MR. KRUGMAN IS NOT AMUSED:

The Proof's in the Pension (JOHN TIERNEY, 4/26/05, NY Times)

I made a pilgrimage to Santiago seeking to resolve the Social Security debate with a simple question: What would Pablo Serra do?

I wanted to compare our pensions to see the results of an accidental experiment that began in 1961, when he and I were friends in second grade at a school in Chile. He remained in Chile and became the test subject; I returned to America as the control group. [...]

After comparing our relative payments to our pension systems (since salaries are higher in America, I had contributed more), we extrapolated what would have happened if I'd put my money into Pablo's mutual fund instead of the Social Security trust fund. We came up with three projections for my old age, each one offering a pension that, like Social Security's, would be indexed to compensate for inflation:

(1) Retire in 10 years, at age 62, with an annual pension of $55,000. That would be more than triple the $18,000 I can expect from Social Security at that age.

(2) Retire at age 65 with an annual pension of $70,000. That would be almost triple the $25,000 pension promised by Social Security starting a year later, at age 66.

(3)Retire at age 65 with an annual pension of $53,000 and a one-time cash payment of $223,000.

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.

Mr. Tierney's column begins to fulfill its promise.

Posted by Orrin Judd at April 26, 2005 9:22 AM