The Wonk Room

2008 Retiree Would Have Lost $26,000 In Bush/McCain Style Private Social Security Account

The wild stock market fluctuations have wiped out $2 trillion in private retirement accounts in the last 15 months.

If John McCain and George W. Bush had had their way, millions of worker’s Social Security benefits would have been at risk.

To illustrate this risk, a new analysis from the Center for American Progress Action Fund finds that a retiree with a private Social Security account invested in stocks, along the lines of those proposed by President Bush and supported by John McCain in 2005, would have lost approximately $26,000 if they had retired on October 1, 2008 after 35 years of contributions to such an account.

Read the full analysis here.

But it could have been even worse. If the U.S. economy had undergone a decades long slump and performed like the Japanese economy over the past 35 years, the account would created a loss of almost $70,000.

In a rosier scenario, if the U.S. market had performed like the German market, a worker would have made almost $40,000 in their account. But this radical unpredictability is precisely the reason why draining trillions from Social Security to pay for these accounts is a very bad idea.

Check out a review of what the research from the 2005 Social Security privatization debate can tell us about John McCain’s plan to put retirement security on the stock market here.

To oppose the privatization of Social Security, sign the “Golden Pledge” here.

2 Responses to “2008 Retiree Would Have Lost $26,000 In Bush/McCain Style Private Social Security Account”

1. woessner Says:

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   The report cited is DEEPLY flawed. The author did not consider the effects of dividends OR dollar cost averaging. In essence, he considered buying a broad-base index fund in 1973, squandering the dividends for 35 years and selling it in 2008. In that very specific case, yes, the real return was only 2.4%.

   HOWEVER, once you factor in dollar cost averaging and reinvesting dividends (like people investing for retirement do), you get a very different answer. The real return comes out to 6.55%, which is 3.55% higher than the “clawback” in the proposal to privatize Social Security.

   Let’s see… 3.55% compounded over 35 years… that’s a lot of money.

   October 17th, 2008 at 2:59 pm

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2. Ricardo Cobos Says:

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   The author cited the loss but didn’t cite the total value of the account or contributions and net gains the account so it is really a hit job on social security reform.

   After all – the alternative for someone like me who is 38 and has been a high income earner for the past 8 years and has maxed the contribution to social security and has also contributed since I was 20, if social security even exists; when I am 70 I will receive $2200 per month!!!! I’ll take the 26,000 loss thank you because an account with Madoff is looking more appealing than Uncle Sam!

   January 19th, 2009 at 7:50 pm

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