Saturday, February 05, 2005


I hate to pick on this mostly decent Times article on Social Security, but I was struck by this:

Taken as an annuity payment that would last the rest of his life, that money would generate $11,270 a year, or $940 a month, Mr. Baker found. Even after the offset carved out of the standard Social Security check, this worker's retirement benefit would add up to $24,530 in today's dollars, or $2,044 a month. That would be substantially more than the $21,220 a year - or $1,771 a month - that Social Security currently promises a medium wage worker after a similar career ending in 2050.

Two things here. First, I'm not sure an extra $273 per month qualifies as "substantially more." It's certainly not trivial, but it isn't huge. That's nitpicking I suppose.

But, more importantly, this calculation leaves out something very important -- it's based on the assumption that current promised benefits remain in place. The Bushies have signalled their desire to cut promised benefits.

Let's back out what this calculation actually tells us. Here we have someone diverting the maximum amount allowed into their private account until retirement. If the Bush plan cuts promised benefits by any more than about 15 percent of what is promised for a new retiree in 2050, the average retiree will be worse off (ignoring for the moment the unrealistic stock returns implicit in this calculation).

That's a fairly simple benchmark. Any more than a 15% cut, and the average retiree will be unambiguously made worse off by the Bush plan.