Microeconomy Q on social security, any heads up?

[Who R U]

Suppose that the following Social Security reform became law: All current Social Security recipients will continue to receive their benefits, but no increase will be made other than cost of living adjustments: U.S citizens between age 40 and retirement not yet on Social Security can opt to continue with the current system; those who opt out can place what they would have contributed to Social Security into one or more goverment-approved mutual funds; and those under 40 must place their contributions into one or more government-approved mutual funds.
Answer the following questions:

1- Who will be in favor of this reform and why?

2- Who will be against this reform and why?

3- What might happen to stock market indexes?

4- What additional risk is involved for those who end up in the private system?

5- What additional benefits are possible for the people in the private system?

6- which firms in the mutual fund industry might not be approved by the federal government and why?

[David Livingston]

3--The stock market indexes might go up, reflecting optimism that more capital would be going to the private sector.

4--The additonal risk is the risk involved in holding a security. The rate of return is not guaranteed and you may lose your invested funds. Other risk is that you don't know how long you will live so it's not clear how much to invest. There is also inflation risk.

5--Presumably capital is more productive in private sector because finances investment. Social security finances mostly current consuption. Martin Feldstein argues that economic growth is lower given the social security system

6--The mutual funds with the highest returns may not be in the government approved list since they are the riskiest.

[Warren T]

I COULD LIVE WITH THAT. ALSO EVEN THOUGH I WOULD NOT LIKE IT, I COULD LIVE WITH A LAW THAT STATES THAT ANYONE WITH AN INCOME FROM OTHER SOURCES OVER A CERTAIN AMOUNT WOULD NOT BE ELIGIBLE TO DRAW SOCIAL SECURITY