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Social Security Details

From the Washington Post:

"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."

Here is lie number one in the State of the Union Address:

"And best of all, the money in the account is yours, and the government can never take it away."

In reality here is what you get, or don't get:

"What Bush did not detail is how contributions in the account would reduce workers' monthly Social Security checks. Under the system, described by an administration official, every dollar contributed to an account would be taken from the guaranteed Social Security benefit, with interest.

The person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive," the senior administration official said. "So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase."

Here are some numbers to consider, "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. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, 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"

"In effect, said Democratic economist Peter R. Orszag of the Brookings Institution, the system works like a loan, in which the government grants workers 4 percentage points of their payroll tax to invest in stocks and bonds. The loan would have to be paid back with interest out of workers' monthly Social Security checks."

So let's recap. In the State of the Union Bush said this, "And best of all, the money in the account is yours, and the government can never take it away." When in reality if you retire with nearly $100,000 in your private account, after the government takes it's cut you really only get $21,100.

I'm sure this won't be the only time Bush lies to you about Social Security.


At 2/07/2005 04:40:00 AM, Blogger Ben Hanten said...

The 3% referenced has been upgraded to 5% by the Wall Street Journal. Pretty hard to accomplish with bonds and stocks like Bush has said he'll use. This thing should be DOA.


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