Social Security: Bush’s Nest Egg

From his State of the Union address, Bush does social security:

Here’s how the idea works. Right now, a set portion of the money you earn is taken out of your paycheck to pay for the Social Security benefits of today’s retirees. If you are a younger worker, I believe you should be able to set aside part of that money in your own retirement account, so you can build a nest egg for your own future.Here is why personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver, and your account will provide money for retirement over and above the check you will receive from Social Security. In addition, you’ll be able to pass along the money that accumulates in your personal account, if you wish, to your children and — or grandchildren. And best of all, the money in the account is yours, and the government can never take it away.

I’m not even going to try and claim that I’m a social security expert, but here’s what I get from this:

  • A small portion of my income will go into an investment fund, the rest will be treated as it always has been.
  • As it is a retirement fund, I can’t touch the money until I hit retirement age.
  • In the meantime, this money will probably be handled one of three ways:
    • Managed by government investors.
    • Managed by private sector investors hired by the government.
    • Managed by myself through a government or private sector intermediary.
  • The money will be invested in specially selected private companies through stocks/bonds/etc…
  • The money will be invested in a market which involves some level of risk.
  • When I reach retirement age, I will be rich and I can pass the wealth on down the family tree.

Ok, so that last one I made up, but I think I’m correct with the other ones. So my conclusions….

As I said before, I’m no expert. That means I’m waiting with open arms for a new plan before trying to criticize something that I know nothing about. If Bush would get some detail flowing our way, maybe I could make up my mind. For now, I’m only letting two things bug me:

The first thing: Is this happening because somebody on Wall Street donated a lot of money to the Bush campaign? I mean, it’s pretty clear that they could make out pretty well on this deal.

The second thing: Any investment fund like this, especially the stock market, is a risk investment. If the stock market crashes, I could lose a substantial portion of my “nest egg”. If I can choose the companies that I invest in, I would be more comfortable. If the rumors/writings are true and the government will only allow me to follow narrow guidelines, I’m going to be one ticked off investor.

That’s it. I’m serious about not criticizing until I understand it all. Hell, if it ends up being a good plan, why not…. Although, I’m not really holding my breath either.

Update: For the sake of my own knowledge (and for yours), the interest rate in the current system is 3%, so any privately invested funds would have to do better than that in order for this to be worth it.

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