Via of all places the increasingly irrelevant Wonkette, this item from the Christian Science Monitor—One man's retirement math: Social Security wins:
For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?
He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).
To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.
Yes, it's partly a timing phenomenon (but people who depend on retirement income are less able to time than others), and yes, “Advocates of privatization point out – correctly – that Logue's analysis compares theoretical stock returns with what the Social Security Trust Fund earned – not what he himself would get from the system.” But not everyone has optimum earnings. And the transactions costs and fees of private plans are going to be much, much larger than what the efficient Social Security Administration (arguably the most efficient agency in the federal government) currently spends. Which is why Wall St. is salivating.
Indeed, as the Monitor points out, “The debate hinges considerably on what people want their retirement system to be. Social Security has always been an insurance program. It was never intended as an investment scheme.” And relying solely on private pensions means you inevitably get a cadre of very poor old people:
… 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.
Wouldn't it be nice if we could get this sort of reasonable thinking into the mainstream.
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