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Privatization in Managing a Fund

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Hello,

I need assistance with the following question:

Can privatization play a part in managing/tracking the fund so that the people who actually paid into the system are the ones that are actually receiving the benefit?

I believe that it can because only those who are actually working can pay into it and should receive the benefit. However, it is a little confusing compared to the current social security program we have today. If you could assist with an explanation (not sure if I am on the right track) in 100 words or more I would greatly appreciate it. Please provide any references used.

Thanks!

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Solution Summary

Privatization in Managing a Fund is discussed step-by-step in this solution. The response also has the sources used.

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Step 1:
Currently, the Social Security Trust Fund is operated by the Social Security Administration. This is the fund into which the money we pay by way of payroll tax contributions from employees and employers are paid. From this fund benefit payments are made for retirees, survivors, and the disabled. Currently, the law requires that the fund be invested in non-marketable securities guaranteed by the government. If revenues exceed payments the extra funds can be borrowed and used by the government for other purposes but an obligation is created. At the beginning of 2012 the fund was owed $2.7 trillion by the government.
Step 2:
There can be privatization. A union of ...

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