Tuesday, April 26, 2005

Chris, this is for you

If you have read my posts in the past, you know that my brother and I don't exactly see eye to eye on many issues, one of which is Social Security. He likes to use other countries that have private pension accounts as examples of why we shouldn't privatize at all. He claims that they are disastrous. Well, Chris, this article might shed a different light on it.

You may suspect that Pablo has prospered only because he's a sophisticated investor, but he simply put his money into one of the most popular mutual funds. He has more money in it than most Chileans because his salary is above average, but lower-paid workers who contributed to that fund for the same period of time would be in relatively good shape, too, because their projected pension would amount to more than 90 percent of their salaries.
By contrast, Social Security replaces less than 60 percent of your salary - and that's only if you were a low-income worker. Typical recipients get back less than half of their salaries.

Of course, I know my brother, he will find something wrong with this. And the article does cover some arguments.

The biggest problem in Chile is that many workers don't contribute regularly to their pensions because they're unemployed or working off the books. That's a common situation in the developing world, no matter what the pension system is. But if you contribute for at least 20 years, Chile guarantees you a minimum pension that, relative to the median salary, is actually more generous than the median Social Security check.

Still, you may argue, Chileans may someday long for a system like Social Security if the stock market crashes and takes their pensions down with it. The relative risks of the Chilean and American systems are a question for another column. But I can tell you that Pablo is an economist who appreciates the risks of stocks and has no doubt about where he wants to keep putting his money.

I can get Chris to agree that Social Security is heading for bankruptcy. But to be against any personal accounts is short-sighted and elitist. We have got to demand that people take some responsibility in their retirements. Gone are the days when we can sit back and be assured that the government will take care of us after we retire. We all must take an active role in our planning for old age. For me, that means supporting Pres. Bush in his bid to start fixing Social Security. But, I also know that I won't depend on that money as my sole source of support. Especially because there are many, many people in this country that agree with my brother.

Hat tip: Lifelike Pundits