Send a Tweet
Most Popular Choices
Poll Analyses
Share on Facebook 10 Share on Twitter Printer Friendly Page More Sharing
OpEdNews Op Eds    H3'ed 8/22/17

Social Security: Still The Most Efficient Way To Provide Retirement Income

By       (Page 1 of 2 pages) (View How Many People Read This)   No comments
Author 2529
Message Dean Baker
Become a Fan
  (40 fans)

From Huffington Post

The best way to generate wealth for future retirees is to minimize the money that is wasted in fees for the financial industry.

Rally at Minneapolis Social Security Office
Rally at Minneapolis Social Security Office
(Image by AFGE)
  Details   DMCA

Last week marked the 82nd anniversary of Franklin Roosevelt's signing the bill that created Social Security. The program has stood the test of time well.

It accounts for more than half of the income for 60 percent of senior households and more than 90 percent for almost one third. It has reduced poverty rates among the elderly from more than one-third to roughly the same as the rest of the adult population. In addition, it provides disability insurance, as well as life insurance for family members, for almost the entire working age population.

This is a pretty good track record. This is the reason the program is hugely popular and efforts at privatization, like President George W. Bush's 2005 effort, have all gone down in defeat. It's hard to beat Social Security.

A big part of the benefit of Social Security is that it is very efficient. The administrative costs of the retirement portion of the program are just 0.4 percent of what is paid out in benefits each year. By comparison, the costs of even relatively well-run privatized systems, like those in Chile or the United Kingdom, are 10-15 percent of benefits. That difference would amount to $80 billion a year (close to $1 trillion over a 10-year budget horizon) being paid out to the financial industry instead of to retirees.

This was a huge hurdle for President Bush to overcome with his privatization plan. His main route was to invent stories about the much higher returns that workers would be able to earn with the privatized accounts he promised them.

But this story of better returns turned out to be based on phony numbers. Essentially, his crew was extrapolating stock returns from a period when the economy was growing fast and price-to-earnings ratios in the stock market were much lower. Their claims about future returns could not be reconciled with the Social Security trustees growth projections that provided the basis for the debate.

To make this point, we invented the "No Economist Left Behind" test where we challenged supporters of privatization to write down numbers for capital gains and dividend yields that added to the stock returns assumed by the Bush administration. This amounted to writing down two numbers that added to 7 percent (the annual real return they assumed for stocks), a task which should not be too difficult for someone with a PhD in economics.

Next Page  1  |  2

(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).

 

Must Read 1   Interesting 1   Valuable 1  
Rate It | View Ratings

Dean Baker Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 
Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines
Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

STAY IN THE KNOW
If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEdNews Newsletter
Name
Email
   (Opens new browser window)
 

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Federal Reserve Board and the Presidential Candidates

The Deficit Hawks Target Nurses and Firefighters

The Attack of the Real Black Helicopter Gang: The IMF Is Coming for Your Social Security

The profit on the TARP and Bernie Madoff

Poverty: The New Growth Industry in America

The Real Reason For The Government Shutdown

To View Comments or Join the Conversation: