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Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5267  
Subject: Re: Social Security Reform -- I'm Confused Date: 2/11/2005 3:05 AM
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From a financial planning standpoint, would one be better off with the income stream of the current system or the benefits proposed by the President?

Workers would get both a reduced SS benefit, and a private account.

Every oppostion analysis focuses on either one or the other of these and concludes that it is not as good as the current SS. Duh! Of course it isn't, but if you add up both parts it is a better deal.

As I understand it, if your total income, lower than current SS plus any pension, would put you under the poverty line, you would not be able to take the private account as a lump sum, but would have to buy an annuity with it. An annuity would pay much more than 4%, because it has no residual value at death. Think 7 or 8% minimum, and I have seen some at 10%. Inflation adjusted annuities pay less to start, but still more than 4%, think 5-6% depending on age. This plus the reduced SS, would surely be more than a worker would get from the current SS formula.

If you income in retirement was more than the poverty line, then you would be able to take you private account as a lump sum.

When critics say that the annuity doesn't allow inheritance of the private account, they are being deceptive. It doesn't if a worker is poor & retires, but if poor person dies before retirement, the private account is inheritable.

I don't see anything wrong with forcing workers who have less retirement income than the poverty line to buy an annuity. They have already demonstrated that they are poor financial planners, and there is a very high probability they would spend a lump sum quickly and end up on welfare. With the annuity they will get higher total lifetime income than with "traditional" SS.

If they were good financial planners they would have retirement income above the poverty line.

Conversly, good financial planners are rewarded by being able to manage all of their private account in retirement. They have already demonstrated that they are good financial planners.

This drives Democrats nuts -- the concept of rewarding achievement and taking control over only those who demonstrate poor planning.
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