Tuesday, April 26, 2005

A Tale of Two Contributions

NY Times columnist John Tierney went to Chile to compare his Social Security promised benefits with those of a boyhood friend. Paul Krugman had better hide his eyes:

By the time we finished college, both of our countries' pension systems were going broke. Chile responded by pioneering a system of private accounts in 1981. America rescued its traditional system in the early 1980's by cutting benefits and raising taxes, with the promise that the extra money would go into a trust to finance the baby boomers' retirement.

As it happened, our countries have required our employers to set aside roughly the same portion of our income, a little over 12 percent, which pays for disability insurance as well as the pension program. It also covers, in Pablo's case, the fees charged by the mutual-fund company managing his money.

....we extrapolated what would have happened if I'd put my money into Pablo's mutual fund instead of the Social Security trust fund. We came up with three projections for my old age, each one offering a pension that, like Social Security's, would be indexed to compensate for inflation:

(1) Retire in 10 years, at age 62, with an annual pension of $55,000. That would be more than triple the $18,000 I can expect from Social Security at that age.

(2) Retire at age 65 with an annual pension of $70,000. That would be almost triple the $25,000 pension promised by Social Security starting a year later, at age 66.

(3) Retire at age 65 with an annual pension of $53,000 and a one-time cash payment of $223,000.

Tierney's colleague on the Times Op-ed page, wants to deny him those benefits. And everyone else too.

Proof...pudding...eating.

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