If we privatized Social Security, and you could invest that money on your own instead of financing the retirements of today’s senior citizens, you’d have more money for your own retirement, right? Well, not exactly.
At the heart of President Bush’s plan to sell Social Security private accounts is a simple notion: You’re always better off investing your retirement money than letting the government do it.
By doing it yourself, you can stow some money in the stock market, and over the long run will get a better return on that investment than today’s Social Security system offers.
The idea is broadly accepted. That’s why the administration’s plan to partially privatize the system sounds appealing to many. But that better return won’t always happen.
Just ask Stanley Logue of San Diego.
Logue is a retired defense-industry analyst and graduate of MIT. For the heck of it, he went back through his records to see what would have happened if, instead of putting his payroll taxes into the Social Security System, he invested the same amount of 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.
It’s an astonishing finding. The DJIA represents blue-chip stocks. Social Security invests in US Treasury bonds. Over long periods of time, stocks have consistently outperformed bonds. So, you would think that Logue’s theoretical stock investments from 1950 to 1994 would have surely outpaced the return on government bonds.
You might think that, but it’s apparently not true.
At most levels, and I know my conservative readers will flip out for me even thinking this, making more money isn’t necessarily the point. Social Security does not exist to make retirees rich; it’s supplemental income for older generations that spreads out burdens and risks across a broad scale. What workers put into the system in payroll taxes is paid out to those already in retirement, not to make them wealthy, but to keep them out of poverty.
But even if we were to look at the system as a way to help individuals get richer, Stanley Logue’s experiment helps demonstrate that privatization would hardly create a windfall. In fact, depending on when you invest and what you invest in, workers are better off keeping their payroll taxes right where there now — in the Social Security system.