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Dueling Fools: Social Security Bull

Let's take a short walk down Fantasy Lane, shall we? Imagine you just found out you were going to get a 12.4% raise. Not a bonus, but a raise -- which means you'd have that extra 12.4% to spend every year. What would you do with that money? Buy a new car? Take a vacation? Build an addition on your house?

Or would you save for retirement, and buy life and disability and insurance?

Being the responsible Fool you are, you're probably already saving enough for retirement (right?) and have enough insurance (of course). But you'd still probably assess your financial needs before going on a spending bender with that 12.4%.

But think about the average American. You know, the person who isn't saving enough for retirement (as most Americans aren't) and who has too much debt (as too many Americans do). Will that person decide to use the entire 12.4% to safeguard his or her financial future?

I'd have to guess that most people would spend at least part of that raise, and too many would spend it all. Social Security was created to prevent that from happening.

Making people help themselves
OK, so that's not the way it was phrased back in 1935, when Franklin Roosevelt signed the Social Security Act. And the current program is different in many respects from its original form. For example, in the program's first year, employers and employees were taxed just 1% each, as opposed to today's 6.2% apiece (for a combined 12.4%).

But the bottom line is that, thanks to Social Security, millions of Americans get insurance that they might otherwise not have. If you become disabled, you'll receive a monthly check. If you die and leave behind dependents, they'll receive monthly checks. When you retire, you'll receive a monthly check that you can't outlive. The program indeed has serious financial problems, which I'm sure Ryan "Let Old People Starve" Fuhrmann and I will discuss in this Duel. But, on the whole, Social Security has done a lot of people a lot of good. Just one example: According to AARP, the poverty rate for women age 65 and older would rise from 12.4% to more than 50% if it weren't for Social Security.

The system's not perfect
Not that I don't understand the naysayers' concerns. After all, I'm the guy who was the bear in the Social Security Duel back in 1999. I'm also the guy who wrote "Why I Hate Social Security," though judging from the emails I received, many readers missed the sarcasm. (I should add that, since writing that article, I have concluded that the numbers put forth by both sides of the "private accounts" debate aren't believable.)

In that article, I argued that I'd rather keep the 12.4% and be responsible for managing that money myself. Could I do worse than what I'll get from Social Security when I retire? I think not. But then again, I was a financial advisor, and I'm now a retirement newsletter editor. My shelves are sagging under the weight of books about asset allocation, retirement accounts, estate planning, and taxes. My inbox is flooded with emails from financial publications and websites and money managers. I know my stuff, and I began saving for retirement in my mid-20s.

But I also recognize that not every American is as well informed or makes the best choices. As I wrote in the "Hate" article:

Individually, we're not always at our financial best. And collectively, Americans aren't known for their financial literacy and saving habits. So maybe Uncle Sam is on to something.

I know what some of you are thinking. You're thinking, "We should have control of our own money. As for those who squander their resources, tough beans. I shouldn't be forced into a government program because some people are irresponsible."

I'd be lying if I said I don't have some sympathy for that argument, especially when I calculate how much I'd have if I could invest part of that 12.4%. (Dang, dang, dang!) But there's a cost to not providing a safety net. Social Security accounts for 50% or more of the income for two-thirds of beneficiaries. It's the only source of income for 20% of the elderly. Where would they be without Social Security?

As one reader pointed out to me, "The name of the program is 'Social Security,' not 'Individual Security.'" And as Berkshire Hathaway (NYSE: BRKa  ) co-chairman Charlie Munger said during the 2005 annual meeting, "I'm the Republican on the stage, and I think the Republicans are out of their cotton-pickin' minds to take on this issue. Social Security is a very successful program. It is a reward for work. There's hardly any fraud. It is a very capitalistic institution that has had good effects."

We can debate the structure of the program, but it's hard to argue that the program hasn't benefited millions of Americans.

Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.

Robert Brokamp is the editor of The Motley Fool's Rule Your Retirement planning service. You can take a free 30-day test drive -- including access to all the past issues, special reports, and financial-planning tool -- by clicking here.


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