Friday, February 04, 2005
A net gain of zero
Here is how the personal account system would work under the Bush plan:
If a worker set aside $1,000 a year for 43 years, and earned 4.6 percent annually on investments, the account would grow to $221,552 in today's dollars. That money would be the worker's upon retirement and would probably be paid out in increments of $15,952 a year, according to calculations by the Center for Budget and Policy Priorities, a liberal advocacy group. A White House calculation showed a smaller payout.
But guaranteed benefits over the worker's lifetime would be reduced by approximately $151,990 -- the amount the worker would have contributed to Social Security but instead contributed to his personal account, plus 3 percent interest above inflation. The remainder, $69,562, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system. That sum -- expressed as an annual payout -- would total $5,008.
But that benefit gain could be substantially smaller. The Congressional Budget Office, Capitol Hill's official scorekeeper, factors out stock market risks to assume a 3.3 percent rate of return and then subtracts 0.3 percent for expected administrative costs on the account. Under that scenario, the full amount in a worker's account would be reduced dollar for dollar from his Social Security checks, for a net gain of zero.
If investments earned less than 3 percent a year above inflation, a worker would do worse in total benefits than he would have done in the traditional system.
More.
posted by chris at 11:54 AM
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