My personal musings about anything that gets on my radar screen--heavily dominated by politics.


More Social Security Info

Perfect timing, given last night's post.

This morning's NYTimes has a surprisingly balanced accounting of what the President's plan for Social Security would look like for a worker.

Take somebody who will be 19 this year and will enter the workforce in 2011 . . . earning $38,566 in today's dollars. This employee - who currently faces a 6.2 percent wage tax, matched by his employer - would be allowed to place as much as 4 percent of his wages in a personal account. To reflect the substantially lower contributions to the standard Social Security system, though, the standard benefit would be considerably lower than under current law. The basic benefit, . . . would be cut by the amount contributed to the personal account, plus a sum that reflected the gains from investing it at a rate of return of 3 percent above inflation.

The worker could still come out ahead under these terms. If the account were to earn an average 4.9 percent a year after inflation, minus 0.3 percent in fees - the figure often cited by White House officials based on estimates by the Social Security actuaries of the expected returns of a mixed portfolio of stocks and bonds - the worker's piggy bank would grow to more than $188,000 in today's dollars if he invested the maximum allowed, according to calculations by Dean Baker of the Center for Economic and Policy Research.

Taken as an annuity payment that would last the rest of his life, that money would generate $11,270 a year, or $940 a month, Mr. Baker found. Even after the offset carved out of the standard Social Security check, this worker's retirement benefit would add up to $24,530 in today's dollars, or $2,044 a month. That would be substantially more than the $21,220 a year - or $1,771 a month - that Social Security currently promises a medium wage worker after a similar career ending in 2050.

But there are other possibilities. As investors discovered in 2000, stocks can fall in value and stay down for some time. If a poor equity market or ill-timed investments left the average return on this worker's personal account at just 1 percent better than inflation, instead of 4.6 percent, the benefit would add up to only $18,650 a year, or $1,550 a month.

Ah, yes, but then that additional money (which my quick math tells me is about $500 per month) STAYS WITH HIM AND HIS FAMILY!! It's HIS money, not the goverments, and when he dies, the money stays with the peopleto whom it rightfully belongs. Sure, the monthly benefit isn't much, but it's more than his family would get without a personal account.

Just something to chew on.

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