The Washington Post…
Participants Would Forfeit Part of Accounts’ Profits
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system.
The mechanism, detailed by a senior administration official before President Bush’s State of the Union address, would hold down the cost of Bush’s plan to introduce personal accounts to the Social Security system. But it could come as a surprise to lawmakers and voters who have thought of these accounts as akin to an individual retirement account or a 401(k) that they could use fully upon retirement…
If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today’s dollars, but the government would keep $78,700 — or about 80 percent of the account. The remainder, $21,100, would be the worker’s.
With a 4.6 percent average gain over inflation, the government keeps more than 70 percent. With the CBO’s 3.3 percent rate, the worker is left with nothing but the guaranteed benefit.
Click on the headline to read the full article. (Scroll down in the post for a correction.)
This is what the Republicans will be spending millions of dollars trying to sell you in the coming weeks and months.
Compare this to what Mr. Bush said in last evening’s State of the Union:
Here’s how the idea works. Right now, a set portion of the money you earn is taken out of your paycheck to pay for the Social Security benefits of today’s retirees. If you are a younger worker, I believe you should be able to set aside part of that money in your own retirement account, so you can build a nest egg for your own future.
Here is why personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver, and your account will provide money for retirement over and above the check you will receive from Social Security. In addition, you’ll be able to pass along the money that accumulates in your personal account, if you wish, to your children and — or grandchildren. And best of all, the money in the account is yours, and the government can never take it away.
I cannot decide if the man is a liar or just does not understand what he’s being told to say. Either way, it’s not good.
Update: The Washington Post has made some modifications to their earlier report…
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately earn benefits more than those under the traditional system only if the return on their investments exceed the amount their money would have accrued under the traditional system.
The mechanism initially detailed by the Washington Post in today’s editions and posted earlier on the Post’s Web site was incorrect.
The original story should have made clear that, under the proposal, workers who opt to invest in the new private accounts would lose a proportionate share of their guaranteed payment from Social Security plus interest. They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan.
That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system.
The Post mistakenly reported that the balance of a worker’s personal account would be reduced by the worker’s total annual contributions, plus 3 percent interest. In fact, the balance in the account would belong to the worker upon retirement, according to White House officials.
Click on the link above and continue reading. It seems that nobody fully understands the plan that Mr. Bush is proposing, but it would seem that the investments in your private account would have to earn 3% interest above inflation in order for you to break even with the current Social Security benefit.
Nobody, that I can find, has yet addressed where the $2+ trillion cost of converting to the new program is going to come from, or who will be paying the fees charged by Wall Street to manage the private accounts.
WASHINGTON (AP) - Alberto Gonzales won Senate confirmation Thursday as attorney general despite Democratic accusations that he helped formulate White House policies that led to overseas prisoner abuse and was too beholden to President Bush to be the nation’s top law enforcement official.
