Admittedly, it is a choice for investors to use part (up to 41%) of their social security taxes) and accordingly they have to accept some extra risk, though the personal account is guaranteed against loss.
And I note that there is no effect on other people's accounts or on social security in total.
An option is just an option...
THE "DOWNSIDE"
Of course, the downside is that they would, per the Ryan plan, only receive all of their contributions into the investment account back, but adjusted for inflation. If that occurs, then the money will have a gain greater than the average return in social security, if inflation is even modest.
GUARANTEED, ADJUSTED FOR INFLATION, PLUS YOU'VE GOT AN UPSIDE!
Not bad, as that means you're having a guaranteed positive return, one that would be higher than social security's probably, plus you get to have the upside.
A low risk that you'll up with a low return, but no loss.
And a great chance to make market returns as an upside.
That's pretty close to investor heaven.
AND YOU'LL BE "AVERAGING" OVER TIME = LOWER RISK!
Dollar-cost averaging allows you to invest smaller portions of your money over a longer period of time, reducing the chance that you pay a price too high for any individual investment.
You're automatically doing that with your monthly contributions to your account (sent directly from your employer).
AND IT WOULD BE DONE OVER A LONGER TIME SPAN = LOWER RISK
The market is volatile for the short term, but relatively predictable over the long term. And most of those people using the private account will be relatively young. And it works well also at age 35, 45, or 50.
AND WE WOULD SIDESTEP A BIG DECLINE
The only big concern would be if there was a big downturn "at the end", right when you were going to convert to regular social security type payments. So, you'd guard against that too. (Remember, there is also that base guarantee of a positive return anyway, in the worst case scenario.)
If there was a big decline in the market, we would stay in until that was "averaged out" and there was a recovery - so we'd need to allow about 10 years for that, to be on the safe side.
If the market was way up, then you'd pull the higher risk portion out and put it into the highly diversified lower risk funds, especially the ones that adjusted for the years until retirement. And you could retire earlier than you would have otherwise.
That covers the big downside (before adjusting for the guarantee).
THE GUARANTEE IS NOT MUCH OF A RISK FOR THE GOVERNMENT AND THE RISK IS TIME SPREAD, SO THE US IS OK
The interesting thing is that if your investments don't do well, which is only a small chance, the guarantee will have a minimal effect on the government, as it is spreading this over many years, where it would be virtually guaranteed of evening things out to having no negative impact. Also, it could purchase guaranteed futures at a relatively small cost, to cover any of the minimal risk.
I THINK THERE IS NO OTHER BETTER CHOICE
You can keep the 41% of your taxes that could have been in the private account in the regular social security and earn 1 to 2%. But that's not much competition. I would think that there is a 99% chance you'd do better in any private account, even if relatively conservatively invested.
I'd take it in a flash. What a deal!
