a new frontrunner, Gingrich has now tossed out his ideas for how to reform Social Security.
Like former frontrunner Herman Cain, Gingrich held up Chile as a model for a future Social Security system. Gingrich wants to move towards a 401k-style Social Security system where Americans will have the choice of putting their money in plans ranging from conservative bonds to aggressive stocks. To avoid problems caused by fluctuations in the markets, Gingrich proposed guaranteeing a minimum Social Security payment for those who opt into the system. Gingrich had big praise for his proposal, suggesting that it would increase the size of the economy by as much as $20 trillion.
As we discussed regarding Cain’s use of Chile as an exemplar, the system in place in Chile is far from perfect, though. There are substantial administrative costs for the funds from which Chileans can choose. Reforms were also necessary a few years ago because not enough people were participating in the system. If not enough participate, it is difficult for the program to cover its liabilities – a similar problem we foresee having in the US decades down the line. Additionally, normal fluctuations in the markets may not pose significant problems, but the market we have seen in the past three to four years has been chaotic. During these times, a private Social Security system can run into big financial difficulties as the system continues to pay out benefits despite being at record lows.
Many public employees use alternatives to Social Security here in the US. If you have used such a system and begun receiving benefits, what has your experience been?
Troutman & Troutman, P.C. – Tulsa Social Security disability attorneys