What can a money for the rest of us? This is a personal financial show on money. How it works, how to invest it, and how to live without worrying about it.

I'm your host David Stein, today is episode 441. It's titled, What if Social Security had been privatized?

In 2005, Congressional Representative Paul Ryan and Senator John Sinunu proposed a plan to reform Social Security.

The act was the Social Security Personal Savings Guarantee and Prosperity Act.

Under their plan, it would establish voluntary individual accounts for workers who were under the age of 55, beginning on January 1, 2006.

These personal savings accounts would allow the workers to allocate a portion of the Social Security taxes to an investment account.

It would be controlled by a central administrative authority, but the workers would be able to choose various investment options with the default option being 65% in a broad US equity index fund.

And 35% in a broad corporate bond index fund. All participating workers in these personal savings accounts would be guaranteed that their total benefits for Social Security would at least be as good as what was already in place.

And if their investment accounts did better than that, then they would get more than that. In other words, it was a floor, a guarantee.

Sign me up for that, if I can get all they keep all the upside and have none of the downside, I'd do it.

Interestingly, those who chose not to participate in the personal savings accounts would not be guaranteed their benefits at the levels that was there in 2006.

In other words, if Congress cut benefits, if you weren't participating in the personal savings accounts, then there is the risk of your benefit being cut.

The program also required that when it came time to take Social Security that the balanced in the personal savings accounts would be annuitized so that the annuity payments would equal what at least what would have been gotten under Social Security.

Keep in mind Social Security benefits are indexed to inflation. And so the annuity, the annuitization would need to be an annuity that would increase as the cost of living increased.

In 2005, Federal Reserve chair Alan Greenspan was testifying in front of Congress and represented Ryan asked him a question in regards to these personal savings accounts and the reform of Social Security.

Ryan asked Greenspan, do you believe the personal retirement accounts can help us achieve solvency for the Social Security system and make those future retirement benefits more secure?

Greenspan replied, well, I wouldn't say the pay as you go benefits are insecure in the sense that there's nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.

In other words, the Social Security system in his mind wasn't insecure because the money could always be printed to pay the benefits.

But he didn't stop there. Fortunately, he continued, the question is how do you set up a system which assures that real assets are created, which those benefits are employed to purchase.

So it's not a question of security, it's a question of the structure of a financial system, which assures that the real resources are created for retirement as distinct from the cash.

Cash itself is nice to have, but it's got to be in the context of the real resources being created at the time those benefits are paid so that you can purchase real resources with the benefits.

What is referring to is the need for a dynamic economy comprised of workers and businesses that produce goods and services, those real resources that retirees can purchase.

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