No. of Recommendations: 5
In some ways it makes sense -- those who are still far from the "finish line" have much more time to come up with other options for retirement savings.

The problem is, Bush's privatization plan number assumptions just don't do what he claims (similar to his medicare prescription drug benefit). He claims that a 3% return over the rate of inflation in private accounts will match his proposed decrease in benefits. Those numbers are just plain wrong. I have only run the numbers for my own situation (54 years old), but here is what I came up with:

His proposed private account contributions: ~$ 8,000

Private account balance @ 66 (6% return rate) ~$10,000

Private account withdrawal @ 4% annually $ 400

His proposed 9% decrease in annual SS benefits: $ 2,182

Annual Shortfall $ 1,782

Additional balance needed to cover shortfall $45,000

Addt'l annual savings required (6% return rate) $ 3,000

(Contributions to private accounts don't start until 2009--that's only 8 years before I retire at 66.)

Even with a 6% rate of return, that $8K will only buy a safe annual withdrawal of $400. Therefore, the balance of $1,782 has to be made up some other way. At a safe withdrawal rate of 4%, it requires ~$45,000 in savings.

At the same return rate of 6%, that would require additional annual savings of $3,000. I just think there are many folks who can't come up with those extra dollars. (I'm already saving 50% of my net income, so it would be a difficult thing for me to do also)

These numbers also assume that everything goes well, and a 6% return rate is 'money in the bank', but we know that returns over short periods like this can fluctuate wildly, and that timing counts. So, if everything doesn't go as well as we're assuming, the scenario becomes even worse.

It wouldn't surprise me if the same calculations done for younger folks would show the same glaring realities. (I believe the SS benefit reduction for folks in their 20s is somewhere around 50%)

In short, Bush's proposal just doesn't hold water. He's lying when he says that private accounts make up for the shortfall in benefits!

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