Thursday, December 30, 2004

Poor Returns Predicted From Privatized Social Security

I've tried to avoid knee jerk opposition to George Bush's plans for reorganizing Social Security, recognizing the theoretical value of the time value of money. As much as I'm willing to wait for the details of the plan, the facts being published make it harder and harder to believe private investment of Social Security funds would be beneficial (especially in light of how such a plan would add to the deficit in order to provide benefits to current beneficiaries).

The Christian Science Monitor looked at a case of someone matching Social Security taxes with private investments. The private investments did do better, but not by as much as would be expected--only by $5873 over forty-five years. The timing didn't work out well for this individual, and there is also no guarantee that future stock market returns will match those of the past.

The article also provides an unfavorable look at privatization in Great Britain:
But under Britain's privatized pension system, so many retirees are doing so poorly at this moment that a commission warned this fall that widespread poverty among the elderly may be returning, which could require massive new government spending.
Already polls have shown public opposition to Bush's plans, and opposition may increase due to a planned campaign by the AARP. Ads will start next week arguing that "There are places in your retirement planning for risk, but Social Security isn't one of them."


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