The New York Times John Tierney compares Social Security with Chile’s privatized system and finds that private accounts do more for workers than government accounts:
You may suspect that Pablo has prospered only because he’s a sophisticated investor, but he simply put his money into one of the most popular mutual funds. He has more money in it than most Chileans because his salary is above average, but lower-paid workers who contributed to that fund for the same period of time would be in relatively good shape, too, because their projected pension would amount to more than 90 percent of their salaries.
By contrast, Social Security replaces less than 60 percent of your salary – and that’s only if you were a low-income worker. Typical recipients get back less than half of their salaries.
Private investment accounts are the best deal for the American worker. The federal Thift Savings Plan, city plans, and Chile’s pension reforms have all show that a system of private accounts not only works, but offers superior value to those who chose them. The arguments against Social Security reform are almost universally specious and unsupported. Minor structural reforms won’t fix the problems, and even if they did they still would lock everyone into one underperforming system.
Giving workers a choice over their retirement program is the right thing to do, and the White House and Congress should not compromise on any reform package featuring private accounts.
I think your way off on two things. The chilean plan worked, somewhat, but has not covered all the people in the country, being there is no system for protecting those who are self employed. Their system also has incredibly high overhead, chocking off a couple of percent off total growth rate. I would imagine something similar could happen within the US.
Second their is a real fear about privatization working. Consider, under bush’s “Dont wanna fully explain it” plan the federal government loans people funds equal to 4 percent of their pay check each year. When they retire the federal governemnt then cuts into their benefits by that amount plus 3% for inflation. Currently Social security pays out about2.5% on the funds invested. Now to break even, they would have to make 5.5% and this still doesn’t remove the solvency issue. at best Bush’s plan is a wash that transfers government guarantee ( albeit fiscal irresponsible ones ) to free market risks and hopes.
Bush’s plan does not solve the problem.
truthado, good points. You know a proposal is awful when even Bush administration spinsters aren’t able to semantically weave it into something the American people like the sound of. This plan is so bad that the solution of doing nothing seems downright brilliant in comparison. As flawed as Chile’s privatization experiment has been, it’s tumored to be a raving success story next to Britain’s system, which has been rapidly plunging into disaster mode ever since they partially privatized. Still, my advice to Dems is not to breathe too easily. At the end of the day, this administration always gets what it wants….and I’m still not convinced that a close variation on Bush’s private accounts fantasy will not be signed into law later this year.
That’s why I support Hagel’s plan that combines retirement accounts with structural changes like indexing benefits for inflation and raising the retirement age. The system’s too broken for just one solution, there has to be a sweeping effort at reform.
The only way to keep Congress from raiding the Social Security trust fund (which doesn’t exist except an IOU off the books) is to put them into private accounts that government can’t raid. The Federal Thrift Savings Plan already does this for federal employees, and the overhead is insanely low (think less than 1% for administration fees).
Social Security has a real rate of return of less than 2% (indexed for inflation.) Even a very, very conservative investment can yield an inflation-indexed return of 3%-4% and a 5.5% rate of return is quite possible. The average rate of return for a long-term investment in the markets is right around 5-7%.
Private accounts in Social Security will work. They’re already working in several major US cities. They’ve worked in Chile, New Zealand, and elsewhere. The Democrats don’t want private accounts because then they can’t spend your money and because investment usually leads people to start thinking about the economy, which hurts the Democrats. This has nothing to do with economics and everything to do with power – the Republicans want to give power to the American worker, and the Democrats want to keep it in Washington. Hopefully the Republicans will stick to their principles and ensure that private accounts pass.
I think that a majority of Americans have realized by now that the only reason SS “works” is because it extracts money from younger people as needed, to cover the Ponzi scheme that it is.
This is a reason (among others) why Republicans are winning at the polls. Mark has it backwards when he says that the administration always “gets its way.”
Bostonian, the latest poll shows that Bush’s Social Security “reform” plans enjoys a cataclysmic 64% disapproval rating, even higher than before his PR campaign began. Republicans are winning at the polls, but it’s clearly not because American voters wish to see Social Security dollars handed over to Wall Street stock brokers.