The stock market and President Bush's Social Security privatization? On second thought ...

Here's a thought:

What if President Bush had privatized your Social Security account?

When Bush built his second-term domestic policy around privatizing Social Security, the stock market was on the verge of taking off. In 2006 it went up 16 points; by late 2007 another six, as measured by the Dow Jones Industrial Average.

So, workers who put their retirement money into the market at, let's say, the Dow's index price of 10,700 at the start of 2005 would have seen that retirement account -- without additional contributions -- reach 13,200: A tidy $2,500 increase if the initial investment itself had been $10,700 and the money was invested in a Dow index fund.

The growth in a retiree's monthly Social Security payments? It wasn't in the neighborhood of 25%.

But, L.A. Times congressional correspondent Richard Simon wonders, what would that privatized account look like ... now?

After a stunning one-day comeback from the past weeks' turmoil, the market gained 936.42 points today. Sounds sweet.

But let's say you started your privatized Social Security retirement portfolio back in 2005 when Bush was talking about it. You would still be down roughly 12%. If you started work at the end of 2007 (when the market had really been soaring), 29% of the retirement kitty you invested at that moment would have disappeared.

And think about ...

... where you'd have been a few days ago: even deeper in the hole.

OK, before you jump on our math and reasoning:

Yes, we know, it's a long road, the market goes up and down and sideways, money would go into the accounts when the market was high and when it was low, and the private funds Bush proposed were not meant to entirely supplant the current system.

And, yes, history suggests that over the next 40 years the market will grow, and stocks may be a bargain today.

And, yes, as Robert Greenstein of the Center on Budget and Policy Priorities noted, while Bush pushed the plan at the start of his second term, "by the summer of 2005 it was dead."

Still, Greenstein wondered in a telephone interview, if the government felt compelled to chip in a 12-figure sum (that's a number with 11 zeroes) to bail out the AIG insurance company, Fannie and Freddie, among others, what would it cost to make those privatized Social Security accounts whole?

And if the government didn't chip in, what would those accounts look like today?

-- James Gerstenzang

Comments

[Robert NO longer in LA]

I like the timeliness of YOUR piece, but...Hey, TODAY, Pelosi, and Mr. Bonehead (from Ohio) are RUSHING back to Washington DC in order to squander hundreds of BILLIONS on a stimulus package. NO waiting for a NEWLY elected bunch of fresh faces and clean minds...oh no! Gotta squander all that pork ASAP! Gotta PAY OFF all our FINANCIAL SERVICES BACKERS before the creeps get chucked OUTTA Congress this Nov 4th. It was insufferable under the Neo-Constipated Neo-Convicts, but with the cowardly Dems NOW IN CONTROL, oooooOOO! Let the GORGING AT THE TROUGH, BEGIN, again!!!! DAM(ned) INCUMBENTS!!!!!!!!

[jeffrey berlind]

What position did McCain and Obama take on privatizing social security?

[chris dorf]

Self-interest steals from the poor and gives to the rich - Warren Buffett knows that - grow up!

[jon]

its not just enough that the way barack talks is convincing but to have not just make a second thought but 4th or 5th thought of voting barack...

[Decline to State]

Mr. Gerstenzang, it's easy to point out the faults of the privatization proposal. You write as if capitalism and the stock market were a done deal. The issue is to correct the flaws and to make it better with varied degrees of regulation. Then, maybe 8 years from now when President Obama leaves office, we may have a viable alternative to rescue the antiquated system that is Social Security. I tell you this, we shall cross this path again in 10 years as the prospect of rescuing Social Security will become a more serious and desperate circumstance. The same folks who criticize privatization now, will be endorsing it then.

[Rovin]

Can the author of this post please remind all of us exactly where the money for Social Security is at this time? Would the privatisation of a portion to the SS accounts be safer than the account this money is being filtered through in the currents system? Hint: There is no positive income currently going into this account. It's still going broke because the money has been borrowed to fund an over-burdened general fund fed by a run-away spending process that has both partys "stamp of approval" on it.

Yes, markets will forever go up and down. Clould this story have been written two years ago with the markets pushing 12000? Or will this story even be valid two years from now? Snapshots do make it easy to frame the moment. Has anyone lately asked Harry Reid if the war in Iraq is still lost?

[Andrew Biggs]

If you're going to ask the question 'What if President Bush had privatized your Social Security account?' it really makes sense to answer it in a rigorous way. I attempted to do so here (http://andrewgbiggs.blogspot.com/2008/10/how-would-you-have-done-if-your-social.html) and found that a person who'd had an account their full career and retired today would have increased their total Social Security benefits by around 15%. You can argue about different assumptions and there are reasons other than stock market risk to oppose personal accounts, but the key point is to actually ANSWER the question. In this case, despite how badly the market has done recently, the answer is that you'd very likely have come out ahead.

[plankbob]

In the Big Rock Candy Mountains
There's a land that's fair and bright
Where the handouts grow on Bushes
And YOU sleep out every night...

That's the GOP to a T.