Thursday, February 03, 2005

What, Another Crisis? So Soon?

Ah yes, another crisis -- this time it's Social Security. The solution sounds so soothing -- why not let folks put some of their $$ in a private account for retirement? If not, hey, the whole system is bankrupt by 2042.

Wrong. We already have the option of investing money in private accounts (like an IRA) and the system won't be bust by 2042. It'll be hurting, but not defunct.

And now the fine print (and something Mr. Bush isn't mentioning): When you retire, you will be required to use part of your 'private' account to buy a lifetime annuity FROM THE GOVERNMENT. Okay, you say, what does that mean? It means that you will receive a certain set amount each month until you die. Your children will not inherit what's left in the annuity (unlike a traditional savings account). That's contrary to what Mr. Bush is touting. So if this truly is a private account, why is it you can't use the money at your own pace, drawing it lump sum or passing it on to your family once you no longer need it?

And another kicker -- (and I cite this example from an MSNBC article)
www.msnbc.msn.com/id/6903404/

If you put away $1,000 a year for 40 years and that bundle of cash earns 4 percent annually, your 'nest egg' would grow to $99,800 in today's dollars. Unfortunately, the government would keep $78,700 (approx 80%) of the account. The remainder ($21,100) would be yours.

That's like asking for change for a ten and only getting two bucks back. Just how does this make you better off?

And just to hammer the point home, check out what happened when Britain privatized retirement accounts for their OAP's (Old Age Pensioners) and you'll find the whole plan was a disaster. Their retired folks suffered and the country ended up having to spend more money to keep their aged from starving.

For Americans, there are two ways to solve the Social Security 'crisis' -- have folks who earn up to $200K pay into the program and increase the percentage we have to pay a wee bit. Both will go a long way toward alleviating the problem and neither will add trillions to our otherwise bloated debt.

The returns from Social Security may not be grand, but so far they're 'guaranteed.' Nothing about the stock market is a sure thing. Just ask those folks who got caught in the Tech Wreck or the aftershocks of Enron/WorldCom, etc. For future generations it could mean the difference between a stable retirement or a bleak existence.


Later

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