Yes, I’d say that pretty much sums it up. You do understand the plan.

dan, one big difference betwen the current plan and the proposed plan is the large slice of our money — your and mine— which will be going to line the pockets of Wall Street financiers as their “fees” for investing our money in one of the very limited set of “choices” we will be faced with.

Someone here suggested something about putting the money into government bonds. Now, that I could see as a potentially workable solution. In some senses, it’s much the same system we’ve got now, only instead of a nebulous pay-against-the-future set-up, we’d be putting the money into 10-year treasury bonds. Mmmm. Tasty, tasty 10-year bonds. Sure, the rate of return isn’t spectacular, but it’s–and this is a key point–SAFE, protected by the 14th Amendment.

As opposed to the open market. Where the regulators only work on alternate Tuesdays. Where the question isn’t whether the books are cooked, but whether the chef preferred to bake, broil, or flambe. Where the shower curtains for certain CEOs run upwards of $6,000 and the lawsuits can’t touch places of residence.

In other words, I’m sorry, but private sector accounts do not interest me–I’ve seen the stock market as a whole tank and take people’s dreams of retirement (not even wealthy retirement, just plain ol’ retirement) with it. Maybe if I had the money to play around with I’d get involved with Wall Street. Then again, I say much the same thing about Vegas.

@ dan: Basically, the plan that Bush has put on the table is that the gov’t advances you a loan, at 3% interest (to be paid back by reducing your defined benefits from SS) and you invest it. We’ll set aside, for the moment, the fact that NO FINANCIAL ADVISER ANYWHERE would ever advise you to borrow money and invest it. I’ll also leave out some of the big macroeconomic issues, like how the logic of the plan is self-contradictory, and the trillions in debt that would be incurred to start it up would have a good chance of sending us into an Argentina-style crash before we ever saw any benefits.

Here are the three most obvious problems with the piratization privatization plan:

1. The “higher returns” of index funds are only apparent if you average over time, and the details of when you get your best returns matter. A lot. If you start investing a few years before a crash, so your first few years are way-negative, but you make up for it later, then you’re fine. But if you have to retire just before or just after a crash, you’re screwed, because at that point you’re trying to withdraw money to live on — and because of the scaled-down size of your principal, you have to consume too much of it, and there’s not enough principal left to reap any benefits when the market starts going up again.

2. There are fees. The experience of the British in this regard has been that between 1 and 1.5 points of returns get eaten by the fees. (The entire Wall-Street Self Defense series is worth a look.) So you don’t have to beat 3% — you actually have to beat 4 or 4.5%.

3. Stocks ain’t what they used to be. In the 20th Century, we had abnormally high returns, because 1929 scared people so badly that they gave a huge risk premium to stocks and favored “lower-risk” investments. Now that the risk premium has been recognized, it’s been eliminated; people bid up the price of the stocks. Shoveling more money into the market will just drive up the price even further, which directly means driving down the yield (the “interest” that you earn through dividends and capital gains — it’s the return divided by the price of owning the stock).

You can tell this has already happened by the Price-to-Earning ratios. Historically, P/E was about 13, and yield was about 7% (0.07 == 1/13). Currently P/E is more like 20-25, and we would expect yield to be around 4% to 5%. So you’re at serious risk of not making the 4% to 4.5% you need in order to benefit at all under the Bush plan.

I’m all for a compulsory IRA — we already have all of the tax structure in place for that, and it wouldn’t require an expensive new bureaucracy and new places where the financiers could slip in fees and expenses. Australia’s had a mandatory savings system for a decade, with no ill effects detected. But carve-out plans, that basically kill SS to finance an investment system are a BAD idea. Investing is never a sure thing, and unless you have a LOT of money to start with, it’s not a substitute for having a secure job and a guaranteed-benefit pension like Social Security.

While I’m listing problems with privatization:

SS saves a lot of money because it only has to plan for the average retirement. If you plan for the average retirement, and then you live to be 105, you’ll run out of money long before you die. If you want enough savings to last til the 90th percentile of the age distribution, you’ll need to save twice as much money as the average person needs. And you’ll still have a 10% chance of being broke before you die.

And, lastly, there is, in fact, no crisis in SS’s current funding. (I’m linking the final post in a series. If you don’t understand it, try clicking back through the links a bit. Basically, his point is that if you look at the annual reports from the SS trustees, the date at which the Trust Fund is supposed to be exhausted moves outwards faster than one year per year; the estimates of how much economic growth would be needed to make SS run forever have generally been lower than actual growth; and the estimates of how much of a tax hike, today, would be needed to make SS run forever have been going down, instead of up, as you’d expect if there really was a funding shortfall.)

So the Bush League wants to pile on the debt, stacked tall against what they’ve done already, to fund these new accounts. Nobody gets hurt in the new plan because deficits don’t matter to the new conservatives. All goes into the markets; the Japanese and Chinese wake up to their funding of these and other games via Treasury purchases. They run for the exits; dollar crashes as do the markets; hello 1929 again. With continuing fat, non-negotiated account management fees….there’s not much left.

But I supose I’m just a worrrying, freedom- hating Red Depends Baby liberal.

What I’ve been hearing, and I am open to the possibility that my hearing is bad, is that Social Security is going to run out of money.

The solution, apparently, is to take the money that is now being put into Social Security and put it into a system which gives individuals more control over the funds. What I don’t understand is how this new system results in more money. Isn’t the amount of money going to be the same wether it goes into Social Security or into the new system. In fact, won’t the new system have less money because some of it will be taken up by fees paid to people who will “manage” the new system?

So, I guess I must be missing something, but can someone explain how the new system would solve the “crisis”?

Thanks.