Paul Krugman has crowed in several NY Times articles about how bad the Chilean private account system is compared to our SS system. How the mgmt fees associated with these Chilean accounts left the pensioner with a pittance. Here is an article by an author who took his SS earnings statement to Chile to find out how well he would have done if he were able to invest in a private account equivalent to the Chilean system.After reading this article, you will understand why some people believe private accounts to be superior to the current Ponzi scheme called Social Security --- they only deliver 3x the SS benefit!...http://www.nytimes.com/2005/04/26/opinion/26tierney.html?The Proof's in the PensionBy JOHN TIERNEYPublished: April 26, 2005SANTIAGO, ChileI made a pilgrimage to Santiago seeking to resolve the Social Security debate with a simple question: What would Pablo Serra do?I wanted to compare our pensions to see the results of an accidental experiment that began in 1961, when he and I were friends in second grade at a school in Chile. He remained in Chile and became the test subject; I returned to America as the control group.By the time we finished college, both of our countries' pension systems were going broke. Chile responded by pioneering a system of private accounts in 1981. America rescued its traditional system in the early 1980's by cutting benefits and raising taxes, with the promise that the extra money would go into a trust to finance the baby boomers' retirement.As it happened, our countries have required our employers to set aside roughly the same portion of our income, a little over 12 percent, which pays for disability insurance as well as the pension program. It also covers, in Pablo's case, the fees charged by the mutual-fund company managing his money.I visited Pablo, who grew up to become an economist, at his office at the University of Chile and showed him my most recent letter from the Social Security Administration listing my history of earnings and projected pension. Pablo called up his account on his computer and studied the projected retirement options for him, which assume that he'll keep working until age 65 and that the fund will get an annual return of 5 percent (which is lower than its historical average). 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.(3)Retire at age 65 with an annual pension of $53,000 and a one-time cash payment of $223,000.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...."I'm very happy with my account," he said to me after comparing our pensions. He was kind enough not to gloat. When I enviously suggested that he could expect not only a much heftier pension than mine, but also enough cash to buy himself a vacation home at the shore or in the country, he reassured me that it would pay for only a modest place.I'm not sure how much consolation that is, but I'm trying to look at the bright side. Maybe my Social Security check will cover the airfare to visit him.
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