The Proof's in the Pension

The New York Times

A piece on private pension accounts by John Tierney appeared on the April 26 op-ed page. Tierney recently visited a childhood friend in Chile named Pablo and they talked about retirement. Back in 1981, Chile’s public pension program was going broke and the U.S.’s Social Security system was in trouble. America responded by cutting benefits and raising taxes.

Chile pioneered a pension system of private accounts. As it turned out, both countries have required employers to set aside about the same portion of income, between 12-15%. Tierney compared his and his friend’s relative payments to their respective pension systems. Tierney would have contributed more because he made more, but if Tierney had put his money into Pablo’s mutual fund instead of Social Security, these are the scenarios he would be eligible to enjoy:

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

2) Retire at age 65 with an annual pension of $70,000-- almost triple the $25,000 he would get under Social Security.

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

The basic problem with our Social Security program is that it makes it very, very difficult for low income Americans to save because it sucks up 15% of their incomes. This drain only exacerbates the need for people to rely on our nationalized retirement plan. More wealthy Americans use 401(k)s and other savings programs that make it possible from them to get by without Social Security income. The Democrat Party's exploitation of blue collar and low-income people by keeping them in this vicious circle is a monumental injustice.

Excerpted from the Leonard Letter