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02/05/2005 Archived Entry: "More on the "personal retirement" ripoff"
When I was skimming the background briefing on the Bush Social Security plan, I missed a major gotcha:
Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase as a consequence of making that decision.
"Real rate of return" means that your investments have to pay 3% above inflation in order for you to receive the same level of benefits. But when they quote the numbers for their investment funds, they quote nominal returns (not counting inflation). Bear in mind that we're entering a period of high inflation...and that the inflation rate is (to some extent) under the control of the feds. If they need to reduce the amount they pay out of your "personal" retirement account, all they need to do is crank inflation up a notch. (This is offset by the fact the conventional SS benefits are inflation-adjusted, so they'll incur a cost there.)
So that's at least four ways I've seen that they can rip off your "personal account" savings: reduce your principal by a 3%-compounded amount, tax your investment returns, extend the annuity duration, and hike the inflation rate. Plus of course they keep your unspent annuity, and reserve the right to change the rules unilaterally later.
Don't call it "privatization." It's nothing of the kind. —brad