Chile has private retirement accounts. New York times columnist John Tierney compared their performance against American Social Security and found it pretty excellent:
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 and a one-time cash payment of $223,000.
American Democrats don’t want us to have this much money when we retire – prosperous people vote Republican.
That’s why we have 401(k), Roth IRAs and IRAs, so people can have substantial amounts of money when they retire. Social Security was never intended as the primary retirement funding source. It provides a baseline retirement income, primarily for those in the lower income strata who do not have the means to save sufficient retirement funds.
It’s precisely the people in the lower strata who most need a high-yielding system, Steve.
And who cares that SS was “intended” to be? For poor people it’s all there is.
Not long ago I was listening to a discussion of social security in which a speaker who had studied the situation in Chile noted that people who are on the system instituted there are being asked not to retire yet, as there isn’t sufficient funding for the number who are scheduled to retire. And of course, fewer than half of Chile’s population are in any regular form of employment. So fewer than 50% are on any sort of retirement system.
Chronically unemployed people don’t do too well in the US unless they’ve been married. Only ten years of marriage to an employed person will get you into Social Security at everybody else’s expense.
Someone tell Steven that there are onerous caps on every bit of that 401(k) / IRA nonsense. I’d just as soon opt-out of SS and have them give me my money, so I can go work on something more important than my (his) Golden Years dog food.
What Tierney didn’t say is that Chile had to guarantee returns on their investment- and they had to re-nationalize certain sectors of the economy- to get the gains they did.
Similarly, what Tierney didn’t mention is that all folks didn’t work out the same way.
There is a risk/return relation as you well know. We’re in a long term bear market right now, and we have a government that is particularly adverse to the kinds of schemes such as Singapore and Taiwan made that would actually not only provide more benefits to retirees, but shore up the competitive base of the economy.
I could echo what others said above about 401(k)s and what-not, but Chile’s system pretty much sucks for most people.
I’d prefer a system that would combine 401(k) like investments with socialized investment in start-ups. There’s other ways to do help shore up the system via tarrifs. Others mileage might vary, but neither the Repubs or Dems are truly thinking radically enough about this.
I could also mention that when Chile’s system was first put into place (before re-nationalization of industries and guarantees put in place), the economic dislocation from this and other ideas from wonder-boy Milton Freedman made Chilean currency worthless and impoverished most of the middle class.
Interestingly, the Dallas Morning News today has a very interesting account of the social security spiel in Galveston, TX yesterday, mentiioning that there is a backup safety net system not mentioned by the administration. provided to disabled (60% of salary until age 65, then retirement annuity as if they hadn’t been disabled and survivors of deceased (in the amount of not less than $75,000 or more than $250,000) by TX Co & District Retirement System.
Also reports by GAO and SS itself indicate the system performs well for high-salary employees, not so well for lower pay scale employees.