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12/28/2004

Social Security v Private Accounts

To listen to the right-wing blogoshphere one would think that everyone would be millionaires, or multi-millionaires if they invested their Social Security in the stock market instead. Well, one man, an MIT graduate named Stanley Logue, did his own analysis and found that if he had invested his Social Security in the market instead he would be over $5,000 worse off.

"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."

Now there are several reasons for this, "Although Logue started pouring money into Social Security in the 1950s and early 1960s, some of the best years for stocks, he hadn't accumulated a lot of money.

So the gains of his theoretical stock portfolio would have been limited.

By the time he had substantial sums, the market swooned for long periods. From 1965 to 1982, for instance, the DJIA made no progress. Logue retired before the real run-up in stocks in the latter half of the late 1990s.

So the real lesson from his analysis is that any pension plan based on stock investments carries extra risks."

England has a privatized pension system in which, "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."


This seems like a good time to remind the right that Social Security was meant to be insurance, a safety net. It was never meant to allow you to retire to Palm Beach and live in luxury. Nobody is stopping you from investing your money in any way you see fit, Social Security is the guaranteed base we all start our retirement funding with, nothing more nothing less and it was never meant to be anything else.

1 Comments:

At 12/28/2004 09:52:00 PM, Blogger Douglas said...

Trent,
Could you please send me an e-mail address where I and Bob Klein might be able to send you private messages concerning Thune in SD

My correct e-mail address is in masthead at Dakota Today ; but as a graphic rather than a clickable (or robot-findable) link.

 

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