Tuesday, April 26, 2005

All you need to know on Social Security


The primary model for the Bush Social Security reform proposals is the national pension system that Chile instituted in 1981. Chile requires employers to set aside about 12% of salaries into personal accounts for employees, which they then control by choosing investment funds to put their money in.

John Tierney of the NY Times compares what his expectations are for Social Security receipts with what they would have been under the Chilean system if his Social Security deductions had been invested in the funds that his friend Pablo, a Chilean economist who has lived and worked in Chile since the two men graduated college, chose.

Here's what he found:

After comparing our relative payments to our pension systems (since salaries are higher in America, I had contributed more), we extrapolated what would have happened if I'd put my money into Pablo's mutual fund instead of the Social Security trust fund. We came up with three projections for my old age, each one offering a pension that, like Social Security's, would be indexed to compensate for inflation:

(1) Retire in 10 years, at age 62, with an annual pension of $55,000. That would be more than triple the $18,000 I can expect from Social Security at that age.

(2) Retire at age 65 with an annual pension of $70,000. That would be almost triple the $25,000 pension promised by Social Security starting a year later, at age 66.

(3)Retire at age 65 with an annual pension of $53,000 [more than double SocSec] and a one-time cash payment of $223,000.

I'm thinking about freshening up my Spanish and moving south!

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