June 3, 2005

BUILD THE AARDVARK HIGHER:

Cracking the Nest-Egg Problem: A fundamental question colors the debate over Bush's personal-account plan: Is Social Security intended more for savings or for insurance? (Warren Vieth and Joel Havemann, June 3, 2005, LA Times)

[I]n the view of Bush's political opponents, his sales pitch is based on a false comparison between social insurance programs and retirement savings accounts, as well as assumptions about future investment returns that may prove unrealistic.

"The sort of support provided by Social Security is really hard to replace in the private sector," said Kenneth Apfel, Social Security commissioner during President Clinton's second term.

Nevertheless, the nest-egg anecdotes have become a staple of Bush's roadshow remarks.

"If you're a 20-year-old making $8 an hour … you'll end up with a nest egg of $100,000 when you're 63," Bush said Thursday. "If you're a police officer and a nurse … when you retire, both of you will have a combined nest egg of $669,000."

Bush wants Congress to let workers born in 1950 or later divert a third of their Social Security payroll taxes into investment accounts they would control. These accounts would be part of a broader plan to ensure Social Security's solvency by reducing the future growth of government-provided benefits for upper-income and medium-wage workers.

Although the accounts by themselves would do nothing to close Social Security's long-term funding gap, Bush contends that their bigger investment returns would help future retirees recoup the benefit reductions needed to shore up the system.

Bush's argument is based on his assertion that Social Security returns 1.8% on the investment of average workers who contribute payroll taxes to the system over a lifetime.

By contrast, the White House says, a personal account containing a conservative mix of stocks and bonds would earn an average return of 4.6% a year, assuming the nation's financial markets perform as well in the future as they have in the past.

But the president's critics don't buy that argument. When Bush contrasts the 1.8% rate of return on traditional Social Security with the 4.6% projected return on stocks and bonds, they say he might as well be comparing apples and aardvarks.


If you want to make an omelette you've got to crack a few apples.

Posted by Orrin Judd at June 3, 2005 6:00 AM
Comments

Baby boomers of the world: unite and break your chains; vote Republican in 2006!

Posted by: Genecis at June 3, 2005 10:45 AM

Could you find the time to post your recipe for apple omelets? Do you use curry powder or guacamole?

Posted by: Raoul Ortega at June 3, 2005 11:59 AM

They've lost the argument, they just haven't realized it yet. Dead man walking.

When history looks back, it will be quite clear that the 401(k) was the RoundUp(tm) applied to Social Security. (And just like RoundUp, after you spray it on, nothing happens for a long time. Then suddenly overnight it all turns from lush green to dead.)

The final nail in SS's coffin will be when the first wave of retiree's with 401k's retire, and look at their 401k accounts with $400,000 to $1,000,000 in them, figure out what that comes to as a monthly annuity payment, and they ask themselves if it's ever worth the bother to open up the SS check each month.

Posted by: fred at June 3, 2005 1:46 PM
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