
My column this morning wasn't the finest  sometimes the magic works, sometimes it doesn't. Anyway, this may be a better explanation of how the clawback works.
Suppose you invested $1000 a year (constant dollars) in a fund that pays 3 percent real interest. Then after 40 years you would have about $77,000. Suppose that your life expectancy is 20 years at retirement, and that you can buy an annuity with present value equal to that lump sum. Then you would get about $5,000 annually.
The Bush plan, as far as we can tell, is that if you elect to take the private account, your conventional benefits are cut by $5,000 per year. So investing in bonds gets you right back where you started.
If you buy risky assets, and do better than 3 percent, you may end up with, say, $7,000 per year; in that case you have a net gain of $2,000.
But if you do worse, and end up with a lump sum only large enough to buy, say, a $3,000 annuity, your benefits are still cut by $5,000, and you're $2,000 a year worse off.
So what's really happening with the private accounts is that people will be encouraged to take a mortgage on their Social Security benefits, and to speculate in the stock market.
And, of course, all of this has zero bearing, at best, on longterm government finances. In practice, whoever is running America in 2050 will probably end up bailing out the unlucky, so it's a major net negative.
Friday, February 04, 2005
More SS
Reader P.K. writes in: