Even if Americans never get the option -- or burden -- of investing some of their Social Security tax money, the idea still may have served a useful purpose: It could focus many people on the broader issue of where retirement savings belong.
The accepted wisdom is that retirement money should be invested in the stock market, because that's where you can expect to earn the highest returns in the long term.
But some financial experts say that's a dangerous assumption rooted in investors' recent historical experience -- an experience that may tell us nothing about the future, they say.
Egged on by the Social Security privatization debate, academics like Zvi Bodie, a Boston University economics professor, assert that many investors shouldn't be putting a dime of retirement money in the stock market. That goes for Social Security funds and personal savings alike, he said.
"People are being sold a fallacy -- that in the long run, stocks are safe," Bodie said.
Experienced investors know the standard pitch: The longer your time horizon, the greater the likelihood that stock returns will beat what bonds, bank savings and money market accounts can provide.
President Bush, who is championing the idea of diverting a share of Social Security payroll taxes into private accounts, said at a recent forum on the subject that Americans should be able to harness "the power of the capital markets" to boost their retirement income. That certainly sounded like an endorsement of the stock market's long-term promise.
The problem is that blanket statements about the equity market's historical allure say nothing about the serious risks investors bear if they're in stocks, Bodie and other critics say.
Those risks became vastly more apparent in the bear market of 2000 through 2002, when the blue-chip Standard & Poor's 500 index lost nearly 50% of its value. That was a devastating turn for someone who had the majority of his savings in the S&P 500 and who had hoped to retire at the end of 2002.
No wonder AARP, the nation's main lobbying group for seniors, has been running ads railing against Social Security privatization, contending that it would turn the system into a venue for gambling.
"If we feel like gambling, we'll play the slots," say the middle-aged couple pictured in an AARP ad.
