Thursday, December 16, 2004

Throwing Mud Up Against The Privatization Plans

Lefty bloggers are putting in serious overtime, hoping something will stick to mar George W. Bush's plans for Social Security's future. Take Max Speak (please!), and his merry band of commenters:

Assume an average wage of $40K, and split half/half of the 10% that the CATO Institute assumes is the SS portion of SSDI.That puts $2,000 a year into a PRA--or $1,800 with 10% admin costs.At 4% annual growth, over 40 years, you end up with $190K+ without fees--and $19K less with fees. So you spend 9.5 years of investment on fees.

The FLUBA will ignore the numerous errors in reasoning in the above--e.g. 12.4% of $40K= $4,960.00--to focus on the factual; i.e. 10% administrative costs. We'll let the Congressional Budget Office do the heavy lifting:

The Thrift Savings a defined-contribution plan available to workers in the federal government. ....It offers some choice in assets and contribution levels, however, and in that respect is similar to private account plans. .... TSP limits investment choice to a few funds that track financial market indices.

As of December 31, 2002, 3 million employees participated in the TSP, and the amount in all TSP accounts totaled more than $102 billion.
Workers under the Federal Employees Retirement System may contribute up to 14 percent of their wages....

Reported administrative and investment costs of the TSP totaled about $75 million in 2002 (excluding costs to the employing agencies). That translates to about $25 per participant.

Overly optimistic? Probably, however the CBO then looks at Mutual Funds:

...analysts at the Investment Company Institute have converted all fees to a single annual percentage-of-assets charge for purposes of comparison. According to those calculations, the dollar-weighted average annual fee on retail equity mutual funds was 1.28 percent of account balances in 2001; the average fee on bond mutual funds was 0.90 percent; and the average fee on money market mutual funds was 0.36 percent

Assets invested in mutual funds totaled over $6.4 trillion in 2002.

The Fly Under the Bridge Academy loves the smell of desperation in the morning.

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