The Proof's in the Pension--Op Ed piece shows Chile's privatized SS far

[mistertrickster]

better than ours.

********QUOTE**********
After comparing our relative payments to our pension systems (since salaries are higher in America, I had contributed more), we extrapolated what would have happened if I'd put my money into Pablo's mutual fund instead of the Social Security trust fund. We came up with three projections for my old age, each one offering a pension that, like Social Security's, would be indexed to compensate for inflation:

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

(2) Retire at age 65 with an annual pension of $70,000. That would be almost triple the $25,000 pension promised by Social Security starting a year later, at age 66.

. . .

<Chilean workers get 90 percent of their salary upon retirement.> 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.

********END QUOTE**********
http://www.nytimes.com/2005/04/26/opinion/26tierney.html?hp

I have a feeling there's something wrong with this analysis, but I can't tell what it is exactly. It sounds too good to be true--he's calculating a 5 percent a year return and he can retire on 55K-70K a year forever? Bullshit. I'm sorry, no way.

For another thing, what is with this big emphasis on investors picking and choosing mutual funds? Why doesn't the gov't just invest the money itself like my state pension fund does?

I also wonder if its fair to "extrapolate" Chilean wages to US wages considering that the former are a lot lower.

And lastly, are the Chilean funds regulated more tightly than ours are?

[fertilizeonarbusto]

1. All I know

is I've read over and over the picture ain't quite that rosy and Chileans are definitely not thrilled.

[Frances]

2. I began putting money into an IRA back in 1980

The return has been OK, but I don't want to lose my social security, which is a secure insurance plan.

I don't think anyone has any beef with private investments but most of us do NOT want to LOSE social security, which is what Bush wants us to give up.

[mistertrickster]

3. Right--the key is security. I just used an online compound interest

calculator at http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Assuming that John Doe works for 30 years starting at 25 K and retires making 75 K, he's averaged 50 K per annum.

For simplicity's sake, let's assume he made 50 K every year for 30 years. 12 percent of 50 K is 6000 dollars going into SS.

You plug 6000 into the calculator for 30 years at 5 percent, and you end up with a nice sum of 444,500 dollars. Good so far.

But now let's say you want to live on that? How do you do it? Figure you're going to live 30 more years and take out 15K every year? That's not much to live on.

Or leave it invested at 5 percent? That would generate about 22,000 dollars--JUST ABOUT WHAT YOU'D GET FROM SOCIAL SECURITY!

[mistertrickster]

4. And how is Pablo getting such a great rate of return every single year?

If he were invested in a Dow Index fund, he would have seen no growth for the past FIVE years, plus broker's fees (around 2 percent).

Something about this article doesn't smell right. You notice that it's all FUTURE EARNINGS (which can be whatever the writer wants them to be)? How about the people who are drawing from their pensions right now?

[dsc]

5. It should be noted that the period of time in the article 1981 to 2005

includes nearly all high growth years. Only 1987, and the last few years aren't high growth ones. It should also be noted that Chile's is the only system which didn't lose big when it went to private accounts.