Thursday, February 03, 2005

Millions Or Bupkis?

There has been a lot of nonsense going around about Bush's proposal to allow people to truly invest in their Social Security account, as opposed to merely paying the government. Here are some real numbers. Let's assume someone earning $22,500 a year at age 21. To keep it simple we will also assume that they never make any more than that, ignoring inflation. 4% of this person's salary would be $75 per month. If this person invested in a S&P 500 index fund, and the average rate of return was 11% annually, this person would have $1,000,000 at age 65. This is conservative, because the S&P 500 has averaged 11.95% return over the last 50 years. Makes a nice retirement. As opposed to the current system, where this same person would have bupkis.

FWIW, 25 years ago, Chile offered it's citizens the option to privately invest their Social Security funds. 93% have taken this option, and have been seeing an average 12% return.


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